Why there’s no sell-off
by Peter Switzer
We’re setting ourselves up for a big jump in stocks, or else another “here we go again” big slide like last year when August and September really knocked around our portfolios and our wealth. One big inclination you can’t ignore is that there’s no fear, which means key market makers, or breakers, have their fingers on the sell buttons.
That said, the S&P 500 index, which was virtually flat overnight at 1403.93, is staring at a new resistance level of 1410 or so and this could explain the becalmed nature of the US stock market in the absence of a big news story. As I have been pointing out, the market expects and wants Mario Draghi of the European Central Bank (ECB) to deliver good news early September and it looks like the key players are not willing to bet against him this time.
Helping them hold their nerve is an array of good to OK news titbits such as:
- French and German GDP came in better than expected
- The GDP data was still weak enough to confirm market suspicions that the ECB and policymakers will have to opt for stimulus measures soon.
- The German DAX was up 0.94 per cent while the French CAC 40 put on 0.7 per cent.
- In the US, retail figures were up for the first time since February.
- Producer prices in July spiked at best pace for five months.
- On the local front NAB business confidence went positive and rose for the first time in three months
- Cyclical stocks are starting to come off their lows, which could be a solid, positive omen.
Add this to more and more commentators who are becoming more bullish and we have a more convincing picture that the stock market is the place to be. Also, brokers in the US are starting to see more clients with big holdings in cash get nervous about missing a big jump in stocks and that’s putting a floor under stocks as well right now.
That said, if Draghi duds out, there could an outpouring of emotion that will express itself in a big, BIG sell-off. My belief is that he knows this time he can’t disappoint and I also believe the Italian PM, Mario Monti, has put pressure on the Germans by playing the “Italy could leave the euro” card if the eurozone leaders don’t change their stance on stimulus and buy bonds of the likes of Italy and Spain.
This is a very important trump card.
Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.
Published on: Wednesday, August 15, 2012
The Switzer Super Report is a newsletter and website for self managed super funds. With exclusive commentary from Peter Switzer and Paul Rickard the Switzer Super Report will help you maximise your after tax investment returns and grow your DIY Super. Click here for a free trial or subscribe today.