Kicked off November, citing, “ US vs. EUROworld “, in a Journal title. This theme has been prevailing for the last 4 weeks into year-end as US economy goes one way, while Europe goes another. Fortunately, one thing that was not diverging last week is the markets of the two as many relevant Eurozone ‘band-aid’ headlines hit during the week creating positive sentiment all around. Expectation is for more as cited last week.
‘Hope’ is back, just like it was in October leading up to summits only to disappoint afterwards. The question is can the 7% recovery continue and mirror even remotely close to the 20% rally from October. It may seem like a stretch, but the markets have this week before summits to extend the 7% gains, the market will be ‘ headline’ driven with policymakers seemingly on the right path.. Friday, it was ECB Draghi’s comments noted here Friday that could be the game changer ahead. If trader’s think it will end in disappointment like in Late Oct/early November/ summer June-July and strategize for such may be disappointed as there is a big difference this time so far. What is it? Well, it’s the tear in Eurozone bonds late last week that was not present in the former rally moves. This is a big market difference and it is the thing to watch going forward to get a feel for the equity market direction. Again, investors want action not speculation as pointed out before. Therefore if no magic bullet occurs, the ‘band-aids’ actions so far should be enough to keep sentiment positive among investors. A break of 1265 could be a fast run to 1300. The way market moves these days, it’s really not that much. Unfortunately, unless you trade ES after hours, you need to be invested overnight to make gains as most of the SP moves occur 1 hr ahead of the open and afterwards meanders most of the day.
In all, the upside risks for more action (steps) outweighs any possible ‘intraday’ political maneuvering headlines we may hear during the week that may be perceived as negative intraday. Add, seasonality, underperformance by managers and the fact US eco’ data is solid should be enough keep equities sexy as noted last week.