The S&P 500 and NASDAQ 100 broke through resistance to signal a primary advance. Dow Industrial Average has yet to confirm. Timing of the breakout is significant, with November elections looming and the Fed doing its best to prime the pump. September/October is a tentative time of the year, with risk of a “Spring sell-off” following the quarter end, as in 2007. Traders may ride the “election rally” but investors need be more cautious. The market is being driven by macro-economic signals (quantitative easing) rather than earnings.
All is not well: Europe is in recession, China headed for a sharp contraction, and some tough choices will have to be made in the US after the election euphoria is over. Balance sheet expansion (QE) by the Fed, ECB and PBOC is likely but inflation will be muted by private sector deleveraging. And QE will be scaled back as soon as credit contraction eases.
The S&P 500 broke through resistance at 1420 to signal an advance to 1570*. A 63-day Twiggs Momentum trough above zero reflects the primary up-trend. Retracement that respects support at 1400 would confirm the signal.
* Target calculation: 1420 + ( 1420 – 1270 ) = 1570
Dow Jones Industrial Average is testing resistance at 13300. Breakout would strengthen the S&P 500 signal. Rising 13-week Twiggs Money Flow indicates buying pressure.
