Thursday, July 26, 2012

What a difference a day makes ...

Global markets rallied today on news that ECB President Mario Draghi stated that the ECB will do everything it can to bolster periphery credit markets.  The street took the statement with a fair amount of skepticism but I didn't.  Draghi is no EU bureaucrat from Brussels.  He's a man of character who means what he says and he won't be bullied; especially by the Germans.  The two LTRO's (Long Term Refinancing Operations) he implemented as ECB President prove my thesis.  The Germans were not pleased with these operations yet he moved forward with them nonetheless.

So, we have the ECB all but promising to open the liquidity spigots and the FED is all but sure to initiate another round of QE (quantitative easing) within a month.  You don't have to hit the stock market in the head to sit up and pay attention and that is what today's rally was all about.

I'll have much more on this subject in my commentary this weekend but we have had a fundamental short term (and maybe intermediate term) change in market sentiment.

The S&P 500 formed a nice long candlestick today (black arrow):

(click on chart for larger image)

We will need to see the S&P re enter the ascending channel I've drawn (purple dashed lines) but I suspect we'll see follow through tomorrow on today's strength.

But here's what I believe is the coming big story:

This is a weekly chart of the SPDRs Gold Trust ETF and it is breaking out of a downtrend channel it's been in for at least 21 weeks.  Gold is starting to sense money printing!

Now, we still need some confirmation.  Here's a daily chart of the spot price of Gold:

We need a breakout above the yellow line on the chart ($1,625.00).  We got close today but backed away, probably for the same reasons the street was skeptical of Draghi's comments.  But the signals from the FED and the ECB are clear.  They're going to prop the markets up ...