Of course, it certainly helped investor sentiment when Google turned in a stellar earnings report. The stock gapped up $200.00 on Friday and joined Priceline (PCLN) in the $1,000.00 club:
The recent loss of confidence in our political system engendered by the circus we witnessed in Washington along with the prospect that the Fed will not be reducing asset purchases anytime soon is wearing on our Dollar:
While we will never see the all time lows in yields we saw in July, 2012, there is nothing on the horizon that would suggest a spike in interest rates. I've covered the implications of higher rates in many of my recent commentaries but for those who might want to understand why we will not see significantly higher rates in the immediate future (next six months) go here.
Gold had an interesting week. The consensus view of the yellow metal (which I agree) believes that, with political tail risks subsiding, it has much more downside in the current economic environment we find ourselves in. However, on Thursday morning, between 2:45 and 3AM EST, a wave of orders to purchase $2.3B worth of gold caused the futures to spike $40.00! Some attributed this move to a credit downgrade of US debt by China's Dagong Global Credit Rating Agency. And while I cannot dismiss this as a valid reason, the Dagong Global Credit Rating Agency and its pronouncements have very little clout in international markets. Nevertheless, the spike breathed some life into gold and gave it a much needed bounce. Here's a daily chart of the Gold spot price:
Anyone who reads my commentaries regularly know I've been following commodities, especially industrial commodities, very closely in order to determine whether the global "reflation trade" is gaining any traction. There is really nothing substantive to report this week other than the fact that I believe commodities are stirring a bit. Here's a weekly chart of the Dow Jones UBS Industrial Metals Index ($DJAIN):
1. Friday's price action formed a gap which, in a technical sense, has put a floor under the index. Unless the gap is filled next week it essentially becomes new support.
2. The bottom panel is the price of the Russell relative to the S&P 500. The white arrow delineates its out performance relative to large cap stocks which is a very bullish indication. Since small cap stocks are more speculative, their out performance versus their large cap brethren indicates a confidence in the economy and that "animal spirits" are very much alive in the market which is a very healthy sign.
3. The top panel is the RSI (Relative Strength Indicator) and although we're approaching overbought territory we are not there yet, which suggests there's more room to run.
So, here are my price projections for the S&P 500 based on Fibonacci price extensions. First of all, I've predicted 1800 by year end but have reassessed that prediction just on Thursday and Friday's price action. The divergences identified above on the S&P suggest a rest is due but there is no way to tell whether we'll get one.
My first Fibonacci extension has a price target of 1752.54 (1.272 extension). At the rate we're going we may be there by Monday afternoon.
The second target is 1781.40 (1.618 extension) and the third target is 1864.79 (2.618 extension). Considering that Fibonacci retracements and extensions are amazingly accurate but often not exact resistance or support levels, I am comfortable in raising my price target on the S&P to 1860 by year end.
In the short term, I wouldn't be surprised if we see stocks stall and consolidate at around 1752 which could be next week. But I also sense that we're coming into a period of calm where we start to see the slow, steady grind higher we've experienced over the past few years when the market was not encumbered by "tail risk" events.
So, get ready for the Christmas rally! Life is good!
Have a great week!