SP500 comment and EURUSD FX.

The SP500 continues its progress, the strong gains yesterday (on good volume) were paired back into the close, however futures are showing a strong performance in overnight trading. The Bank Index again failed to maintain a break over 48.00 having opened above there in the morning, this is something I still feel should be watched with half an eye. Just as an aside, I do not often mention market commentators, as I feel that an awful lot of them blow their own trumpets loud enough, but occasionally there are one or two who I follow and read whom I feel are worthy of a mention. One who I have mentioned on a couple of occasions this year is Doug Kass, I have read his commentaries for many years, and though he does not get all this calls right (who does), I do take notice when he makes a point, take his July call for example when he said that he feels that a low is in for the year in Stocks, not bad considering the world and his wife were bearish at that point. BTW he does not think QE2 will work, but then that is probably a story for next year.... Anyway I digress, the commentator I wish to mention is 'Mike Swanson' of Wall Street Window, if you have time have a look back over his commentaries of the past couple of years (Can be seen by clicking the Recent Articles Link on the Right Hand Side of his page). I find that his commentaries are extremely well written and presented and his arguments and forecasts stated in a clear and sensible manner. 

I have taken a couple of excerpts which stand out to me. The first one is from July 2009

This Is A Bull Market - Mike Swanson (07/27/09)
It is tough to really tell how high the market may go up or for how long, but my guess is that we'll at least see it go up into the first quarter of 2010 and we could easily see the S&P 500 go into the 1150-1250 by then. 1150 would be a 50% retracement of the high of the Fall 2007 and the March 2009 low after that who knows.

The second one from January of this year.


2010 Stock Market Money Map

I suspect the market will trade in a wide 15-20% range for most of 2010 during which people will
get overly bearish on the pullbacks and too excited on the rallies. The problem is most people will either be too bullish or bearish during this time and will end up getting shaken out of their positions or trying to trade too much. The bulls will try to hold on too long while the bears will make the mistake of thinking every temporary dip is a new crash. They didn’t realize that the market environment had
changed, because they focused on their own hopes and the news instead of real market trends.
I don’t want to give you my guesses, but only keep you informed on what the stock
market is really doing and when it comes to the stock market the most likely thing it is going to do is go sideways in the first half of 2010 and then make a big move one way or the other towards the end of the year. And that is enough to know to make big money.

Moving on to the currencies.


EURUSD
The EURUSD has broken up through 1.4000 (and 1.4100 as I write), following a pause and small correction last week. - It is quite possible that this is going to continue rallying for a few more weeks (helped by prospects for QE2). The weekly chart below highlights the current EURUSD. The rally following this consolidation has taken this clear of the 61.8% Fibonacci correction and this may well now be heading to at least the 76.4% correction at 1.4375. What  is interesting is that this level is close to a cluster of other resistances and levels. The main one, not shown on the chart below, is the line connecting the summer 2008 highs and the late 2009 highs, this crosses in the next few weeks at around 1.4560/70. Then there is the Dec 2009/Jan 2010 congestion from 1.4270/1.4580, the 61.8% correction of the decline from the 2008 high to the 2010 low is at 1.4448 and resistance from the top of an Andrews Pitchfork occurs around 1.4570 (that level again). - I believe yesterdays low at around 1.3913 should be critical for the rally to continue (In the short-term)  - finally, there is also a large sloping Head + Shoulders pattern on the weekly, which projects this higher to 1.4800 - 1.5000.- (The chart below highlights most of these points).

Also of interest is the Monthly Chart. I have attached a copy of this below. It appears the failed breakout in Q2 of this year may actually have been a signal of a huge Failed 'Head + Shoulder' pattern. If this does turn out to be the case then this has strong Long-term bullish implications for the EURUSD, with a strong risk of new all-time highs for the pair, particularly if the high from last December in the low 1.5000s cedes. What I like about this is there is also quite a strong Fundamental rationale for this to occur. Put simply the Fed may be close to making inflation a goal, whilst the ECB (Pseudo Bundesbank) would never countenance that in a hundred-thousand lifetimes of the planet Earth. Given that inflation devalues a currency considerably, which currency would you want as a store of value, given a choice of the two.