Sep 9, 2011

Markets Set To Rise



Just before the sell-off one month ago I predicted recent market drop in the post Next market wave and signalled it in June post S&P Technical Outlook. Actually it was not me but the Elliot Wave Theory used in the analysis. Current market condition suggests that applied wave analysis was correct, which leads to the question regarding next market move. There are clear signals that latest correction shaped fourth wave. Considering that and if we assume it bottomed out at 1072 we should be at the beginning of new bullish market - the last fifth wave of the theory. 

S&P 500 just finished 4th wave
Chart Source: stockcharts.com

Recall last correction (third wave), which lasted 4 months, we should be in the middle of current pull back. That statement is supported by weak macro data and huge uncertainty about further easing from FED. According to Bernanke's statement inflation is "on its way down" thus indicating that possibility of implementing stimulus package is rising although its shape is expected to be different from last two QE's. Meantime President Obama signalled new jobs plan which is claims to support hard hit labour market. $447 bln Jobs Stimulus Plan includes investments in infrastructure and tax vacation for small businesses. The plan is going to be financed with next decade tax increases. Last proposal disappointed markets yesterday and they reversed the initial rally. 

Historically September and October have been crucial for the markets. If mentioned above policies are implemented they could be positive for the financial markets and thus give a boost, completing last fifth wave from the bull market started March 2009. The correct policy at the moment is not austerity sacrificing the growth but shоrt term stimulus in order to stabilize the fragile economy and after is generates enough growth followed by long term consistent austerity measures.


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