Weekly Update-September 9, 2012

By: Michael Vodicka

“Bad news means the central banks will stimulate and good news means things aren’t as bad as we thought. Either outcome supports stocks.”

Stocks blasted higher on Thursday, snapping a two-week losing streak on news that the European Central Bank would begin a fresh round of bond buying.

The bullish move higher lifted the averages to a new 4-year high.

As you can see in the chart below, the S&P 500 had been stubbornly hanging out just below the old multi-year high for the last two weeks. There was some consistent downward pressure, but investors kept buying every dip and bidding prices higher. Also note how volume has steadily been declining. Lower volume is not good for the market in general. Take a look below.

The break higher was driven by well received news out of Europe, with the European Central Bank announcing it will unleash another round of bond buying. But other than that, the economic data continues to look weak. We saw a disappointing jobs report on Friday and more signs of slower growth in China.

But that’s the catch with the market right now. It’s looking totally bullet proof. Bad news means the central banks will stimulate and good news means things aren’t as bad as we thought. Either outcome supports stocks.

So for the time being, in spite of serious problems with the global economy, stocks continue to climb a wall of worry.

Looking forward, we’ve got a big Fed event this week, with the market once again crackling with anticipation that the most powerful central bank in the world will release some more monetary stimulation. The Fed has stated that its #1 concern right now is slow jobs growth. We just fielded a terrible jobs report on Friday. That gives Chairman Bernanke more room to accommodate.

And keep in mind too, Ben Bernanke would be happy to juice the market right ahead of the big November election. Mitt Romney is on record saying he will fire Ben Bernanke if he is elected. A strong market is good for incumbents.

Beyond the Fed, the first half of the week is a bit light on data but that will change quickly on Thursday and Friday with some important inflation and consumer data.

  • Thursday-Producer Price Index
  • Friday-Consumer Price Index, Retail Sales, Consumer Confidence

 

September is historically the weakest month of the year, but the first week in and stocks are looking strong. There’s plenty of things to worry about, as always, but with the market expecting more liquidity from the central banks, stocks and commodities have been on the move and the trend is still higher.

Updates:

With the market running a high fever waiting for more monetary stimulation from the central banks of the world, Double Gold (DGP) posted an outsized gain of 9% on the week. Gold had been languishing for most of the year, but has recently caught fire as the market continues to price in more Fed action. Gold has been up for the last ten year, and with the trend strengthening into the end of the year, it looks like that streak is about to be extended to 11.

Apple, Inc. (AAPL) was also a winner on the week, adding 2% and hitting a new all-time high above $680. The iPhone 5 is set for release in a few weeks so that should give shares another boost in the short run. And longer term, the holiday season is usually Apple’s strongest,another tail wind for the company and its share price.

With risk falling back in favor, small cap and emerging market stocks caught a bid. That lifted CPFL Energy SA (CPL) to a solid 7% gain on the week. This Brazilian utility company also carries a hefty yield of 7.2%, offering a unique combination of growth and income.

That’s all for this week. But as a follow up to the gold conversation here is an article discussing how Russian Prime Minister Vladimir Putin is stockpiling gold. This gold scene is already hot and only getting hotter. Enjoy.

Putin Stockpiling Gold

Your Investment Partner,

Mike

Michael Vodicka is the president and founder of the Vodicka Group, Inc., a Registered Investment  Advisor  (RIA). He specialized in trading fixed-income derivatives at the Chicago Board of  Trade before  spending five years managing equity portfolios for a private investment research company.

Michael graduated from the University of Kansas with a degree in business communications and is registered with the State of Illinois and the SEC (Securities and Exchange Commission) as a Licensed Investment Advisor (Series 65).

ABOUT THE AUTHOR

Michael Vodicka

Michael Vodicka is the president and founder of the Vodicka Group Inc., a licensed investment advisor (Series 65) and a financial journalist.