Home About Archives RSS Feed

@theMarket: The Line in the Sand

Bill Schmick

It would seem that a low-volume battle is being fought over that 1,130-1,150 level on the S&P 500. As I expected, the break above 1,130 occurred this week and now the bulls have to defend it while attempting to push up above 1,150.

Actually, the S&P reached an intra-day high of 1148 this week. That is the highest level since May 18. Readers may recall that the present correction and subsequent trading range in the markets began with a decline in late April from a high of 1,219. Last week, I wrote that the S&P 500 would break above this trading range.

Also last week I raised my price targets on gold (to $1,350 per ounce) and silver ($36 per ounce) as well as other precious metals. If those metals continue to steamroll higher, I may have to bump up my estimates in the weeks ahead. Both metals continued to make new highs after the Federal Reserve on Tuesday said they were ready to increase their quantitative easing measures a second time if the economy continued to slow. Investors obviously are betting that QE II is in the cards because both commodities took off just minutes after the meeting.

"Explain that to me," asked one client over sushi at Shiro's this week.

Quantitative easing, for those who are unfamiliar with the concept, occurs when the Fed buys securities (in this case, Treasury bonds and mortgage-backed securities) in an effort to inject more money (stimulus) into the economy. Of course, more money in the system can mean higher inflation down the road if that money is used to buy goods and services. So far, that has not been the case.

All that money continues to sit on the sidelines, earning next to nothing because the banks and corporations are afraid to spend it. Since market participants discount today's actions into the future, investors are assuming that QEII will happen and, at some point down the road, that money will be spent. That will almost assuredly trigger a higher Inflation rate, so buy gold and silver now in anticipation. Of course, the best laid plans sometime go awry. Since gold and silver, along with other commodities, are generating big returns, most players are buying first and asking whether it's a good move later.

While commodities take center stage, the bulls and the bears stand toe to toe. Between them, is drawn a line in the sand that could determine whether this market rolls over once again and trades down 10 percent, or continues higher, maybe back to the April highs. I'm betting higher for now. What the bears don't understand is that the game has changed. The Fed has basically given investors a "put" on the market. Either the economy continues to grow or the Fed will come in and backstop the economy with QE II.

0 Comments
Tags: securities, metals, commodities      

Support Local News

We show up at hurricanes, budget meetings, high school games, accidents, fires and community events. We show up at celebrations and tragedies and everything in between. We show up so our readers can learn about pivotal events that affect their communities and their lives.

How important is local news to you? You can support independent, unbiased journalism and help iBerkshires grow for as a little as the cost of a cup of coffee a week.

News Headlines
Letter: Vitamin D May Provide Covid-19 Protection
Pittsfield Council Rejects Call to Refer Investigations of Restaurants
Drury Graduate to Direct Horror Film in North Adams
Pittsfield Gets $475K for Second Installment of Block Grant Funds
Anheuser-Busch, Girardi Distributors Donate Water to Clarksburg Firefighters
Community Recreation Association To Hold Food Drive
Williamstown Housing Trust Looks to Spread Word About Rental Assistance Program
Berkshires Could See Mix of Rain/Snow Overnight
Central Berkshire Regional School District To Remain Remote
Pittsfield Police Investigating Discharged Weapon Incident
 
 


Categories:
@theMarket (354)
Independent Investor (450)
Retired Investor (26)
Archives:
January 2021 (1)
January 2020 (5)
December 2020 (6)
November 2020 (8)
October 2020 (7)
September 2020 (6)
August 2020 (6)
July 2020 (10)
June 2020 (7)
May 2020 (9)
April 2020 (9)
March 2020 (5)
February 2020 (7)
Tags:
Deficit Debt Stocks Crisis Economy Election Europe Taxes Greece Fiscal Cliff Housing Japan Retirement Congress Euro Oil Wall Street Europe Pullback Jobs Metals Selloff Energy Federal Reserve Stock Market Bailout Rally Debt Ceiling Banks Interest Rates Commodities Stimulus Markets Currency Recession
Popular Entries:
The Independent Investor: Don't Fight the Fed
@theMarket: QE II Supports the Markets
The Independent Investor: Understanding the Foreclosure Scandal
The Independent Investor: Does Cash Mean Currencies?
@theMarket: Markets Are Going Higher
The Independent Investor: General Motors — Back to the Future
The Independent Investor: How Will Wall Street II Play on Main Street?
@theMarket: Economy Sputters, Stocks Stutter
The Independent Investor: Why Are Interest Rates Rising?
The Independent Investor: Will the Municipal Bond Massacre Continue?
Recent Entries:
The Retired Investor: Asia: The Investment Case
The Retired Investor: Where Have All the Christmas Trees Gone?
The Retired Investor: Oil's Comeback
@theMarket: Same Old Stimulus Song
The Retired Investor: Markets Ignore China Sanctions
@theMarket: Markets Bet on Stimulus Sweepstakes
The Retired Investor: Bitcoin Is Back
@theMarket: Market Cyclicals Take the Lead
The Retired Investor: Pandemic Has Been Good to Pet Industry
@theMarket: Markets Are in a Tug of War