Should The September 2012 Rally Be Faded?
The stock market has begun the month of September with a strong rally due to expectations the Fed Reserve Bank will ease along with other central banks around the world. Market participants are also expecting equities worldwide to rally because of the ECB bond-buying program announced by Mario Draghi last week which will be sterilized and unlimited. Is this enough to keep the major indexes rising or could a correction in equity prices occur in September 2012?
Our current analysis shows the stock market has more room to move higher but we are not sure if the rally will breeze through September 2012 unabated without a slight pullback/buying opportunity. Apple is launching a new iPhone which is good for the markets and as a major part of the S&P 500 as well as the NASDAQ, this is a strong reason to be bullish.
Small cap stocks have jumped past a level we considered to be significant. We stated earlier that if the IWM -small capitalization exchange traded fund moved past 83.00, this would be a signal for a continuation of the rally.
“A true rally exists when traders and investors are more focused on price as opposed to yield. The bond market has been an good example of this for the last few years as it has recently been paying a negative dividend. The IWM small cap index above $83 could be a sign more upward momentum is in this rally.”
We followed this up with more small cap technical analysis early last week before Draghi unveiled the bond-buying program.
The NASDAQ made a decisive turnaround today while the small cap exchange traded fund IWM is close to $83 per share which also gives us more reasons to be positive on equities as more market participants return from vacation and chase performance.
A strong pullback in tech, financial and small caps would be a signal to take a defensive posture and cause us to be more neutral on U.S. equities. Too many traders missed opportunities this summer and could chase performance but some will be betting on the market to fall after such a sharp rally which would be a good buying opportunity.