Market Summary

It has been a very good week in the markets as this bullish rally continues. We broke out above the April 2010 highs with strength as the Fed announced its monetary policy of a 600 billion dollar stimulus and the Republicans gained control of the House. As can be seen on the daily chart of the S&P 500 below we are breaking out above former highs and are likely to go higher. Click on chart to enlarge.

When a daily chart high is taken out we must look to a larger time frame on a weekly chart for the next level of resistance. As can be seen on the weekly chart of the S&P 500 below the next level of resistance is the 1300 mark. What is interesting on the chart below is the formations of a huge cup and handle formation as well as an inverted head and shoulders formation. Both these would indicate we are going higher with the inverted head and shoulders formation pointing to a target in the 1430 range. As I mentioned two weeks ago the current rally occurred after the Fed speech Ben Bernanke gave August 27, 2010 and it is clear that monetary policy is moving the markets higher. With the flow of money being printed by the Fed it is likely we will go higher but it is also likely we will get inflation. Commodity prices have soared and are the place to be to take advantage of this situation. Rising lumber prices indicate rising housing price about a year down the road. China is the beneficiary of a strong US economy however they are raising their interest rates as we are lowering ours strengthening their currency as we weaken ours. Inflation of prices without wage inflation, which has been flat for 30 years, is likely to put strain on consumers. How all this plays out we will just have to wait and see.

As can be seen on the table below a majority of the funds are green in the YTD column. That is a good sign. Gold and the small cap index continue to top the list for the year. For the week, oil and China made the best gains. Click on table to enlarge.