What, Me Worry?
That may be the mentality of stock index futures traders, as Dow Jones futures surged to an all-time high yesterday afternoon. The rally in the U.S. stock market comes despite predictions from leading experts that the chances of the U.S falling into a recession remain 50/50, and talk from leading fund managers that the Fed has not yet restored confidence in the U.S. credit markets. The U.S. housing market remains mired in a slump, with a report out this morning expecting to show that pending home sales fell to their lowest levels since the index has been calculated starting in 2001. So why are investors enamored with stocks again? One possible explanation might be the changing focus by the Federal Reserve from inflation containment to general prevention of an economic slowdown. The 50 basis point rate cut in September signaled that the Fed is willing to tolerate some moderate increases in inflation in order to prevent a recession in the U.S. This gave traders the confidence to move assets back into the stock market –especially multi-national blue chips – on the belief that the Fed will continue with its “accommodative” stance and keep interest rates low for the foreseeable future. Whether this tactic works and prevents a rapid slowdown of the U.S. economy or just fuels another speculative “bubble” in securities is still unknown, but for stock index bulls it’s “let the good times roll!”
Looking at the daily chart for December mini-Dow futures, we notice traders still in a buying mood after yesterday’s record-setting session. Prices are well above all the major moving averages, and momentum remains strong. The 14-day RSI is now in moderately overbought territory, with a current reading of 81.67. Yesterday’s highs of 14198 will act as resistance, with support found at 13782. In early trade, December mini-Dow Jones futures are trading at 14166, up 9.
Mike Zarembski, Senior Commodity Analyst
