Recovery?

4/27/08

Investors may wonder how the market can possibly rally when economy is hanging on the ropes of death. The big money is not betting on the economy it is betting on inflation. Investors and financial markets response to low interest rates from the Fed is to borrow all that they can invest in real assets in anticipation of rising prices. This makes the demand for real assets exceeds supply, driving up prices...and the next asset bubble is born. Nowsday, it is so obivous that the housing bubble collapse and still fresh, there are only two viable alernatives, stocks and commodities.
Last friday, market reported that consumer sentiment fell to 62.6, the lowest level since 1982. However, major indexes are closing in highs of the week. Low volumes rally indicate the rally does not result from buying pressure, rather from the absence of sellers and this give us warning to proceed with caution. Particular, S&P is closing in heavy resistance area 1395-1410(200days ma is 1407) If S&P could close above this area long enough, the market would propel higher for sure.
The Fed interest meeting is coming at Wednesday, and market expect quarter point cut only. This would be another test to see if market could go higher afterward.