Earlier today, the European Central Bank (ECB) announced their version of Quantitative Easing (QE). As I have been saying for a long time, we’re in a liquidity driven market fueled by a globally coordinated effort to keep rates low and the markets high. Although I came into the year short-term cautious (which was wise due to the increased volatility), I am noticing the following constructive signs in the market:
1) All the major indexes launched above their 50-day moving averages today (1/22) on increasing volume, a sign that large institutions are committing capital.
2) The ECB’s QE announcement might have been what the large institutions were waiting for because the ECB has talked about doing QE for a long time, but never committed to an actual plan. Not only did they finally outline a plan, but it was larger than most people expected and it was open-ended.
3) As I mentioned in the beginning of the year, the Biotech sector $IBB was showing incredible strength. Through 1/22, the $IBB is up +5.8% vs. the $SPX which is up +0.2%. This is the area where I am still finding my strongest ideas. Another strong sector is the Real Estate ETF $IYR, up +7.4% YTD.
Do these positive signs mean that we are out of the woods? Of course not! We will still continue to see shakeouts and volatility, but the vast amount of global liquidity makes me feel that any pullbacks will be short lived. If you have been watching the tape so far this year, there were 2 times when the market could have fallen apart but, once again, that “magical big” showed up to support the market. That magical bid over the past 2 years has been global liquidity, and it’s very tough to fight. Good luck trading!
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