It looks like someone linked you here to our printer friendly page. Please make sure you go Back to Safehaven.com for more great articles just like this one!

Will Stocks Rally in December?

By: Angelo Airaghi | Friday, November 30, 2012

December is traditionally one of the best months for stocks, and the S&P 500 index is oversold at current levels. An increase of the index to 1470 is in the cards.


Sandy hits

The Federal Reserve estimated hurricane Sandy might have decreased the rate of change in total output by almost 1% in October. In effect, initial jobless claims have jumped lately, and growth might be below 2.0% in the fourth quarter of the year. Nonetheless, the effects of Sandy on the economy should be only temporary and contained. Production can pick up again, and the housing recovery is proceeding smoothly. The National Association of Home Builder index (NAHB) has grown for seven months in a row and has touched its highest number since 2006. Construction is improving, and prices are beginning to rise as well. If history repeats itself, new highs could be reached within three to five years from the bottom (2010).

Durable goods were, instead, unchanged in October after rising more than 9% in September. However, excluding transportation, new orders were up 1.5%. Growth should stay near 2% this year, while inflation is within the Federal Reserve range for now. The U.S. government can lower the federal deficit by extending all previsions with the exception of unemployment benefits and the payroll tax holiday. Furthermore, it should postpone the spending cuts, known as the "sequester." Healthcare reform taxes will soon be introduced. Finally, quantitative easing three (QE3) will be confirmed. In January, the Fed could use U.S. Treasury purchases as well as mortgage-backed security (MBS) purchases.


Unemployment: Declining short-term, increasing longer-term

Stocks could increase until year's end. Technically, the S&P 500 index has rebounded from the long-term trend line of the past twelve months and appears to be ready to jump higher; December is typically one of the best months of the year. Finally, at current levels, the index is oversold, and there is strong divergence with price and the Relative Strength Index (RSI). The first target could be 1430, and then 1470 if 1440 is cleared. Policy makers now have the responsibility of keeping the tiny momentum going. In the "Beige Book" published last week, the Fed described a weakened economy; concerns over fiscal matters are now surfacing. Business owners must know what kind of costs and benefits are to be expected next year. The U.S. business sector will probably mark another financing surplus in the third quarter of 2012. Businesses have stocked cash for three consecutive years. It will be reinvested once the fiscal challenge is overcome. However, lack of clarity will instead contract investments and reduce employment opportunities. In reality, a new rise in the unemployment rate, which topped last in 2009 at 10%, is possible between the end of 2013 and 2014. Why? Since 1945, the unemployment rate has had two bull cycles, which have expanded in three different waves. Corrections during the final wave have lasted for four (1975-1979) and two (1958-1960) years before prices rose for the final peak. Declines stretched for 38% and 33% respectively.

 

Author: Angelo Airaghi

Angelo Airaghi
www.ProfitsOn.com

Angelo Airaghi is a Commodity Trading Advisor (C.T.A.), registered with the National Futures Association and the Commodity Futures Trading Commission. He has been an active professional since 1990 working for major international financial companies. In the past 10 years, Angelo Airaghi has been an analyst and commentator for national and international media.

The views expressed in this blog are opinions only and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment and we do not accept unsolicited investment funds.

The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed, neither the information presented nor any opinion expressed constitute a solicitation of the purchase or sale of any forex, futures or commodity product. Those individuals acting on this information are responsible for their own actions. Forex, futures and commodity trading may not be suitable for all recipients of this report. The risk of loss in trading forex, futures and options can be substantial. Each investor must consider whether this is a suitable investment. All recommendations are subject to change at any time. Past performance is not a guarantee of future results. Please Note: All performance figures and illustrations were obtained using historical back testing on a computer and are not the results of an actual account. No guarantee is inferred that future performance will be like the results shown. Futures, forex and options trading involve risk. There is a risk of loss in futures, forex and options trading.

Copyright © 2011-2014 Angelo Airaghi