Tuesday, September 18, 2012

Equities, Growth Assets Pull Back in Short Term


After Federal Reserve Chairman Ben Bernanke pledged to provide ongoing cheap money to financial markets, equities and growth assets surged upwards.  But with markets anticipating some sort of injection of liquidity, much of the move may have already been priced-in, pointing to the potential for a pullback in the short term.  Two charts highlight this quite well: the broad S&P500 Index and the course of the Canadian dollar. 

1. S&P500: Below we can see a potential reversal pattern two days ago. This chart shows that the market shot up to multi-year highs in early trade, but couldn't maintain its path, was met with selling interest, and then closed at the low of the day's trading range. This type of trading can indicate that demand in the short term has been met.

S&P 500 (right-click to view images)
Source: SunGard MarketMap 2012
 
2. Canadian Dollar: On the same day, the Loonie exhibited almost identical trading action.  CADUSD shot up in early trade, almost hitting 1.0400 against the USD, only to meet with selling interest and finish at or near the day's lows, indicating that demand for CAD may have been met for the short term. 

CADUSD (right-click to view images)
Source: SunGard MarketMap 2012
 
Watch these two assets closely going forward, as they are both fair thermometers for the health of the global economy, and seem to suggest that we may have gotten a bit ahead of ourselves at this stage. 


 
 
 
 
 

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