U.S. Stocks, Gold Gain as Fed Keeps Plans for Low Rates
Comment of the Day

April 27 2011

Commentary by David Fuller

U.S. Stocks, Gold Gain as Fed Keeps Plans for Low Rates

Reported by Bloomberg, this is the news that pushed weekly charts for the S&P 500 to a new high for the year, the US Dollar Index to a new low and gold to a new high. Here is the opening:
The Standard & Poor's 500 Index rallied to an almost three-year high and Treasuries fell as the Federal Reserve renewed its pledge to stimulate growth with low interest rates and said a pickup in inflation is likely temporary. Gold gained and the dollar weakened versus the euro.

The S&P 500 added 0.6 percent to 1,355.66 at 4 p.m. in New York. The Russell 2000 Index (RTY) of small U.S. stocks jumped to a record and the Nasdaq Composite Index reached a 10-year high. The dollar lost 0.9 percent to $1.4782 against the euro, falling for a seventh-straight day in its longest slump in two years, and gold futures surged as much as 1.8 percent to a record $1,530.70 an ounce. Ten-year Treasury yields rose five basis points to 3.36 percent. Oil advanced 0.5 percent.

Stocks reversed earlier declines as Fed policy makers agreed to finish $600 billion of bond purchases on schedule in June and keep their benchmark interest rate at a record low for an extended period as the economic recovery proceeds at a "moderate pace." The statement eased concern that central bankers were preparing to unwind record stimulus measures in an effort to prevent an acceleration in inflation.

"The Fed isn't ready to press the brakes just yet," said Alan Gayle, senior investment strategist at RidgeWorth Capital Management in Richmond, Virginia, which oversees $45 billion. "They're maintaining the status quo while the economy, and in particular the consumer, gets on firmer footing. An accommodative Fed is good for equity markets and the statement doesn't suggest the Fed's anywhere close to taking steps to slow the economy through tightening."

David Fuller's view The Fed's statement, the market moves illustrated above and the outlook for many markets are discussed in some detail in today's Audio which runs to over 24 minutes.

What about tactical comments on the charts shown above?

Most stock market indices remain rangebound but the S&P 500, shown on a daily chart, has broken out and would therefore need to close beneath 1330 to suggest a possible upside failure and prospect of sideways to somewhat lower ranging. The US Dollar Index requires an upward dynamic to check a slide that is becoming overextended in the short term, and a sustained push above 76 to halt the medium-term downward trend. Gold's advance is becoming overextended in the short term but a close beneath $1490 is now required to question near-term upside momentum.

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