The market is showing positive divergences in two major areas. These areas signal stimulus and possible bank recapitalization from the European Union and the ECB. Ultimately, the markets are signaling something big on the horizon that could cause the market to pop sharply in the short run. The SPDR S&P 500 ETF (NYSEARCA:SPY) is trading at $131.96 -1.74 (-1.30%).
The first positive divergence has occurred between the S&P 500 and the Dollar. These usually trade inverse to each other but lately, the Dollar has soared to new 2012 highs, but the market has not made new lows. This signals a coming market push. The PowerShares DB US Dollar Index Bullish (NYSEARCA:UUP) 22.92 +0.12 (0.53%).
The second divergence is happening today. Gold opened sharply lower and has rallied back to the flat line. This is extremely unusual with the Dollar higher on the day and the markets lower. This tells us of stimulus on the horizon in Europe. The SPDR Gold Trust (ETF) (NYSEARCA:GLD) hit of low of $148.61 but is now trading at $151.31, +0.29 (0.19%). This is a huge reversal and speaks to a big factor coming on the horizon.
Ultimately, things are pointing to an announcement in the next week of bank bailouts in Europe and possible stimulus. This would cause a sharp 300 plus point rally in the Dow Jones Industrial Average.
Gareth Soloway
InTheMoneyStocks.com
