Fiscal Cliff and QE 4 Hopes Bring More Investor Optimism
Investor optimism about fiscal cliff negotiations is bolstered by expectations that the FOMC will announce more quantitative easing on Wednesday.
Ongoing negotiations between President Obama and John Boehner have raised hopes that the fiscal cliff can be avoided, fueling investor optimism. An extra jolt of bullishness hit Tuesday’s trading session as a result of increasing 
expectations that Ben Bernanke will announce the implementation of another round of quantitative easing at Wednesday’s conclusion of the FOMC meeting. Bernanke’s usual contact for releasing hints of upcoming Federal Reserve actions is Jon Hilsenrath of The Wall Street Journal. On November 28, Hilsenrath wrote an article hinting that a decision to proceed with QE 4 could be made at the December 11-12 FOMC meeting. A good deal of Tuesday’s positive trading movement could be a result of that report.
As of 2:37 EST, the Dow Jones Industrial Average jumped 99 points (0.75 percent) to 13,269. The S&P 500 Index climbed 0.80 percent to 1,429 – staying above its 50-day moving average of 1,416 and above its 200-day moving average of 1,386 (NYSEARCA:SPY). The S&P 500 chart exhibits an inverse head-and-shoulders pattern, which we have been following since November 23 (see green bar on chart) suggesting a further advance. Since that time, a larger inverse head-and-shoulders pattern has developed (indicated by the blue bar). The 50-day moving average of 1,416 had been an important resistance point for the S&P. Now that the S&P has surpassed 1,416 it could make more progress. The S&P’s next resistance level is 1,460 where we see the triple top (Chart courtesy of Stockcharts.com) The Nasdaq Composite skyrocketed 1.33 percent to 3,026 (NASDAQ:QQQ). The Russell 2000 Index surged 1.03 percent to 834 (NYSEARCA:IWM).
The “Dollar Bull” Index ETF (NYSEARCA:UUP) declined by 8 cents (0.36 percent) to 21.88 as of 1:49 EST.
As of 1:36 EST, the S&P 500 Volatility Index – or VIX – declined 2.62 percent to 15.63 and the VIX Short-Term Futures ETN sank 3.21 percent to 28.92 (NYSEARCA:VXX). Fear Poll Respondents Focus on Fiscal Cliff
A surge in German economic sentiment sent the major European stock indices soaring on Tuesday. The Euro STOXX 50 Index finished Tuesday’s trading session with a 1.08 percent jump to 2,624 – staying above its 50-day moving average of 2,519 (NYSEARCA:FEZ). The FTSE 100 Index advanced 0.06 percent to 5,924 (NYSEARCA:EWU). The German DAX Index advanced 0.78 percent to 7,589 (NYSEARCA:EWG). France’s CAC 40 Index climbed 0.94 percent to 3,646 (NYSEARCA:EWQ). Spain’s IBEX 35 Index surged 1.49 percent to 7,920 (NYSEARCA:EWP). Italy’s FTSE MIB Index jumped 1.51 percent nosedive to 15,585 (NYSEARCA:EWI).
As of 1:43 EST, the euro surged 0.56 percent against the dollar, trading at $1.3013 (NYSEARCA:FXE).
On London’s ICE Futures Europe Exchange, February futures for Brent crude oil advanced by 16 cents (0.15 percent) to $106.37/bbl. (NYSEARCA:BNO, NYSEARCA:USO). Oil Prices Could Drop Substantially
December Gold futures declined by $4.90 (0.29 percent) to $1,708.10 per ounce (NYSEARCA:GLD). Gold Rises in Asian Trading, Fades on COMEX
ETF Summary:
SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA) +0.82% making a big move as investors are encouraged by budget negotiations and expectations that the FOMC could announce another round of quantitative easing on Wednesday.
SPDR EURO STOXX 50 ETF (NYSEARCA:FEZ) +1.57% following the report from the ZEW Institute indicating an upsurge in German economic sentiment.
Technology Select Sector SPDR ETF (NYSEARCA:XLK) +1.63% as a result of Apple’s 3.10 percent surge, which is pulling the entire technology sector along with it (NYSEARCA:AAPL).
iShares Barclays 20+ Year Treasury Bond Fund (NYSEARCA:TLT) -0.87% as advancing stock prices increase investors’ appetite for risk, reducing the demand for the safe haven of government bonds. Learn More About iShares ETFs
SPDR S&P 500 INDEX ETF (NYSEARCA:SPY) +0.88% making a strong advance as investor optimism about budget negotiations is enhanced by anticipation that the FOMC could announce QE 4 on Wedensday.
Bottom line: Investor optimism received a big boost on Tuesday as ongoing negotiations between President Obama and John Boehner fed hopes that the fiscal cliff could be avoided while suspense built concerning a possible announcement by the FOMC that a fourth round of quantitative easing could commence in 2013.
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