Safety in US numbers

While the world is adjusting to the fact that Japan is in recession and the ECB is about to embark on rapid balance sheet expansion, I think the monthly chart of the US 500 (S&P 500) paints a clear picture of the current stance of the US equity market.

Source: Bloomberg

As you can see, the uptrend drawn from the November 2012 low is holding up nicely and, despite massive range expansion in October, the index managed to close the month back above the trend. In theory, if the channel continues to hold then we could feasibly see 2,100 in focus over the coming weeks.

Just as important, perhaps, is how the market is holding the 12-month moving average (currently at 1,923). As you can see, a sustained break of this average can have massive ramifications on the longer-term market direction. Over the last 20 years, there have been three failed breaks (circled) but on the whole, the 12-month average has really been huge support and resistance.

In theory, as long as the market is above this average and the direction is sharply higher, then the
S&P 500 should continue to print higher highs.

Fundamentally, the US market is seen as a quasi safe haven and while central bank liquidity will be aimed at boosting the European and Japanese markets, I feel the US is still the destination global money managers prefer. Naturally, the record levels of corporate buy backs, dividend increases and a central bank that is keen to help subdue volatility are the key attractions.

Click to enlarge

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