Although there was weakness in the STI today at closing, the European and US markets have rallied strongly after comments from Bernanke.
“U.S. stocks advanced, sending the Standard & Poor’s 500 Index to the highest level since May 2008, after Federal Reserve Chairman Ben S. Bernanke said accommodative monetary policy is still needed to spur jobs.” – Bloomberg
Looking at the chart, the S&P 500 has rallied strongly since the beginning of the year, and during the time employment has marginally improved, while the Fed has continued to keep interest rates low. Clearly, it seems the liquidity that is fueling the stock market is not translating into improvements in the real economy. This could prove problematic if the divergence continues to unhealthy levels.
For traders, it means that we should join the party and ride the trend however high it goes, but be ready to pull out when the music stops. For the STI, the last 2 weeks of ranging action makes the market hard to trade, and I am seeing more signs of weakness. Let’s see if today’s boost from the US markets can translate into gains for the STI.
Historically, April is one of the most bullish months of the year, but we will have to keep an eye on earnings, which may be lackluster since there has been no clear signs of economic bullishness.