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Can Stocks Log Three Wins in a Row? Ready-to-Act ECB Could Help

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September 3, 2015

U.S. stocks logged early gains Thursday, spurred on by European stock gains after dovish comments from the European Central Bank. A quiet China—shuttered by a two-day holiday—also allowed Wall Street to build on the positive momentum that accelerated into Wednesday’s closing bell. That move took the NASDAQ Composite out of correction territory.

The ECB held interest rates unchanged as was widely expected. The bigger “news” came out of the press conference, where President Mario Draghi noted the new risks that have emerged with China’s stock and economic retreat, as well as continued low inflation readings in Europe. But Draghi also hinted that the ECB was at the ready with more stimulus if needed; that sent the euro quickly lower and rallied stocks.

As for U.S. markets, bulls hope that the broad-based S&P 500 (SPX) can hold the 1950 line, as securing that chart area could open the door to further upside (figure 1). Action could turn choppy as nerves emerge ahead of Friday’s jobs report release. It’s a data set that many think could set the tone for the Fed’s September 16-17 policy meeting.



The S&P 500 (SPX) gained Wednesday. Chartists now target the 1950 line as a key area to secure before additional upside may materialize. Data source: Standard & Poor’s. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Beige Book Fairly Rosy. U.S. stock market traction followed the Wednesday afternoon release of a largely optimistic Beige Book report from the Federal Reserve. Still, it’s evident the Fed faces a tough debate when it takes on interest rate policy later this month. The Beige Book said U.S. housing and auto sales showed strength during the summer, but manufacturers felt the pinch from China's economic slowdown and the oil industry was squeezed by lower energy prices.

Europe Still Humming? Euro-zone business activity moved at its fastest pace in more than four years last month. Markit's final August Composite purchasing managers’ index (PMI) beat an earlier estimate of 54.1. Now at 54.3, it’s the highest level since May 2011. While the upbeat surveys provide some welcome news for the ECB, economists were reminded that the central bank still calculates only modest Q3 GDP growth.

Sign Me Up? Tesla (TSLA) will begin taking preorders for its smaller and lower cost Model 3 in March at a price of $35,000. Production will start in about two years, Elon Musk announced in a tweet, stating a fully operational Gigafactory will be needed. TSLA will also begin delivering its first luxury electric crossovers, the Model X Signature series, on September 29, it said.

Good trading,

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JJ Kinahan

JJ began his career in 1985 as a Chicago Board Options Exchange...

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