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The Market's Next Obsession

Mark Your Calendar

Over the past several months, Europe has been dealing with low inflation and the possible threat of deflation. The market will be paying close attention between now and the next European Central Bank (ECB) statement. From Bloomberg:

The European Central Bank's public debate over buying government bonds is reaching a climax. After weeks of argument about quantitative easing in speeches and interviews, officials have just a few days left before a conventional quiet period starts ahead of their Jan. 22 policy meeting. Adding to the intensity, a European court opinion is due that could color any program.


Big Moves Often Follow

While the interest rate vs. U.S. growth debate has weighed on stocks in recent months, the sideways action in U.S. stocks (see chart below) has been caused, in part, by ongoing concerns about the European economy.

$NYA NYSE Composite Index INDX

Given the sideways nature of the typical U.S. stock in recent months, this week's video takes a historical look (1981-2014) at indecisive markets and answers the question:

What typically happens next?

The first part of the video looks at the present day market (retracements, patterns, trends). The historical review of indecisive markets begins at the 7:00 mark.


Video: Catching the Next Big Move


Investment Implications - The Weight Of The Evidence

The big picture for equities still looks favorable, but stocks have little margin for error in the next few weeks. If the S&P 500 breaks its recent lows (1992 & 1972), the risk-off case will gain some additional traction. Just as the reaction to the Fed is often binary, the ECB's January 22 announcement could send equities flying higher or into a tailspin.

 

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