The S&P 500 e-mini futures (ES M1) are trading sharply higher this morning by 8.00 points to 1334.75 per contract. The move higher in the futures comes as the Shanghai Index rallied higher last night by 1.15 percent. When the Shanghai Index (China) rallies most commodities and stock indexes will follow it’s lead. China is considered the growth engine of the world at this time and the theory is that they will buy more U.S. products and U.S. businesses. Can China save the entire worlds economy?
The problems in the Middle East and Northern Africa seem to have no end in site. The price of WTI oil is higher by 0.16 cents to $108.50 a barrel. It is still amazing that high oil and high gasoline do not have any negative effects on the stock market. This is the reason that we use charts and do not form opinions when it comes to trading. Remember the old market adage, trade what you see and not what you think. Thinking usually just gets in the way. Traders and investors must keep an eye on Saudi Arabia. This is the wild card nation for the Middle East as they are the largest producers of crude in the region. If they experience any disruptions in supply oil could see a super spike.
The problems in Europe remain front and center as Portuguese debt remains problematic. The stock market has swept these problems under the rug as they seem to have very little effect on the stock market these days. In fact, the Currencyshares Euro Trust is actually trading higher by 0.70 cents to $142.37 a share. Obviously, this means that the U.S. Dollar Index is trading lower this morning. The U.S. Dollar Index has now declined by 15.0 percent since June 7, 2010. Other nations in Europe will need to be bailed out soon. We can only wonder what this domino effect will have on the stock market. At this time it is having very little effect on the markets.
Gold and silver are making new highs this morning. As long as central banks continue to create money these precious metals can trade higher. The European Central Bank (ECB), Bank of Japan, and the Federal Reserve Bank continue to create money at an alarming rate. The ECB is expected to raise interest rates in order to fight inflation yet they continue to buy debt from struggling nations such as Portugal to keep rates from soaring higher. Talk about a catch 22.
In any case, the major stock indexes around the world continue to defy gravity. Traders and investors must respect markets when they simply just don’t pullback. All rallies come to an end the same way that all declines find a low. Right now the path of least resistance is still up.