Thursday, February 15, 2007

Equity Index Update

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Brad Sullivan
February 15, 2007

The index markets caught a strong bid on the heels of Fed Chair Bernanke’s testimony on Capitol Hill. Dr. Bernanke gave a rather stunning assessment of the current domestic economy as he came across quite “dovish” versus his global counterparts (Trichet anyone?) on the future direction of interest rates, inflation and employment. On the inflation front …“while we have not had much new information, the recent readings on inflation are encouraging.” Perhaps his key catch phrase was “sustainable and not overheated” when discussing the current economic situation --- Golidlocks is alive.

The index markets did not wait for another utterance from the esteemed Fed Chair as buyers took in 95,000 SP mini contracts from 9:00 to 9:05 cst. An aggressive stance to be certain, and when the dust had cleared new trading highs for the move were established in both the SPX and DJIA. Interestingly, the Russell 2000 felt the brunt of rotational selling and finished the session with slight gains. This highlights the internal strength of the current marketplace. The Russell 2000 broke to new highs after nearly two months of a 3% trading range…in doing so the index rallied around 2.5% from its previous closing high. The SPX remains about -5% below its all-time highs established in the spring of 2000 and retested later that fall. Could we be in a position where the small and mid-cap indices mark time while the SPX makes a run at 1515?

Today is chalk full of data for the markets…and so far it has been generally favorable to “goldilocks.” The Philly Fed data at 11:00 cst always smacks of lunchtime desperation trading, so be cautious.

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