Stocks are trading higher into the middle of the week, with the S&P showing its third straight day of gains.  Investors are now waiting for the release of the minutes from the March Federal Reserve meeting and the main question will be whether or not the Fed is biased toward continuing with its stimulus programs (without establishing a clear end date).  At the moment, market optimism is being fueled by broad strength in corporate earnings and, more recently, a positive inflation report out of China (which essentially showed that interest rates will not need to be raised in the near term).

These latest rallies will need some encouragement in order to continue.  Markets are expecting the Fed minutes to show continued concern for the US labor market and no change in pace for the $85 billion in monthly mortgage debt purchases that define the Fed’s quantitative easing strategies.  This accommodative bias is matched in most of the major economies, as last week’s headlines focused on new stimulus proposals from the Bank of Japan that are larger (proportionally to GDP) than even what is being implemented in the US.  The Japanese economy has well-documented deflation problems and the current measures from the BoJ are aimed at bringing consumer inflation back to a 2% yearly target.  Additionally, the plan will likely put pressure on the Japanese yen and support sales prospects for the country’s export companies.

In Europe, similar scenarios are seen.  At its latest meeting, the European Central Bank reiterated its commitment to keeping interest rates low and to offer liquidity injections if the banking system becomes overextended.  These measures are aimed at keeping volatility in the financial markets to a minimum, which helps to maintain bullish targets in stocks.  Economic data is relatively light this week but on Friday, traders will be watching the Retail Sales figures to guide price activity into the close.  Retail Sales are expected to come in flat for the month (0.0%) after a rise of 1.1% the previous month.

Chart Perspective

S&P 500:

The S&P 500 is trading back near its highs for the week after bouncing strongly from Fib support at 1535.  This area is the 38.2% retracement of the rally from 1480, and this is encouraging given the previous uptrend channel break that was seen early last week.  Prices are now grinding through the highs at 1570 and there is little in the way of resistance now that we are back at the all-time highs.  Preferred strategy is to wait for corrective dips before getting long again, first support is now seen at 1555.

Nasdaq:

The Nasdaq is still trading well below its all-time highs but the short term bias is clearly positive as prices have now made a clear break of the double top resistance previously seen at 2820.  Short term traders can establish buy positions on a drift back to this area but given the elevate levels we are seeing now, the more prudent move is to wait for a retest of support at 2795 before buying back into the monthly bull trend.