Signs of Fundamental Strength

Charts: The S&P 500 closed at 987, up 1.2%. Even though we had good fundamental news today this is a technically driven market with automated buy programs being triggered as the benchmark conquers resistance levels. Technically driven means the market is going up because its going up, obviously fundamentally driven is better. Today’s action was bullish although there was a late day fade that didn’t look good. There will be psychological resistance at the round number 1000 level. After that resistance will be at 1010.

Fundamentals: Jobless claims came in today better than expected. Continuing claims are trending down (bullish). The American consumer has to at least keep his head above water to allow Asia to do the real work in keeping the fragile global recovery moving forward and the data today suggests that might happen. So we’re back to all eyes on China. The sell-off in the Shanghai exchange yesterday was a result of two giant banks capping their lending for the year. The monster rally in Chinese shares has been partly fueled by banks shoveling loans into the stock market, which is very unhealthy, a sign of a bubble forming. So if the Chinese government can curb this frothy excess without hurting growth then the rally and recovery will be much more sustainable. The huge US government debt auction went well today, even though it was competing with a stock market rally, good news. Tomorrow the GDP number comes out. This will have a big impact one way or the other.

Geopolitics: The Iraqi Army invaded and destroyed the main base of Iranian insurgent group MEK. This base is inside Iraq and MEK fighters are perennially poised to push into Iran and wreak ten kinds of mayhem. The Pentagon is feebly protesting against this move but it is secretly relieved that Iraq took this action. The Iranian government is so weak right now that the last thing we want is armed rebels tearing it apart. The Ayatollah is releasing a couple hundred living political prisoners that were captured during the rioting, a fearful attempt to quiet the opposition. Before that he released the bodies of political prisoners that his people tortured and killed. The families of the dead political prisoners went berserk when they saw how mangled the corpses were. It is unbelievable how clumsy the old guy is at running a police state. Maybe he should read the book Dictatorship for Dummies.
Yesterday I wrote that with the Paki Army tied up in the Swat Valley we need to watch for signs of CIA drones taking up the slack and today there are reports of drone strikes in Pakistan. So good news on this front.
There are no reports of further fighting in Nigeria but big trouble looms in the most populous nation in Africa. The country is home to 70 million Muslims. In 2003 Osama Bin Laden signaled out Nigeria for special attention and that year the Nigerian Taliban was formed. The government permitted Sharia law to be established in the Islamic north and sectarian conflict has been brewing ever since. The government has its hands full dealing with the non-Islamic MEND rebels in the Niger Delta, who steal about $500 million worth of oil every year and keep getting stronger. The Nigerian Army can’t suppress two revolutions at the same time. Global stock markets won’t care too much right now because OPEC has massive spare capacity. When and if the recovery swings into full gear and oil consumption goes up, the situation in Nigeria will start causing problems.