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US Stocks Could Regain Their Momentum

David Becker
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US stocks were hit hard on Monday as investors absorbed the worse than expected employment data released on Friday. The disappointing numbers called into question the rebound and thoughts quickly moved toward whether the Federal Reserve would continue to taper its bond purchase program.

The Fed is scheduled to meet later in January and expectations, prior to the release of the Department of Labor’s non-farm payroll report, was that the FOMC would reduce purchases by another 10 billion dollars a month. The report called into question whether the rebound in economic activity was robust enough to absorb another reduction in bond purchases.

On Tuesday the Commerce Department released a better than expected retail sales which generated a rally in US equity bourses and somewhat reversed players thoughts that the Fed would hold off on future tapering.

European equity strength has also helped the US stock market regain ground. Major European indexes tacked on further gains Wednesday. By the European afternoon Germany’s DAX added 1% while the CAC and FTSE were up nearly 0,5%. Markets held on to their gains despite data showing German economic growth slowed to 0.4% in 2013, slightly below the 0.5% expected.

The technical picture for US stocks is beginning to change especially with the Nasdaq composite. The technology heavy index settled at a 13-year high on Tuesday, driven by large cap technology stocks. Momentum on the index is strong with the MACD printing in positive territory with an upward sloping trajectory. The RSI (relative strength index) moved higher with price action printing near 60, which is in the upper end of the neutral range.

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