Stock Markets Up On Monday: Is This Bullish Move The Real Thing?

The script has been written: US Treasury Secretary Geithner goes to China where he coincidentally happens to hear that the Purchasing Managers Index has recorded its third straight month of bullish readings. Geithner must be happy; the monkey’s off the US back. Ergo, commodity prices soaring and the world’s stock markets breaking out to new high ground.

China’s official purchasing managers’ index (PMI) in May recorded its third straight month above the mark of 50 that separates expansion from contraction, fuelling optimism that the worst of the global downturn may be over.

“Three consecutive months of readings above 50 really shows that Chinese stimulatory policy is gaining traction. It looks like an economic recovery is well underway in China, possibly leading to a sustained rally and re-rating of commodity prices and associated stocks,” says one broker today.

We opined a week ago that a break-out of the trading range for equity markets was likely within sixty days. Of course, we believed that, while prices were clearly lifting, the action would be bearish.

Aussie technical analyst Colin Twiggs is looking at upside break-outs for the NASDAQ 100, Canada, Japan, Hong Kong, and India, although he says to be wary of a Bull trap in the S&P 500 (^GSPC), DJIA (^DJI), UK, and Europe.

A V-shaped market bottom remains unlikely. The best we can hope for is a W-shaped bottom; while a WWW-shaped bottom, similar to the 1970s, remains equally likely. The wild-card is inflation. If the Fed and other central banks monetize government debt by buying treasury bonds they will start a mad scramble for real assets. Whether they be stocks, commodities or real estate - a high risk investment is better than a certain loss.

So, markets are heating up.

At 6:48am ET, the spot market prices for precious metals are: gold (986.55 +3.88 +0.39%); palladium (236 +2 +0.85%); platinum (1222 +17 +1.41%); and silver (15.85 +0.02 + 0.13%).

Is this bullish move the real thing or merely follow-through from a weekend where less informed traders were warming to the Friday action in gold and final 30 minutes trades in the broad US equity market?

We should not have long to find out.

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