Market Story I: Monday, March 14, 2011

The Bulls had not much to cheer about during the past week, as tons of bad news flooded the markets, starting with renewed fears of an European Debt Crisis getting out of control, followed by more unrest in the middle east and on top of that, we witnessed one of the strongest earthquakes in History, which hit Japan on Friday just after the closing bell. The tragic news out of Japan is now what weights the most on international equity markets. Ultimately, here comes the most important question for investors: Is this rally over? I would say no.

The economic recovery that started in the US almost 2 years ago, is in full force and there are no signs that this recovery is weakening. We probably have to worry later in the year, when the FED ends its QE2 Programm. We will get comments on monetary policy from the FED later in the week, but for now, no change in wording is expected.

I strongly believe that after some back and forth action during the month of March, equities will continue to rally, with the S&P500 trading above 1400 in Q2. It is very important that we get some high bearish sentiment readings in the coming 2 weeks, confirming that investors have liquidated positions and raised cash and the market can continue to climb the so called wall of worries. My preferred downside target for the S&P500 is 1250.

I updated the charts at 10:00 CET to take into account the recent overnight market action in Japan. After a 3rd. explosion in the nuclear power plant of Fukushima, the Nikkei plunged almost 15 % to a day low of 8227.63 and to close at 8605.15, down 1015.34 points. Traders in Zurich are saying that the citizens of Tokyo are not fully aware of the situation, since the Japanese Government is not telling the full truth about the situation.

UPDATE: There is fear of a nuclear meltdown in Fukushima. Marc Faber gave an interview on CNBC that makes the situation very clear: Meltdown or not.

http://bit.ly/gVOGXr

VIX: Chances are high that we get this break- out.