The market was shocked by 2 events today – CHINESE Hike in RRR and US debt outlook downgrade.
However, it is quite evident that buying pressure has built up throughout the course of the day.
We saw the market tanking at the open, but it started climbing after the the lunch hours. This is a small signal that investors who were sitting at the sidelines are starting to re-enter stocks.
We see the steel sector bouncing back real fast closing near its previous close. US steel and AKS are as strong as what it produces.
Overall, the market is very stable as liquidity is not an issue at the moment. However, the FED might stop its liquidity program starting JUNE. The only way for the market to continue up is inflows from foreign market to take advantage of the cheap dollar, and also inflows from money at the sidelines. All those cash need to be invested somewhere. With 3 year CDs at a pathetic 1%, cash rich people might consider putting their money in stocks. Furthermore, the impending US debt downgrade isnt good news for debt investors. Stocks seem to be the better play in this environment. This is especially true with TECH stocks as they are usually cash rich and do not rely on debt too much.
I am going long tech from here after the JP and Wells downgrade.
Banks are also a cheap buy now as we await the rise in interest rate in the future. Banking stocks will benefit the most.
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