The S&P 500 Index broke above 1150, making a new high since the start of the recession, and then pulled back to test the breakout level. Fundamentally, although central banks are exiting their quantitative easing and other unconventional monetary policies, they seem to have realised that the fragility of the economic recovery and the global banking system, and the need to finance huge government deficits around the world, mean that exceptional liquidity measures are still required. The market has become very focussed on the Fed’s language about keeping rates on hold for an extended period — I never expected them to do anything other than that — and the Greek situation has reduced the ECB’s scope for genuine tightening. All this means that central bank liqudity is likely to continue to flow into the financial markets one way or another, and the breakout in the S&P suggests that the spigot is turned fully on.

I placed a buy order at the bottom of the short-term trading range, as shown on this chart from IG Index:

The order was filled but I immediately disliked it — it felt too much like catching a falling knife. After a few minutes I closed the position for a small loss. As you can see, the market continued downwards, and I bought it again later in the day, as shown in the following chart (entry and stop levels shown):

Now the market has fallen a bit more (although the underlying shares are not trading yet — the movement is in S&P futures) but I am sticking with it for now.

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