MIB Italy Weekly Chart

Italy's MIB catapults +7.1% last week pumped higher by the ECB's expansion of the QE bond-buying program (in duration not amount). The central bankers are the market. The MIB is at multi-month highs. Early last week, there were rumors that investors were stepping up to support the troubled Italian banks that are insolvent but that news petered out as the week went on and on Friday, the ECB would not grant an extension to Italy to find financing for the banks. This opens the door to a state bailout. Worse, it may be a bail-in where a portion of depositors money may be confiscated to recapitalize the sick banks especially Monte dei Paschi, BMPS, and UniCredit.

Trader ignore the  banking crisis and instead focus on the easy money sugar high from the ECB. Interestingly, the European Central Bank plans to taper QE from 80 billion euros ($84 billion) per month bond purchases down to 60 billion ($63 billion) in April. Less easy money will hurt the stock market but traders will not price in this scenario until after the new year.

The green lines show the bounce off the bottom in the summer due to the positive divergence and oversold conditions. That recovery was easy to forecast by the possie d. The 200-week MA at 19393 is sturdy overhead resistance but also may serve as an upside target for the momentum.

The direction of the MIB is dependent on the news concerning the troubled Italian banks. If the situation is not corrected by Italy's dysfunctional government quickly, it may lead to contagion in Europe and around the world a la Lehman Brothers in late 2008. For now, no one is concerned and instead everyone is partying like its 1999. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.