QE2 Beneficiaries - Market Analysis for Nov 4th, 2010

Yesterday we highlighted the banks in our Mid-Day Minute. To follow-up, QE2 could potentially help the banks in general, and Bank of America (BAC) in particular through a steeper yield curve, which enables lenders to make money borrowing short-term money at miniscule rates, while lending longer-term at much higher rates, thus capturing a meaty spread.

In addition, potential expansion in economic growth and perhaps inflation both are beneficial to the bank's bottom line. See our video chart from yesterday and upated chart today.

Another impact of the Fed's QE2 announcement (which the Street considers to be the equivalent of a 75 basis point cut in short-term interest rates) is the lower dollar/higher commodity trade, which is having a positive effect on miners like Arch Coal (ACI). There's also a fundamental impact of the Shanghai Composite Index closing at new 7 month highs at 3,086 on the way to test its April highs at 3,182. The powerful upmove in the China index likely reflects improved outlook for the Chinese economy, which will require product from companies like ACI.

Technically, today's up-gap open and powerful thrust has hurdled the October highs in the vicinity of 27.35/37, which points ACI towards a test of its 2010 peaks at 28.30/50 next.