We think Phase II of the global debt crisis is underway, but the epicenter is in Europe, not lower Manhattan. Individual investors trying to track the vectors that move the market will therefore have to brush up on currency effects and global economics. In our view, currency effects push the market around day to day, whereas debt will remain a long-term structural issue until sovereign defaults start to happen.
Gold denominated in euros has been making new highs for more than a month, but it is now making new highs in dollar terms. We think this is a sign of flagging investor confidence in paper money. We are short-handed on Consensus gold plays at this time, but recommend that subscribers look into Iamgold (IAG), a former Consensus name that has high relative strength. Full Article
Currencies trade relative to one another and the crisis in the euro strengthens the dollar. A stronger dollar means that the prices of assets denominated in dollars will tend to decline to keep a valuation balance. Such assets include commodities, real estate and equities. Full Article
The Dow was up another 29 points on Friday and closed above 10,500, which is bullish behavior. The Dow Transports and Utilities, along with the Russell 2000 and the Nasdaq 100 all made yearly highs. The S&P is trailing due to weakness in the financial sector. Full Article
The Dow was up another 64 points on Friday, which takes it within 45 points of a new yearly high. This is impressive, considering that the Dollar Index also advanced 0.6% that day. The decoupling of the Dow from the Dollar is a significant development. They have been trading in a closely correlated inverse relationship for months. Full Article
It does not pay to get bearish on this market. Not yet, anyway.
The Dow was down just 14 points on Friday, which set the stage for the surprise rally on Monday morning. The dollar weakened about half a percent over the weekend. Since U.S. equities are priced in dollars, the declining greenback creates buying pressure, since shares look cheaper to overseas buyers. We think this trend is likely to continue until the Dollar Index falls to its 2008 low, about 5% lower than Monday's close. Full Article
Yesterday we predicted that “One of these days we will get a 200- 300 point down day in the Dow followed in a few days by another. Headlines everywhere will talk about the Crash of 2009.” Thursday was not it.
Thursday started out as though it wanted to make that prediction come true, but by the end of the day, some strength came back in. That said, the market is overbought enough for more than a 1-day correction. We think another leg down to the 1072-1078 area in the S&P 500 is likely, but if it happens, we expect that zone (a gap zone) to hold, for now. We will show a chart of this support area over the weekend. Full Article
All three major indices set new yearly highs on Monday, which the financial media regards as particularly bullish. One reason is that the S&P 500 has been lagging the pack. With ‘confirmation’ from the S&P, some market technicians are breathing a sigh of relief. Hummmm.
Unfortunately, we do not concur with the rationale for the enthusiasm. As the market moves higher, we are getting more cautious, not more bullish. We have two technical resistance zones in mind, one is Dow 10,500 and the other is Dow 10,800. These levels operate like the orbits of electrons around an atomic nucleus. Electrons are stable at these orbit levels and don’t spend much time in transition. Markets act the same way. If the Dow can break through the 10,500 zone, we expect it to travel to 10,800 rather quickly. Time will tell.
Yesterday we predicted that the Dow would move very quickly through the 10,000-10,300 zone and most likely overshoot to the upside. So far, so good. Monday’s 200-point move took the Dow up 2% to 10226, its highest finish of the year and its second 200-point up day in the last three trading days. This leaves the index just 28% below its all time high. Full Article
On Thursday, a miniscule improvement in the number of persons filing claims for state unemployment benefits was enough to spark a 200-point rally in the Dow, closing the index back above 10k.
Initial claims reflect the process of job destruction, while the rate of continuing claims represents the level of difficulty in acquiring new jobs. Compared to a year ago, initial claims have increased 9%, while continuing claims have surged 55%. On a week to week basis, however, initial claims were down about 4% and continuing claims were down about 1%. Full Article
On Monday, the Dow closed up 76 points, only its fourth up day in the last ten trading days. The intraday action was volatile, however, with a range greater than 200 points peak to trough.
The volatility catalyst was a report from the Institute for Supply Management that indicated manufacturing activity grew in October at the fastest pace since April 2006. The 55.7 reading, if annualized, would imply GDP growth of 4.5%. Manufacturing activity improved worldwide, as well, suggesting that this is a synchronized global upturn. Things did not get better in Russia, however, and we think that country remains a short sale candidate. In other words, we are bullish on BIC not BRIC. Full Article
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