Well, we got our consolidation day!
It would have been nice if the Nasdaq and S&P had not gone down but we’ll take what we can get with the Dow up a whopping 9 points but we did hold 12,200 again and that was all we wanted to do this week. The Transports continued to fall, which is good, because they SHOULDN’T be happy with $131 oil, as I keep saying, it’s NOT OK and never will be. Still the Transports held 2,600 and that’s a good thing too.
The S&P looks shockingly weak but it was taken down by a 5.7% drop in Precious Metals, a 4.9% drop in Gold Mining, a 4.5% drop in Tobacco and a 4.3% drop in Mining. I said to members during the day this is about as good as we could expect from a commoditiy sell-off day. Computer Hardware was up 2.4% for the day but the SOX refused to participate and that held back the Nasdaq. The NYSE also felt the pain of the commodity producers and is getting dangerously close to the MUST HOLD level at 9,000.
The dollar punched back through 73.50 and now we have to hope it isn’t a one-day wonder. 74 has held as a top since March – all we have to do is hold 73ish and we can turn the 50 dma up and then we should have a clear shot to 75.6 as our next major test, a break over that should take us to 77.50 and the last time the dollar was there, oil was at $95 so it’s going to be a very interesting month in July! Gold was at $900 back in February, when the dollar was at 77.50 and it’s below that now while copper was at $355 and is back there now and platinum was at $2,000 and is back there now….
So it’s really just oil and agriculture that are out there on a limb, betting very, very heavy against a dollar recovery so we’ll be watching the dollar with great interest as there is a lot of room for a major adjustment in food and energy.
Adding to our dollar bullishness is a weakening chart on the Euro. While our financials seem to be putting their troubles behind them, the EU banks are still running over land mines and the ECB has already spent far more money bailing out their financials than our Fed has. The Yen is falling right off a cliff since peaking out at 103 and now faces a critical test of the 200 dma at 92 but, even if they bounce there, they still face a lot of resistance getting back over 96. As I said yesterday, things look good for Japanese exporters.
The Canadian dollar has quietly slipped 17% since it’s October high and looks poised for another leg down after a bit of consolidation at 97.5 – with all these currencies weakening and the dollar still near an all-time low, which one do you think investors will start betting on?
That’s right kids, get ready for a "shocking" resurgence of the dollar DESPITE the ineptitude of the administration as our economic fundamentals look far better than people expected for the past two quarters which makes US equities a very attractive bet to international investors. If the Yen breaks down, borrowing Yen to buy US notes (the carry trade) becomes irresistible again, especially if the Fed actually raises rates.
I predicted way back in December that we would sell off early in the year and take off after Q2 earnings. It’s about that time and I think we may be right on track as long as oil keeps heading down, either on it’s own or with the dollar’s help.
