Friday, May 13, 2011

Correlation Trade: Dollar Up, Stocks Down

After a roller coaster type of week, the major indices and commodities ended fairly flat, but that's how the skimmers of Wall Street make their dough: bidding prices up and selling out underneath momentum buyers. This is a fun game for them, not so nice for individual investors, but eventually all the trades will go in one direction and it won't be good for anyone except committed short sellers.

Stocks really got off to a piddling start, but accelerated mid-day, with the Dow down as much as 150 points. While the Dow rallied into the close a bit, the NASDAQ stayed down at finished at its low point of the session.

April CPI was a non-event, coming in at expectations of 0.4% gain for April. Michigan Consumer Sentiment showed a small rise, to 72.4, from 69.8 in March. Despite the steep drops on the averages, it was, all tolled, a pretty dull session. The major trade consisted of shedding stocks (risk) as the dollar advanced, closing at 75.793, up 0.60 as measured by the Dollar Index. It's become the most reliable correlation trade: dollar up, stocks down.

Dow 12,595.75, -100.17 (0.79%)
NASDAQ 2,828.47, -34.57 (1.21%)
S&P 500 1,337.77, -10.88 (0.81%)
NYSE Composite 8,371.67, -84.51 (1.00%)

Declining issues roared past advancers, 4790-1789. On the NASDAQ, the gap tightened with 97 new highs and 51 new lows. A similar situation prevailed on the NYSE with 182 new highs topping 22 new lows. Volume was back in the doldrums, signaling the beginning of the summer season, with traders taking off early and heading for the hills, the Hamptons, or Hades.

NASDAQ Volume 1,885,009,375
NYSE Volume 3,921,132,750

Commodities put in an equally lackluster performance, though most were trending lower through much of the day. WTI crude oil on the NYMEX, down most of the session, caught a bid late in the day, finishing up 68 cents, at $99.65. Gold was swamped today, losing $13.10, to $1493.80, while silver managed to eek out a small, 64 cent gain, at $35.26.

There was a lot of posturing and positioning, but no real commitment on the buy side. Sellers won the day and the week as we inch ever closer to the end of QE2.

Finally, financial stocks took the brunt of the selling, with Bank of America (BAC) down 27 cents, to 11.93, Citigroup (C) shedding 89 cents, to $41.53 despite declaring a .01 annual dividend. Apparently, investors were not impressed. JP Morgan Chase (JPM) lost 94 cents, to $43.15 and Goldman Sachs (GS) dipping 1.29 to 141.46.

Continued pressure on the banking sector is symptomatic of the sluggish economy and may portend another round of trouble for the mega-banks. Couldn't happen to a nicer bunch.

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