Once again, the inverse relationship between the US Dollar and US equity markets trumped all other trading strategies and boosted stocks on the final day fo trading for the week.
To get an understanding of how perverse and destructive this relationship has become, consider the trading action this morning, when the university of Michigan released consumer sentiment data for October. The reading, released at 9:55 am ET, fell from 70.6 in October to 66.0 in November. As the numbers hit the street the Dow Jones Industrials fell from a gain of 40 points to slightly into the negative, which would be considered a rational market reaction. However, when the forex traders got hold of the data, viewed as negative for the US economy, they immediately began to sell US Dollars into other currencies, sending the Dollar Index lower.
Faced with the prospect of virtually free money, traders poured into US stocks, turning the indices completely around in a matter of minutes. Within the hour, the Dow was up more than 80 points, with the other indices following suit. As the US Dollar continued to weaken throughout the day against other currencies, stocks held or improved gains overall in a liquidity-driven advance that had nothing at all to do with fundamentals, economic conditions or technical indications.
This is the trade that has produced the 8-month-long rally, as the Fed cut rates to zero and instituted policies that promote liquidity and risk, the very same elements which caused the near-collapse of worldwide financial systems last fall. In the long run, the inverse relationship is destructive to America's best interests, but in the short term, Wall Street is enjoying one of the greatest rallies of all time.
Dow 10,270.47, +73.00 (0.72%)
NASDAQ 2,167.88, +18.86 (0.88%)
S&P 500 1,093.48, +6.24 (0.57%)
NYSE Composite 7,119.89, +56.84 (0.80%)
On the day, advancing issues beat decliners by a healthy margin, 4005-1804, but new highs did not expand their edge over new lows, with the reading of 215-75. Volume was ridiculously low, about what one would expect from a 1/2 session in a normal market, further impressing the idea that the rally, based almost entirely on liquidity, is at its end, unsustainable.
NYSE Volume 3,936,243,500
NASDAQ Volume 1,840,433,000
Naturally, the weaker US Dollar helped commodities, though oil could not muster anything but to turn a large decline into a smaller one by day's end, dropping 59 cents, to $76.35, mostly on slack demand. Gold ramped up again, adding $10.20, to end the week at $1,116.80. Silver continued to lag behind its shiny cousin, gaining only 13 cents, to $17.39.
Next week will offer more earnings results from a variety of retailers, though economic reports are likely to dominate the financial news, with readings on retail sales, capacity utilization, PPI, CPI, housing starts and leading economic indicators among the data that will flow to investors.
Friday, November 13, 2009
Thursday, November 12, 2009
S&P Confirmation Not Enough; Markets Trumped by Strong Dollar
As much as one would like to believe Tim Geithner's commitment to a strong dollar policy, skepticism will remain high until there's actual action behind his words. In the absence of official US action to strengthen the greenback, finance officials of other nations have apparently taken action over the past few days, boosting the dollar from a low of 74.8 on Wednesday morning to a high of 75.76 just before 4:00 pm ET today.
Continued weakness in the US dollar has been causing all manner of market distortions, especially in commodity and US equity markets. The trade over the past 6 months has been an easy inverse relationship between the dollar and US equities. Cheaper dollars made stocks cheaper to purchase, fueling a powerful rally in stocks. However, the relationship is eventually unsustainable, though breaking the vexing inverse trade will take more of the kind of quiet intervention witnessed today.
Leading the charge was the Euro, which fell sharply against the US dollar. It's almost a European mandate, as the high Euro is making European products more costly, thus, less competitive in world markets. There seems to be a concerted effort to strengthen the dollar - despite the subdued protestations by US officials and stock traders - at the expense of the Euro, the target level appearing to be somewhere above 76 on the dollar index. The target would appear to be somewhere below 1.45 Euros to the US Dollar, which will take some doing, as the Euro currently trades at 1.4842 to 1 US Dollar. The result will be a more competitive environment for European products and a moderation in the prices of US stocks.
Eventually, the weak dollar trade must be unwound because it is entirely wrong for the US. It's akin to selling the same products at lower and lower prices in each business cycle in a fire sale environment. The US standard of living would continue to fall as the currency is debased. As much as the Fed and Treasury are attempting such a debasement - with grand success thus far - our trading partners are not happy with the arrangement. While the eventuality of a debased US currency may be a fait acompli, current movement in the forex markets are forestalling the event as much as possible.
As the dollar gained strength today, stocks fell, cutting short the nascent rally which began last week. Markets once again seem to have topped out temporarily, and it may actually be time for a serious reversal, much of which will have little to do with fundamental valuations and more to do with technical levels driven by the dollar trade.
Confirmation of the new Dow Industrial highs, which were narrowly confirmed by the S&P yesterday, weren't enough to stop stocks from skidding lower. The Dow Transports fell sharply in non-confirmation, setting the stage for more downside in stocks.
Dow 10,197.47, -93.79 (0.91%)
NASDAQ 2,149.02, -17.88 (0.83%)
S&P 500 1,087.24, -11.27 (1.03%)
NYSE Composite 7,063.05, -92.31 (1.29%)
declining issues danced all over advancers on the day, 4558-1285, or about 5:2. There were 273 new highs to 86 new lows, a margin significantly narrower than yesterday's. Volume remained tepid.
NYSE Volume 4,341,626,500
NASDAQ Volume 2,219,716,750
Commodities were slammed by the dollar rise. Crude oil fell $2.34, to $76.94, with more downside indicated, as warm weather in the US Northeast and slack demand helped push down prices for all energy products. Gold was off $8.00, to $1,106.50, with silver falling 28 cents, back to $17.27.
The deflation trade reared its head once again, and it probably won't be the last time.
Continued weakness in the US dollar has been causing all manner of market distortions, especially in commodity and US equity markets. The trade over the past 6 months has been an easy inverse relationship between the dollar and US equities. Cheaper dollars made stocks cheaper to purchase, fueling a powerful rally in stocks. However, the relationship is eventually unsustainable, though breaking the vexing inverse trade will take more of the kind of quiet intervention witnessed today.
Leading the charge was the Euro, which fell sharply against the US dollar. It's almost a European mandate, as the high Euro is making European products more costly, thus, less competitive in world markets. There seems to be a concerted effort to strengthen the dollar - despite the subdued protestations by US officials and stock traders - at the expense of the Euro, the target level appearing to be somewhere above 76 on the dollar index. The target would appear to be somewhere below 1.45 Euros to the US Dollar, which will take some doing, as the Euro currently trades at 1.4842 to 1 US Dollar. The result will be a more competitive environment for European products and a moderation in the prices of US stocks.
Eventually, the weak dollar trade must be unwound because it is entirely wrong for the US. It's akin to selling the same products at lower and lower prices in each business cycle in a fire sale environment. The US standard of living would continue to fall as the currency is debased. As much as the Fed and Treasury are attempting such a debasement - with grand success thus far - our trading partners are not happy with the arrangement. While the eventuality of a debased US currency may be a fait acompli, current movement in the forex markets are forestalling the event as much as possible.
As the dollar gained strength today, stocks fell, cutting short the nascent rally which began last week. Markets once again seem to have topped out temporarily, and it may actually be time for a serious reversal, much of which will have little to do with fundamental valuations and more to do with technical levels driven by the dollar trade.
Confirmation of the new Dow Industrial highs, which were narrowly confirmed by the S&P yesterday, weren't enough to stop stocks from skidding lower. The Dow Transports fell sharply in non-confirmation, setting the stage for more downside in stocks.
Dow 10,197.47, -93.79 (0.91%)
NASDAQ 2,149.02, -17.88 (0.83%)
S&P 500 1,087.24, -11.27 (1.03%)
NYSE Composite 7,063.05, -92.31 (1.29%)
declining issues danced all over advancers on the day, 4558-1285, or about 5:2. There were 273 new highs to 86 new lows, a margin significantly narrower than yesterday's. Volume remained tepid.
NYSE Volume 4,341,626,500
NASDAQ Volume 2,219,716,750
Commodities were slammed by the dollar rise. Crude oil fell $2.34, to $76.94, with more downside indicated, as warm weather in the US Northeast and slack demand helped push down prices for all energy products. Gold was off $8.00, to $1,106.50, with silver falling 28 cents, back to $17.27.
The deflation trade reared its head once again, and it probably won't be the last time.
Wednesday, November 11, 2009
Getting Forex Training from Experts
Becoming successful at anything requires expertise, but when it comes to trading, acquiring such expertise can be time-consuming and expensive, especially if one is using real money starting out trading stocks, bonds, options or futures.
But, it need not be that way, since there are an abundance of resources available, many of them online, and many of them provided for free or at reasonable prices.
One such resource with which I recently became acquainted is Online Trading Academy, a company that's been a leader in the field of trader training since 1997. Not only does the company offer a variety of free and paid courses on its web site, in fields as diverse as short term trading, ETFs, options and investment theory, their 2 day Forex Trading Course is available either online or at one of their many convenient training locations - in places as geographically diverse as Ireland, Singapore, Dubai or any of their 21 US locations.
The Forex Trading course is designed to offer students a complete world view of currency trading, covering all of the basic elements such as the history of Forex and why it makes sense to switch to Forex from currencies, all the way to advanced subjects such as technical analysis, risk management, leverage and remote trading.
With a background in educating traders to make use of the same tools the professionals use, Online Trading Academy is the choice for anyone who desires to make money in the markets and the Forex Trading Course an excellent choice, taught by professionals with experience in the field.
But, it need not be that way, since there are an abundance of resources available, many of them online, and many of them provided for free or at reasonable prices.
One such resource with which I recently became acquainted is Online Trading Academy, a company that's been a leader in the field of trader training since 1997. Not only does the company offer a variety of free and paid courses on its web site, in fields as diverse as short term trading, ETFs, options and investment theory, their 2 day Forex Trading Course is available either online or at one of their many convenient training locations - in places as geographically diverse as Ireland, Singapore, Dubai or any of their 21 US locations.
The Forex Trading course is designed to offer students a complete world view of currency trading, covering all of the basic elements such as the history of Forex and why it makes sense to switch to Forex from currencies, all the way to advanced subjects such as technical analysis, risk management, leverage and remote trading.
With a background in educating traders to make use of the same tools the professionals use, Online Trading Academy is the choice for anyone who desires to make money in the markets and the Forex Trading Course an excellent choice, taught by professionals with experience in the field.
Quiet Trading Day Yields New Highs on S&P, Dow
Yesterday, as reported below, the marketeers sought confirmation for the new closing highs on the Dow Jones Industrials, and today, confirmation is exactly what was provided by the S&P 500, which finished just a fraction above the old closing high of 1097.91, at 1098.50, sufficient to keep rally hopes alive for the near term.
While confirmation by the S&P won't satisfy the purist sensibilities of the Dow Theorists in the crowd, it's a good enough finish on a very slow trading day to keep confidence in the ranks of traders, investors and speculators. Oddly enough, the brain trust at CNBC completely missed the data, not even reporting it, focusing instead on earnings from Applied Materials (AMAT) - which were outlandishly good, by the way - and the aquisition of 3Com (COMS) by tech giant Hewlett Packard (HPQ).
To the technicians among us, AMAT's earnings and the HP news don't even come close to the importance of index confirmation, and it's a testament to the shoddiness of reportage by the financial media. (Last night, I tried to watch Fox's Financial Network and was as revolted by that as I was by their political coverage. Just what does Ann Coulter know about economics? She was one of the panelists on one of their shows. I won't be tuning into that pile of garbage again soon, as I much prefer the wit and wisdom of Bloomberg's Bernie Lo (pictured at right), host of Asia Confidential, for my late-night viewing.)
Getting back to Dow Theory, we anxiously await confirmation of the new highs - and the next leg of this delicious rally - by the Dow Jones Transportation Index (^DJT), which almost turned the trick on Veteran's Day, closing at 3988.00, a mere 57 points away from the magic number. If the Transports repeat today's performance, we'll have double confirmation in hand heading into Friday's trading.
Once again, the paucity of news and/or corporate earnings reports left traders to their own wits, largely battling the ravages of a runaway dollar index, which nearly scuttled the entire affair. One should not be too concerned with a rising dollar longer term, however much the government sock puppets like Tim Geithner tout a strong dollar policy. Our intrepid Treasury Secretary, doing front work for the President, said, "I believe deeply that it's very important to the United States, to the economic health of the United States, that we maintain a strong dollar," yesterday when meeting with Japanese officials in Tokyo. If you listen closely, you can actually hear the polite snickering by the Japanese finance ministers.
Dow 10,291.26, +44.29 (0.43%)
NASDAQ 2,166.90, +15.82 (0.74%)
S&P 500 1,098.51, +5.50 (0.50%)
NYSE Composite 7,155.36, +28.94 (0.41%)
Advancing issues beat decliners, 3654-2181, and new highs maintained their distinct advantage over new lows, 405-75. Volume was once again pathetic, the lowest of the month so far, due partially to the holiday and partially to lack of interest from money managers who have already locked in gains of 30-40% or more for the year. Low volume has been a signature of this rally for the entire duration, so it should be no surprise that markets continue higher for the rest of the year without intense participation. It just makes it easier for those who were late to the party to catch up with the real front-runners.
NYSE Volume 4,509,091,000
NASDAQ Volume 1,873,781,875
Commodities were discounting the unusual rise in the dollar, though hardly. Oil paid the most attention, gaining just 23 cents to finish in NY at $79.28. Gold ramped higher, up $12.00 to a new record high of $1,114.50. Silver finally got some attention, adding 32 cents, to $17.55.
The final word on this newest leg of the rally is that it may be a quick and powerful one, taking the Dow up to possibly the 10,800 level before the year is out. Gone is all the bearish talk of a 10-15% correction, the market just having completed its 5th 5% pull-back a little more than a week ago. All indications point toward higher finishes until Thanksgiving.
While confirmation by the S&P won't satisfy the purist sensibilities of the Dow Theorists in the crowd, it's a good enough finish on a very slow trading day to keep confidence in the ranks of traders, investors and speculators. Oddly enough, the brain trust at CNBC completely missed the data, not even reporting it, focusing instead on earnings from Applied Materials (AMAT) - which were outlandishly good, by the way - and the aquisition of 3Com (COMS) by tech giant Hewlett Packard (HPQ).
To the technicians among us, AMAT's earnings and the HP news don't even come close to the importance of index confirmation, and it's a testament to the shoddiness of reportage by the financial media. (Last night, I tried to watch Fox's Financial Network and was as revolted by that as I was by their political coverage. Just what does Ann Coulter know about economics? She was one of the panelists on one of their shows. I won't be tuning into that pile of garbage again soon, as I much prefer the wit and wisdom of Bloomberg's Bernie Lo (pictured at right), host of Asia Confidential, for my late-night viewing.)Getting back to Dow Theory, we anxiously await confirmation of the new highs - and the next leg of this delicious rally - by the Dow Jones Transportation Index (^DJT), which almost turned the trick on Veteran's Day, closing at 3988.00, a mere 57 points away from the magic number. If the Transports repeat today's performance, we'll have double confirmation in hand heading into Friday's trading.
Once again, the paucity of news and/or corporate earnings reports left traders to their own wits, largely battling the ravages of a runaway dollar index, which nearly scuttled the entire affair. One should not be too concerned with a rising dollar longer term, however much the government sock puppets like Tim Geithner tout a strong dollar policy. Our intrepid Treasury Secretary, doing front work for the President, said, "I believe deeply that it's very important to the United States, to the economic health of the United States, that we maintain a strong dollar," yesterday when meeting with Japanese officials in Tokyo. If you listen closely, you can actually hear the polite snickering by the Japanese finance ministers.
Dow 10,291.26, +44.29 (0.43%)
NASDAQ 2,166.90, +15.82 (0.74%)
S&P 500 1,098.51, +5.50 (0.50%)
NYSE Composite 7,155.36, +28.94 (0.41%)
Advancing issues beat decliners, 3654-2181, and new highs maintained their distinct advantage over new lows, 405-75. Volume was once again pathetic, the lowest of the month so far, due partially to the holiday and partially to lack of interest from money managers who have already locked in gains of 30-40% or more for the year. Low volume has been a signature of this rally for the entire duration, so it should be no surprise that markets continue higher for the rest of the year without intense participation. It just makes it easier for those who were late to the party to catch up with the real front-runners.
NYSE Volume 4,509,091,000
NASDAQ Volume 1,873,781,875
Commodities were discounting the unusual rise in the dollar, though hardly. Oil paid the most attention, gaining just 23 cents to finish in NY at $79.28. Gold ramped higher, up $12.00 to a new record high of $1,114.50. Silver finally got some attention, adding 32 cents, to $17.55.
The final word on this newest leg of the rally is that it may be a quick and powerful one, taking the Dow up to possibly the 10,800 level before the year is out. Gone is all the bearish talk of a 10-15% correction, the market just having completed its 5th 5% pull-back a little more than a week ago. All indications point toward higher finishes until Thanksgiving.
Tuesday, November 10, 2009
Desperately Seeking Confirmation
Following the new 52-week and 2009 highs set by the Dow Jones Industrial Average on Monday, investors were put into a quandary on Tuesday, one which will likely be resolved at some time this week. The question on the minds of most traders is whether or not the rally has sufficient energy to first, sustain current levels, and, secondly, to move to even higher ground in the immediate future.
In search of an answer to those questions, technical analysis should provide the most propitious resolution. From two to four separate indices should provide either confirmation or counterweight to the Dow's new closing highs. The most important of these is probably the S&P 500, which, on Monday, closed at less than 5 points off its own closing high of 1097.91, which was the level recorded on October 19. It may be splitting hairs, but a close above that is a vital element, necessary to move the overall indices higher.
Next on the list is the Dow Jones Transportation Average (^DJT) which made its own closing high (4045.11) on October 20, but has since backed well off, finishing today more than 100 points lower than that level (3916.91). A certain paradox comes into play with the relation to the Industrials, as their prior peak was on October 19 (1092.19) and was confirmed by the Transports the following day.
So, the Industrials have moved ahead, alone, and seek a partner for confirmation. One explanation is that the Dow moved in solitary fashion as a brief flight to quality and safety, and the fundamentals for the other parts of the market are not strong enough to keep pace. The Industrials are just 30 stocks, most of which are paying high quality dividends - taken together yielding better than 3.5% - whereas the S&P 500 is much broader (500 stocks). The Transportation index is comprised of just 20 stocks, a good number of them airlines, which have suffered badly through the economic downturn and have yet to recover. Thus, the confirmation may be a bit of a stretch at this juncture.
As a proxy for the airlines, consider Priceline.com (PCLN), the travel discounter, which today announced 3rd quarter operating results and blew away estimates, sending shares up more than 30 points (17%) on the news. This company might be more useful in determining the overall market strength of the Transports, being a much more efficient model than the airlines themselves. Also adding to the no-confirmation-needed argument is FedEx (FDX), which projected today that their busiest day this year - December 14 - would also be their busiest day EVER!
While FedEx is a component of the Dow Jones Transportation Index, Priceline.com is not, though maybe it's time for the Transportation index to "get up to speed" with the evolution of technology in transportation. Given that argument, the Transports would have blown through their previous highs and provided confirmation to the lonely Industrials.
Further down the pecking order are the NASDAQ and NYSE Composite, the two broadest measures of the market, both of which reached closing highs on October 19 of 2176.32 and 7222.21, respectively, and have yet to return to those levels, though they are not far off of them.
All of this sets up a very interesting scenario for Veteran's Day, in which the stock markets are open, but all banks and bond markets are closed, so, if one thought stocks were "going on alone" this week, without the aid of economic or corporate reporting, Wednesday will be a real loner. Maybe some of those bond-trading titans will lend a hand over at the NYSE.
On the day, only the Dow finished in the green, though the losses suffered by the other indices were marginal.
Dow 10,246.97, +20.03 (0.20%)
NASDAQ 2,151.08, -2.98 (0.14%)
S&P 500 1,093.01, -0.07 (0.01%)
NYSE Composite 7,126.42, -8.91 (0.12%)
Declining issues finished ahead of advancers, 3594-2180. New highs finished ahead of new lows, 315-85. Volume was low again, a signature of this week's trading.
NYSE Volume 4,508,971,500
NASDAQ Volume 2,010,213,625
Crude oil lost 38 cents, to $79.05. Gold gained $1.10, to $1,102.50, but silver continued to lag, down 26 cents, at $17.23.
In search of an answer to those questions, technical analysis should provide the most propitious resolution. From two to four separate indices should provide either confirmation or counterweight to the Dow's new closing highs. The most important of these is probably the S&P 500, which, on Monday, closed at less than 5 points off its own closing high of 1097.91, which was the level recorded on October 19. It may be splitting hairs, but a close above that is a vital element, necessary to move the overall indices higher.
Next on the list is the Dow Jones Transportation Average (^DJT) which made its own closing high (4045.11) on October 20, but has since backed well off, finishing today more than 100 points lower than that level (3916.91). A certain paradox comes into play with the relation to the Industrials, as their prior peak was on October 19 (1092.19) and was confirmed by the Transports the following day.
So, the Industrials have moved ahead, alone, and seek a partner for confirmation. One explanation is that the Dow moved in solitary fashion as a brief flight to quality and safety, and the fundamentals for the other parts of the market are not strong enough to keep pace. The Industrials are just 30 stocks, most of which are paying high quality dividends - taken together yielding better than 3.5% - whereas the S&P 500 is much broader (500 stocks). The Transportation index is comprised of just 20 stocks, a good number of them airlines, which have suffered badly through the economic downturn and have yet to recover. Thus, the confirmation may be a bit of a stretch at this juncture.
As a proxy for the airlines, consider Priceline.com (PCLN), the travel discounter, which today announced 3rd quarter operating results and blew away estimates, sending shares up more than 30 points (17%) on the news. This company might be more useful in determining the overall market strength of the Transports, being a much more efficient model than the airlines themselves. Also adding to the no-confirmation-needed argument is FedEx (FDX), which projected today that their busiest day this year - December 14 - would also be their busiest day EVER!
While FedEx is a component of the Dow Jones Transportation Index, Priceline.com is not, though maybe it's time for the Transportation index to "get up to speed" with the evolution of technology in transportation. Given that argument, the Transports would have blown through their previous highs and provided confirmation to the lonely Industrials.
Further down the pecking order are the NASDAQ and NYSE Composite, the two broadest measures of the market, both of which reached closing highs on October 19 of 2176.32 and 7222.21, respectively, and have yet to return to those levels, though they are not far off of them.
All of this sets up a very interesting scenario for Veteran's Day, in which the stock markets are open, but all banks and bond markets are closed, so, if one thought stocks were "going on alone" this week, without the aid of economic or corporate reporting, Wednesday will be a real loner. Maybe some of those bond-trading titans will lend a hand over at the NYSE.
On the day, only the Dow finished in the green, though the losses suffered by the other indices were marginal.
Dow 10,246.97, +20.03 (0.20%)
NASDAQ 2,151.08, -2.98 (0.14%)
S&P 500 1,093.01, -0.07 (0.01%)
NYSE Composite 7,126.42, -8.91 (0.12%)
Declining issues finished ahead of advancers, 3594-2180. New highs finished ahead of new lows, 315-85. Volume was low again, a signature of this week's trading.
NYSE Volume 4,508,971,500
NASDAQ Volume 2,010,213,625
Crude oil lost 38 cents, to $79.05. Gold gained $1.10, to $1,102.50, but silver continued to lag, down 26 cents, at $17.23.
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