Good Morning Traders and Investors,
Regarding Dubai, UNLESS they default, I do not see this putting a stop to the upward momentum in the stock market. There, I said it and I believe it.
BUT, there are significant topics that COULD put a stop to our bullish equity markets:
- Unemployment – jobs report on Friday with a consensus of just over a drop of 100k
- Retail Sales – were you spending money this past Black Friday/Cyber Monday?
- Chart patterns – we have to continue making higher highs and higher lows to continue the trend. The high in $SPX has a high of 1115 – until we bust through and go higher, we may be beginning to fail. Until then though, it is an UPTREND
- International Relations – back in the news, but then again, isn’t it always?
- The Dollar Trade – if international tensions do escalate and money flows back into the dollar, it could signal an equity reversal. Why?
Look at these charts – the relationship between a weak dollar and equity strength is very strong and if the opposite happens then we result in dollar strength and equity weakness. Over the past few weeks as the equity markets have gone relatively sideways, the dollar has seen strengthening and some may even say bottoming.
Now remember, the trend is still down in the USD, but as you can see in the majority of charts above, we are seeing sequence changes where the dollar is posting higher highs and higher lows against the cross pair. The only one that is in true continuation is the USD/CHF which hasn’t showed signs of bottoming.
Does this temporary dollar strength give equity sellers a chance? Maybe, but be careful as the trend in equities is up. Credit spreads (bear calls) may be appropriate as your risk to reward is almost 1 to 1 or 1 to 2 – pretty good for a credit spread and if you can get a little time decay, this may be a nice trade depending on the index, etf or stock you choose.
Happy Trading and Be Environmentally Cool
