Equity markets are trading higher overnight. These markets are rapidly approaching 50% of the break from Sunday night’s high to yesterday’s low. This will be a critical area as traders will have to decide at that point to continue to add to the move.

Based on the events the last two days, it is clear that investors are still in the “buy the dip” mode. Yesterday’s break finished very close to 50% of the range of the past 30 days.

Speculation that the global economy is in a position to turn later in this year is the primary driving force behind the rally. Money has also been leaving the precious metals market which means more cash will be available for equities. Finally, we are coming into the end of the quarter, which could mean institutional investors who have missed the rally will “chase the market” in an effort to capture some return.

If big money begins to chase this market then there may be a huge spike to the upside. This is why it is still not safe to get short. Many analysts have been calling for a major retracement to the down side, but I think this is unlikely until after the end of the quarter and closer to when earnings are reported in July.

September Treasury Bonds and September Treasury Notes traded steady yesterday as some money left the equities while the break was taking place. This was just a short-term reaction to the day’s events. Overnight, Treasuries are feeling pressure and could lose even more if the Dollar and equities continue their strength throughout the day.

Longer-term, Treasury traders are still concerned about inflation. This morning’s PPI showed a slight rise in inflation, but nothing to worry about yet. Investors will not commit to the long side of the financials until the Treasury stops asking for money to finance the debt.

After a one-day reprieve, the U.S. Dollar is under pressure again this morning. Yesterday’s action was a reaction to positive comments from Russia regarding the status of the Dollar as the world’s reserve currency. Brazil, Russia, India and China will be meeting to discuss the status of the Dollar as a reserve currency. Traders are taking precautions ahead of this event just in case something negative comes out of the meeting.

The weaker Dollar is triggering a recovery rally in the precious metals. This is more of a technically related move. Fundamentally, without inflation to drive the market higher, traders seem content with standing on the sidelines or investing in stocks.

Gold and Silver traders have been punished twice this year looking for the big surge to the upside. At some point inflation will come back, but the timing is critical. Price action indicates that gold investors are tentative buying strength so maybe this current break was a good thing for the market’s structure.

Crude oil is still in an uptrend. Demand is beginning to show up but at a slow rate of acceleration. The trading action in this market indicates that price may be ahead of the demand, but there does not seem to be a big seller out there. Speculators are being careful not to trigger a huge surge to the upside like last year. Slow and steady is the style this year.

Grain markets are still in an uptrend, but yesterday’s action shows how critical the Dollar is to this market’s structure. If the Dollar strengthens then all of the forecasts for record low inventories will prove to be false because the projected demand will not be there.

Ideal growing conditions are helping the Corn crop to catch up after a late-planting season. This could help the crop make up for any projected losses. The key is the Dollar, however. Demand has to continue to be steady or this market will weaken.

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