This morning, the dollar index is slightly lower, hanging around the 78 level. Dow cash and S&P cash are within a stone’s throw of their recent 9-month highs. Those high are 10566 in the Dow cash, and 1,119 in the S&P500 cash. Highs so far today are the Dow at 10430 and the S&P at 1,112.
I would keep an eye on those recent highs sitting above as targets.
The metals are higher as both Feb gold and Feb silver rally with the slight weakness in the US dollar. On a cautionary tone, I saw two or three articles this week talking about the target of 81 in the dollar index. Usually when such a prediction makes it into the mainstream press, that is a caution flag.
If nothing else, we could have a mini-break to squeeze out all of the johnny come lately-s who called their broker last Thursday and Friday and got long the dollar. Its just the way markets move. We may have to squeeze out these fresh longs before we return to a corrective rally higher.
In the grains, there was a report published last Friday from the Standard Chartered Bank outlining the expected re-balancing of index funds at the first of the year. If you’ve been reading my blog, I have mentioned that for about a month now, as a reason to avoid being short at the beginning of the year. There has been some evidence that perhaps these funds already did some pre-balancing about 2 weeks ago.
In any event, the article spells out the fact that over 6Billion worth of futures contracts are going to be re-balanced. That re-balancing entails purchasing the grain complex, specifically soybeans, corn and wheat.
Since these funds are typically buy and hold, it could result in some short squeezes, if the markets catch a sustained bid after the funds are done buying.
In any event, you have to anticipate this buying.
I compare it to those ocean going racers. Periodically, they are hit broadside by ‘rogue’ waves. Those waves can be 80 or 100 feet high, and usually cause the boats in their path to 1) capsize and roll back, or 2) completely swamp the boats and swallow them into the sea. This massive fund buying is just like one of those waves. One minute the sea is calm, and the next you are looking sideways at a wave the height of the Chrysler building. So, just beware.
Good Trading
