Ten days ago the dollar index was at the 74.25 level. Today and yesterday, we have been flirting with the 76.25 level. That rally has served to spur “profit taking” some may say, or just a meltdown in prices depending on your prospective.
In the metals, we had had such a run-up, we were over due for this correction.Gold has broken over 100 dollars from its highs as of today’s low at 1,118.10. Silver has lost over 2 cents since it foray towards 19.50, with today’s low at 17.13. Crude Oil has now approached the round number target at 70, with today’s low at 70.20. We saw an inkling of this on the Thanksgiving day Dubai scare, but we had such a powerful rally back, I think a lot of traders got whipsawed. They sold that Thanksgiving day low, had to cover on the rally back up to fresh all time highs in the metal, and then when every one was out, the market moved lower to find value. We have close to a 62 percent retracement in these metals, which may be enough to calm selling pressure through the end of the year.
The stock indexes remain mired in their respective trading ranges, after posting 9-month highs just last week. Again, we have had such a rally from the July 09 lows, not to mention the rally from the March 09 lows, that a correction was over due.
Bears will tell you that its the beginning of the double dip. Only time will tell.
Bulls look at this as a necessary retracemnt on the way back to sustainable growth.
For now, the Dow at 10500 is looking like the resistance, while 10200 is holding as support. A move down to the 10000 level would be a 50 percent ratracement of the last up-leg, and may be a tempting target for bears.
Usually people play a December rally, but if the bears have there way, they will spoil it this year. They certainly seem to have their sights set on lower stock index levels.
The SPZ still has support at 1090, where we are today. The market fell out of bed on Thanksgiving and traded down to the 1070 level. Only time will tell if that level will be tested one more time, but it looks like that on the charts.
Crude oil continues to melt with the rally in the dollar. There is definite fear of this ‘dollar carry trade’. It is starting to become the new buzz word in the financial press. Much like the ‘sub prime’ crisis which has taken 2 years to play out.
Bottom line is, a stronger dollar makes our commodities and our stock market more expensive to the rest of the world. The weak dollar most likely helped spur the rally from last March Lows. A much stronger dollar may force the money flow into other investments, away from gold, oil, beans and corn and wheat.
Already today we have seen the Jan beans go down and test the 1020 level, basically the old lows from the Thanksgiving day sell off. The grains in general have moved with the crude oil today. Several weeks ago it looked as if they had stopped that trade/link. But once again, the beans were led lower by the crude pressure.
Bulls can only hope for a drought in Brazil, or other supply issues to pump up the supply/demand curve. If China follows form, it will most likely step in here soon and scoop up beans on sale as it were. We could see that over the next few days.
At this time of year, with the thin markets, the ride will be whippy.
Good Trading
