Earnings Season: The Dollar Rally Continues
| Recent Top 5 Positions | |||
| Ticker | Position | Sell Date | Return |
| ALJ | Long | 2/14 | +49.8% |
| ECTE | Long | 4/14 | +35.2% |
| JOEZ | Long | 4/11 | +42.2% |
| HILL | Long | 1/31 | +55.5% |
| AXK | Long | 5/31 | +30.2% |
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The market was destroyed yesterday. Volume wasn't meaningfully high, but it was better than the past few sessions. The market ripped lower yesterday morning following concerns that Italy was near a default. And the indices continued to trickle lower into the close.
Most indices finished 2% lower in yesterday's bloodbath. But even that percentage seemed low since most of the stocks I followed declined over 4%.
I can't argue against the strength of yesterday's decline. The selling pressure was strong and it was a continuation of Friday's sell-off. But I can't believe the selling was due to Italy.
While Italy is economically weak, that condition is neither new nor is it an imminent danger.
Over the past few years the financial woes of Ireland, Portugal, Greece, Spain and Italy have been widely covered. And for the past few years the stock market moved higher in the face of that danger. Additionally, the sizes of those countries, from a global economic perspective only, is so small that it makes them largely irrelevant.
Additionally, Italy was able to raise $9.4 billionin a bond auction today. The rate for that debt increased to 3.7% from 2.1%, which is a big increase, but still a reasonable yield. If Italy were in danger, investors would not be so willing to lend money to that country.
The reason why the stock market reacted strongly to the news from Europe is mainly because the dollar popped. An increase to the dollar is generally thought to have a negative impact on stock and commodity prices. Yesterday the dollar was up over 1% after the euro fell 1.3%.
The troubles in Europe add risk to the euro, which over the past few days has declined as fears loom that the currency will evaporate. Even though the PIIGS represent a minor portion of the global economy, if those countries were to disband from the euro, the euro would plummet. And a decline in the euro would result in a equally strong ascent for the dollar, which would add massive downward pressure to the market.
Currently the TradeMaster portfolio is positioned long, and I intend to keep it that way. But if earnings reports begin to disappoint investors and economic data continues to be tepid I will recommend to cash-out and go short.
The indices were down in Asia and down in Europe today. I think the selling is overdone, and I would expect only a mild down session or perhaps even a gain today from the U.S. indices. The earnings from Alcoa (NYSE: AA) yesterday were fine. And the FOMC minutes this afternoon should not release any strange information.
