Metals Recover to Start the Week
The market declined last week, which is it's first decline of over 1% in some time. Volume picked up, but not in a significant manor. The turn in the market happened to coincide with a turn in the dollar.
Over the past month I have mentioned how important the dollar will be for the market's next move. The dollar and the market have an inverse relationship. And while they can both move in a similar direction for brief spans, more often, a decline in the market results in an increase to the dollar - and the other way around.
The dollar is in a precarious position. I discussed the dollar in great detail in both the weekend video and in last week's commentary. In the past month the dollar has blown past two major levels of support. And while the dollar has yet to breach it's all time low $70.70 from 2008, it is within striking distance of doing so.
The dollar first needs to take back $75, which could happen this week. If the dollar can take back that level of support, there is a chance it can rally back into $80 and possibly higher from there. But if $75 turns into a resistance zone, then another sizable, long lasting, decline in the dollar is likely.The market loves a declining dollar. While the dollar has fallen roughly 15% in the past year, the market increased 30% over that time. Many believe that a decline in the dollar will have a proportional increase to any asset priced in dollars. In fact, there are some financial experts who believe that many assets have a relationship that is more reactive than a one to one correlation.
Accordingly, it can be concluded (by some) that the entire increase from the market over the past year is a direct result of the decline to the dollar.
While I believe fundamental conditions in the economy have improved, as well as corporate financials, the fall in the dollar did help the equity market increase over the past year. And I most certainly believe that a rise in the dollar will terminate the recent rally from 1250. The stabilization from the dollar has already vexed the commodity market.
At the moment it is unclear how far the market will decline. To the bull's credit, the group developed a lot of support levels on the way up.
As such, any decline is more likely to be a series of sharp declines over a few months as opposed to one or two massive declines over a couple of sessions.
But at this point, the dollar has yet to prove it bottomed. Also, the market does not appear to have topped. While we can be ready for either, currently, neither situation exists.
This week the SPX should have strong support at 1332 and 1301. A break below 1301, especially early this week, is reason to be bearish. Conversely, a move above 1355 is reason to be extra bullish. I, of course, favor the bulls, but buyers have had unbelievable difficultly taking out 1350 resistance. I will look to add more long positions this week, and maybe even try to take a few silver miners, but as always let's keep tight stops.
Watch List
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