The Slide in Metal Continued
The market climbed higher at the open yesterday, but indices could not hold that gain by the end of the day. Monday's session was actually more bearish than it looked as small caps and energy stocks were whacked going into the final hour. Fortunately yesterday did not appear to be a major top, although it may become the high of the week.
The SPX came within a few points of my 1377 price target. Selling immediately picked up over 1369, which let’s us know a resistance area is likely to develop near that zone. But with the dollar still in a decline, it’s hard to fathom SPX falling much further than 1345 over the next couple of days.
At this point, the market direction is highly dependant on the dollar. Recently, the dollar broke through my “must hold” support level; and went onto lose another 3% following the breakdown from $75. Honestly, I would expect a pause from the decline soon, but until the dollar can rally 3.5% and take back its lost long term support, it is likely to fall much further.
Fortunately, we have news of major significance coming up in a few sessions that could very easily push the dollar in a new direction. From the U.S. data related to ADP and nonfarm Payrolls will be announced. Ben Bernanke used the unusually high rate of unemployment as an excuse to flood the world with dollars (thus decrease their value). Should employment show a major improvement, the U.S. may be forced to tightened monetary policy in order to stave off inflation much sooner than Ben Bernanke or the Fed anticipated.
Additionally, Australia, India, England and Eurozone will make interest rate announcements this week. India raised their rate this morning 0.5% and Australia kept its interest rate steady at 4.75%. The bank of England has a rate of 0.5% while the European Central Bank holds its rate at 1.25%. Neither is expected to raise the rate on Thursday, but both are expected to raise it sometime soon this year. A surprise rate hike or a surprise firm stance to keep interest rates at the same level would jar a major reaction from the dollar.
Speaking of major reactions, silver collapsed yesterday and my October 30 puts look much better than they did a week ago when I purchased them. I mentioned in a weekend video and later in an alert last week that I was short silver. I continue to hold my position and will likely add to it as the month of May progresses.
But that is in my personal holdings, the TradeMaster account is different. And the TradeMaster portfolio is much lighter than it was to start the week. We were stopped out of CDY, which I mentioned was very likely happen in the weekend video, and WATG took an unexpected turn south. I will look to quickly replace both of those positions as early as this morning.
A falling dollar will lend support to the bulls and their rally. But any increase in the dollar, which is nearly universally loathed, would devastate stocks and commodities. I think the dollar is the single most important chart to watch when gauging the longevity of the market rally. But for now, there is no end in sight to the decline of the perilous dollar.
The sell off we have in commodities today is another development that needs to be watched closely this week. Commodities are extremely volatile and this situation could easily escalate quickly.
Watch List
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