Will the Government Shut Down Crash the Stock Market
The market continued
its sideways move yesterday and banged-up against 1335 resistance for
most of the session. Over the past five sessions the market has been
stuck in a small range and trading on less than average volume. The slow
grind this week was exactly what
I expected, although I did think it would close below 1330 a few
times.
Either way, it is Friday, and the slow paced week is about to end
and I can assure you that the indices will not stay this idle paced for
long once earnings season hits full stride over the next month. Oddly
enough, today could be a very active session because the dollar is in
free fall this morning. And that has commodities like oil and gold ready
to blast higher.
I do not really see today’s pop in commodities as having any
lasting ability, but as long as the dollar keeps plummeting, the price of
commodities will rise.
Of course, Ben Bernanke will deny such obvious realities. But it is
clear to everyone, likely even Ben Bernanke off camera, that quantitative
easing has a negative impact on the dollar. And a falling dollar makes
the things that it’s priced in (stocks, oil, gold) rise.
The dollar and stocks do not always have an
inverse correlation, but for the most part, if the dollar is increasing,
stocks typically will fall. And that is perhaps one reason that we did
not get a larger decline this week. I think that it is pretty clear to
anyone that the market wanted to head lower this week. On such a low
volume week, if the bulls actually wanted to blast though 1335 resistance
they easily could have.
But they didn’t. The bulls broke that resistance everyday intraday,
but ran away from stocks at the close. This suggests to me that no real
money was entering the market. And the only reason why the indices are
showing a flat week is because the dollar remained weak, which provided a
minor boost to commodities and stocks.
I continue to remain a long term dollar bull. Over the past few
months, as many of you know, I have not been bullish on the dollar – in
fact I even went long the euro last month. But until long term support
areas are violated, I believe the dollar will rally before the end
of 2011.
Of course, that rally needs to occur very soon. The dollar is
trading within 1% of what I deem to be a must hold area of support. And
it just so happens that earnings season as well as government fiscal
talks will begin to resolve by next week. Although I am optimistic that
the dollar will see a lasting rebound, if it breaks support it will fall
– and it will fall fast and hard another 6%.
Such a decline would easily propel the indices up by the same
amount, likely more. That would put SPX up to 1400, the Nasdaq up to 2975
and the Russell 2000 to new all time highs of 905. God only knows how
high oil would shoot to, $125 minimum, and gold (GLD) would very likely
hit my $1500 ($150) bull flag price target - finally.
A little gold miner, Nevada Gold (AMEX: UWN) deserves your
attention. It had a massive break out last week and continued higher
through Thursday. The first target from the wedge break out is $1.60, so
expect it to consolidate in short order and allow you an entry in and
around $1.40. Then take it for a ride to $1.85 within three weeks.
The weekend video will be back in full force this weekend. I will
cover the market and have lots of great setups to share. A few stocks
that we will cover will be from The Top Ten Trades of April report issued
last week. The
video can be viewed here. And it seems that many of you have already
made 30% or more from its analysis. Great trading!! Have a great
weekend.
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