STOCK MARKET NEWS

The US Dollar broke its daily uptrend line. It also broke below the key 80 level. That was what we were looking for when mentioning energy, materials and industrial stocks yesterday. A sell signal in the dollar should have provided lift to those stocks and we felt that it was a good opportunity to buy certain equities in oversold conditions.

However, with such an obvious decline in the US Dollar, gold should have rallied, but it had barely moved higher and $HUI even made new lows. This weakness in the metals has to be paid attention to.

This morning, stocks, oil and gold are all lower as the dollar bounces on Moody’s rating agency comments regarding Spain. Moody’s noted that even with lower targets, Spain’s fiscal outlook remains challenging. Obviously, eurozone issues remain and will provide future capital market volatility.

Financial TV has made it abundantly clear that, and I quote; “there is no riskier place to be than in the 30 year Treasury Bond”. With all the bond bears around, it sounds to me like we may get a tradable bounce as the long bond approaches the 135 support level.

In the short run, it seems to me that the higher probability trade is to look for a long entry in bonds and an exit in stocks.

Probably the best opportunity for long term gains will be in the metals. Mark my words, when this dollar rally ends, the metals complex will be poised for possibly the biggest run it has had yet. If the miners to metal ratio comes back into line, the rally in mining companies will blow your hair back. That rally will make and break many careers as volatility will be incredible.

With the recent weakness in gold and mining companies noted above, it doesn’t appear that the metal rally will start in the next day or two. It may take a few more weeks until the dollar runs out of gas but you never know for sure. The last thing you want to do is not be in this trade because it can start anytime and a year from now the current pause and buying opportunity will look obvious.