Friday, December 11, 2009

Great Economic News Today!! Stocks Struggle, Nasdaq in the Red, Dollar Surges, Not Quite What You'd Expect...

Great economic news came out today on retail sales and consumer sentiment data that really blew away what economists estimated the numbers would be. So the Dow should be up 200 points right? The recovery is on track so it's Dow 30,000 in a few years right? Well the Dow has been trading up a meager 40 points all morning and the Nasdaqs have actually turned negative at this time with the XLF and Russell 2000 about to go red too. Why? It's all in the US dollar. The dollar rallied big this morning, which has put tremendous pressure on the stock market. Earlier this week I said in response to the stock market reversal and dollar strength after the great non-farm payroll numbers:

The stronger dollar and weaker commodity action is putting severe pressure on the stock market. This all started with the dollar rally after the good jobs report Friday. So if you follow financial news and feel it moves the market, then think about this: the stock market rallied primarily on dollar weakness as you can see from the inverse tight correlation to the US Dollar Index (DXY). This is all happening when the so-called "recovery" is getting its legs. Now a great jobs number comes out on Friday and the dollar rallies because investors fear the Fed will raise rates sooner than expected. This causes stocks to sell off. So the stock market is rising on the hopes that the recovery is on firm legs but sells off when things get too good because the Fed might raise rates. So if good news and a good recovery won't push the stock market higher, what will? Darned if it does and darned if it doesn't. The bulls are in a tough spot here. Click here for full post

Well today, similar action occurred. The retail sales and consumer sentiment numbers blasted estimates, coming out much better than expected. Yet the stock market is struggling to stay in the positive as a whole. Why? Because the dollar rallied again on this good news as you can see from my USD/CHF chart above. Most of the rally from the March 2009 lows have been on dollar weakness, so it was just that prices rose mostly on dollar weakness; not that any fundamental or intrinsic value in stocks occurred. So when the dollar reverses, so will the stock rally.

The dollar is surging hard against the euro and swiss franc, but isn't performing as well against the British pound and Australian dollar so I'd like to see to dollar make new highs against these other currencies soon. But as it stands now, the dollar bull run has resulted in commodity weakness; gold, silver and oil reversed sharply this morning; which will also put tremendous pressure on the stock market. So the market is set to fall on bad news, and struggle or fall on good news. Again, the bulls are in a tough spot here at this juncture. I spoke about this also earlier this week, click here to view that post.

With that said, on the 15 min S&P cash index chart attached you can see it traced out a 5 wave rally which was confirmed by the Dow, but not the Nasdaq Composite or Russell 2000. But with 5 waves up from the lows, caution is still warranted for the bears at this point. I'm still short term neutral (long term bearish) the stock market until we get solid evidence of a top, and I'm still short term and long term bullish the US dollar.


Michael Eckert,aka-Columbia1 said...

Nice Todd, interesting watching all the markets struggle with all the internal relationships out of whack!!

Anonymous said...

this market is so screwed up

i cant believe we have not had a 5-10 % pullback yet

i would love to see sunday night futures down about 100

Todd said...

Thanks Michael for the comment

Todd said...

I'd like to see the futures down big as well but the very fact that the market hasn't pulled back 15%-20% further strengthens the long term bearish case in my view. A market soaring this much without a solid pullback is not healthy. It's a "panic buy" rally, not a steady and methodical buying of fundamentally good stocks. A panic buy cannot be sustained for long periods of time. They will reverse.

whitemule said...

many of the ewavers now bullish which scares me

bbands tightest in years, huge move coming and i am starting to think it will be up since we've been consolidating so long

i am too short right now and underwater big

this has been so frustrating

Todd said...

I share in your frustration Whitemule. However I know that catching a top of this magnitude will be extremely difficult. Any rally from here should be a final blowoff top and quickly reversed, in my opinion.

I'm not sure what elliott wavers you're referring to that are turning bullish, but the ones I closely follow are Elliott Wave International, Bob Prechter, and Glenn Neely; all of which remain staunch bears and getting more bearish by the day. If some perma bears are flipping to bullish then I'd take that as a contrarian indicator supporting a top, not the other way around.

Just my view. But no doubt, this rally continuation has been quite torturous. I'm just staying disciplined, focused on the facts not emotions, and most importantly I'm making sure I remain solvent. The rewards will come....


Anonymous said...


tony caldaro is saying 1165 and kenny is bullish too

prechter scares me cause every time he opens his mouth it seems the market goes up

i also fear the market manipulation that is going on, imo all the economic data is being twisted and manipulated, feels like a losing battle

Todd said...

Thanks for posting those names, I'll check them out.

Prechter did very well the first wave down, but has been terrible this time far.

If precious metals rally to new highs, the dollar falls back down to new lows, and the Russell 2000 and XLF make new yearly highs confirming the Dow and S&P's rise, then I'll get a bit uneasy about the big bear position. Until then, I see no reason to be bullish; just my view.

Thanks again for posting,

Gustavo said...

I think the things are very simple today.
The market need to go DOWN and far DOWN.
The people manipulating the prices higher with the news cannot get what the people come back to buy cars to GM and don't help the consumers with the false inflation generated.
Then we need one healthy deflacionist environment and what who is paying in this prices in the stock markets go broke.