The bottom reversal intraday on Thursday was on the weak side, but needed to be investigated moving forward. The modest gains on Friday kept the hopes alive for the reversal to follow through and today the broad indexes all jumped 1.2% as the stimulus story globally take a new turn with China in the mix. There is not doubt that investors continue to love the stimulus stories as they unfold. Currently it seems to be the only catalyst that gets things moving. The other side of that story is the reason the stimulus is needed… weak growth. That would bring me to the conclusion that the fundamentals remain on the weak side and the free money stimulus drivers keep finding their way to the markets. It looks more like a house of cards than a sustainable trend for stocks both domestically and internationally.
The shift back to a stronger dollar was in play today as well. This was an issue we discussed in the weekend update… expect the dollar to test, but the upside is still the direction of choice. The downside to the euro would likely continue and the ripple effect to gold was one thing to watch in response. The buck was up 0.8% and gold fell 1.1% in response to the move. This is not going to change anytime soon. The attempted trend reversal in GLD took a turn for the worse today and a $113 stop would be realistic if you bought into the position on the reversal breakout. Worst case you would exit the positions break even. Despite all the fanfare and calls for gold to move back towards the January highs, I am not a believer currently. Things could always change, but for now not in line to make the move.
Scanning the top performing ETFs today we find short gold miner ETFs were among the leaders and looking at the chart of DUST you see the bounce off the 50 DMA. If it clears the 200 DMA it would get interesting for the miners. Short natural gas (DGAZ) is making a move above $7.65 resistance and could challenge the highs at $9. China (FXI) made a big move on the upside in response to the stimulus activity and cleared the $44 level of resistance as traders like the news. Russia was higher on the day as well and holding above the $21.20 previous resistance for now. The stimulus effect is global as we see several of the fund breaking higher currently. Emerging markets (EEM) needs to clear the $40.37 level to reignite the uptrend. The scan shows rotation in effect and we need to follow the money flow to gain clarity on what is trending both short and long term.
Semiconductors and biotech both continued to bounce back from the selling last week. The positive move keeps the hope alive of a retest of the previous highs. The consumer (XLY & XLP) is still in the mix of things on the upside as investors continue to believe the consumer isn’t dead. Across the board it was a positive day from the opening bid. Tomorrow promises to keep it interesting and we will discuss some of these issues on the webinar tonight as we discuss the Pattern Trading Strategy and how to use the right tools for finding the right opportunities now. Hope to see you there. If you are unable to attend send Don@JimsNotes and email to access to the replay.