DOLLAR FALLS TO RECORD LOW AGAINST EURO -- GOLD JUMPS WHILE OIL BREAKS OUT -- NASDAQ BREAKS 50-DAY LINE
EURO JUMPS TO RECORD AGAINST THE DOLLAR... The Euro surged 1.80 today and exceeded its May/June high. That put the European currency at a new record high against the dollar. While that was bad for the dollar, it was good for gold. Bullion climbed $6.10 to close at $397.60. Gold stocks jumped more than 5% and were by far the market's strongest group. Chart 2 shows the AMEX Gold Bugs Index reaching a new record high today. Rising foreign currencies usually translate into rising gold prices and rising gold shares. Gold wasn't the only commodity to jump today. The CRB Index rose 1.59 points with 11 of the 17 commodities rising. The biggest percentage gainers were crude oil and heating oil.
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CRUDE OIL ACHIEVES UPSIDE BREAKOUT... Crude oil prices jumped $1.55 today to reach an eight-month high. That also puts crude over $33 for the first time since February just prior to the Iraq invasion. In my weekend update, I suggested that an upside breakout in crude would be good for commodity prices, but not necessarily for stocks. With stocks already on the defensive from a falling dollar and rising gold prices, today's fireworks in oil was another depressant for the stock market. The only surprising factor in today's oil spike was the absence of buying in energy shares.
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NASDAQ 100 LEADS MARKET LOWER -- AGAIN... As has been the case for the past week, the technology-dominated Nasdaq 100 Index led the market lower again today. The order of relative weakness was the Nasdaq 100 (-2.09%), the Nasdaq Composite (-1.4%), the S&P 500 (-.9%), the Dow (-89%). All four averages closed beneath their 50-day averages. The most serious violation was seen in the Nasdaq 100. Chart 4 shows the QQQs breaking the 50-day line on a closing basis for the first time in three months. It also broke a three-month up trendline. Volume wasn't as heavy today, but downside volume beat upside volume by an almost two-to-one margin. There were three losers for every two winners on the Nasdaq and the NYSE. The next key support levels to watch are the October low at 33.49 and the 100-day moving average at 33.20. They'll most likely be tested in the days ahead. Chart 5 shows further deterioration in the Nasdaq/NYSE ratio. I've pointed out recently that a weak ratio is usually bad for the rest of the market because it reflects loss of Nasdaq leadership. Although all market sectors lost ground today, the biggest losers were utilities, technology, financials, and consumer discretionary stocks. Smaller losses were seen in materials, healthcare, consumer staples and energy. Drugs eked out a small gain. The final chart shows the 10-year T-note yield dropping again today to another six-week low. That means that investors were buying bonds while they were selling stocks.
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