DOLLAR BOUNCE GIVES BIG BOOST TO STOCKS -- BUT HURTS COMMODITY PRICES AND BONDS
DOLLAR BOUNCES, COMMODITIES DROP... The dollar had its biggest gain in three weeks. Chart 1 shows the Euro falling today from a short-term overbought condition. The dollar also bounced against the yen. With all the attention focused on recent dollar weakness, today's rebound in the greenback had a positive effect on some markets and a negative effect on others. The negative impact was seen in the commodity pits. Gold dropped $4.50. Crude oil tumbled $l.87 to close beneath $30. An overbought CRB Index lost 3.58 points. The CRB is in position to test its 50-day moving average. Thirteen commodities fell today, while only four gained. A bouncing dollar, along with falling gold and oil prices, are usually good for the stock market. And that was the case today. As stock prices rose, bond prices fell and yields rose.
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BOND YIELDS JUMP... A more optimistic mood today pushed bond prices lower and yields higher. The 10-year T-Note yield gapped upward to close at 4.22%. That action appears to negate last week's drop in yields to the lowest level in six weeks. A bounce in yields is usually associated with more optimistic mood on the markets -- and is associated with falling bond prices and rising stock prices. We got both today.
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NASDAQ SHOWS LEADERSHIP... Another positive sign for the market today was the relative strength in the Nasdaq market. The Nasdaq Composite's gain of 2.8% made it the leader among the major stock averages. Chart 6 shows the short-term technical improvement in the Nasdaq resulting from today's rally. The daily stochastic lines turned positive from oversold territory under 20. The Nasdaq closed back over the (dashed) 20-day moving average and is safely back above its (blue) 50-day line. That puts the next upside price target at the upper Bollinger Band, which currently sits at 1994. Volume wasn't great, but it did increase over last Friday. Upside volume on the Nasdaq exceeded down volume by a four to one margin. Breadth figures on both the Nasdaq and the NYSE revealed a reasonably broad based rally. Small cap stocks gained more than 2%. Chart 7 shows the Russell 2000 remained over its 50-day line throughout the recent correction. That positive breadth was also reflected in sector performance. All nine market sectors closed higher today. The biggest gains were seen in Technology, Consumer Discretionary, Industrials, and Healthcare. The smallest gain was seen in energy. Gold stocks were the biggest losers of the day.
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SEASONAL TREND TURNS MORE POSITIVE... The market is now entering a more favorable seasonal time. Historically, Thanksgiving week is usually an up week. In addition, December is traditionally the strongest month of the year. Seasonal trends haven't been that reliable so far this year. But it's nice to know that the market now has a positive seasonal history supporting it.
