WEAK DOLLAR GIVES BOOST TO GLOBAL STOCKS AND COMMODITIES -- RISING CHINESE SHARES HELP STABILIZE GLOBAL MARKETS -- SUMMER RALLY IS STILL INTACT

DOLLAR DROPS TO YEARLY LOW... The U.S. Dollar has come under heavy selling today. Chart 1 shows the PowerShares DB US Dollar Index (UUP) falling to the lowest level of the year. Although most foreign currencies are rallying, the biggest gain is being seen in the Euro. Chart 2 shows the Currency Shares Euro Trust (FXE) breaking out to a new high for the year. The falling dollar has given a big boost to most commodities. Rising global shares are also giving a boost to U.S. stocks.

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COMMODITIES ARE GAINING GROUND ... Dollar selling usually causes buying in commodities and that's what we're seeing today. Chart 3 shows the DB Commodities Tracking Index Fund (DBC) gapping 2.6% higher. The DBC recently bounced off its 200-day moving average. Oil is having a strong day. Chart 4 shows the United States Oil Fund gapping up 5%. Gold and silver are participating as well. Chart 5 shows the streetTracks Gold Trust (GLD) trading at a seven-month high. Bullion is trading over $1,000 for the first time since February. Stocks tied to energy and precious metals are having an especially strong day.

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STRONG CHINESE SHARES ... Global stocks and commodities are getting an added boost by new buying in Chinese shares. Most global markets rose on Monday while the U.S. was closed for Labor Day. As a result, most global ETFs (as well as U.S. stocks) are playing catch-up today. Chart 6 and 7 show China and Hong Kong iShares climbing 3% and 2.5% respectively. Both Chinese ETFs had dropped below their 50-day averages a week ago which caused global selling in stocks and commodities. Both ETFs have regained much of that lost ground and are looking much stronger. That's helping global stocks and commodities to start the week on a strong note.

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SUMMER RALLY IS STILL INTACT... U.S. stocks are following the lead of foreign stocks to higher ground at midday. The ability of the Dow, the S&P 500, and the Nasdaq Composite Indexes to stay above their mid-August lows is an encouraging sign. So is their ability to stay above their rising 50-day averages (blue lines). The market is in better shape than it was this time last week. But it has to stay above those underlying support levels to keep its summer rally intact.

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