RISING DOLLAR KEEPS DOWNSIDE PRESSURE ON COMMODITIES -- CRB INDEX LOSES ANOTHER FOUR POINTS AFTER FAILING TEST OF 200-DAY AVERAGE -- GOLD LOSES MORE GROUND -- COPPER SELLS OFF SHARPLY ALONG WITH CHINA -- S&P 500 ENTERS DOWNSIDE CORRECTION
RISING DOLLAR PUNISHES COMMODITIES ... The rally in the dollar that started last Wednesday is continuing. Chart shows the Power Shares Dollar Index (UUP) rising to its 50-day average today, after bouncing off its 200-day line last week. That's keeping downside pressure on commodities. Over the weekend, I showed the CRB Index backing off from chart resistance along its October high near 325 and its 200-day average. Today's drop of 4.25 points has weakened it even further, as shown by the red arrow in Chart 2. Gold was one of the hardest hit markets last week. Chart 3 shows the Gold SPDR (GLD) gapping down to its 200-day line today. Silver is falling as well. The day's biggest percentage loser is copper.
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Chart 1
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Chart 2
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Chart 3
COPPER AND CHINA FALL TOGETHER ... Chart 4 shows the First Trust Copper ETF (CU) tumbling 4% today to undercut both moving average lines. It's also back below its November high. Copper is the one commodity most closely tied to global stock markets. That's especially true of China. Chart 5 shows the China iShares (FXI) also gapping down near 4%. Foreign ETFs are down more than 3%. That's obviously taking a toll on U.S. stocks which are also selling off.
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Chart 4
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Chart 5
S&P 500 GIVES SHORT-TERM SELL SIGNAL ... The S&P 500 has been testing important chart resistance along its spring 2011 highs (yellow circles). Chart 6 shows that a much-anticipated downside correction has probably started. The 14-day RSI line (top of chart) has turned down from overbought territory over 70 (down arrow). Daily MACD lines (below chart) are also turning down (red circle). The initial downside target for the S&P 500 is a test of its 50-day moving average (blue up arrow). More substantial support lies along the its late October peak near 1292. If this is just a normal downside correction, that support line should hold.
