RISING DOLLAR KEEPS COMMODITIES UNDER PRESSURE -- EURO AND GOLD ARE TESTING SUPPORT LEVELS TOGETHER -- RALLY ATTEMPT IN S&P 500 FADES -- FOREIGN STOCKS STILL IN 2012 DOWNTRENDS
DOLLAR INDEX CONTINUES TO RISE... Selling in foreign currencies is giving a continuing boost to the U.S. Dollar. Chart 1 shows the Power Shares Dollar Index Bullish Fund (DBC) climbing to the highest level in four months. The UUP recently cleared its mid-March intra-day peak at 22.47. The asset class most negatively effected by a rising dollar is commodities. Not surpsingly, most of them are in the red today. Gold and the Euro are testing an important support level.
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Chart 1
EURO AND PRECIOUS METALS TEST LATE 2011 LOWS... Both the Euro and commodity prices trend in the opposite direction of the U.S. dollar. That means that the Euro and commodities fall together when the dollar is rising. And that's just what they're doing. Chart 2 shows the Euro in a downtrend since earlier in May when it fell below 130. It's now nearing a test of its January low. Gold and silver are doing essentially the same thing. Chart 4 shows Gold Trust iShares (GLD) testing support at its December low. [Silver iShares (not shown) are doing the same]. Chart 4 shows the Global Copper ETF (CU) nearing last October's low. Most other commodities are also falling toward previous lows. Needless to say, what happens to the Euro will largely determine what happens to most commodities. Right now, the rising dollar is keeping them on the defensive. Another important question is whether the rising dollar will also keep stocks on the defensive.
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Chart 2
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Chart 3
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Chart 4
S&P 500 BOUNCE OFF SUPPORT FADES... Today's oversold rally in U.S. stocks faded in afternoon trading. Chart 5 shows the S&P 500 bouncing off a potential support line drawn over its October high at 1292. That's very important support level. So is the 200-day moving average (red line) just below. Chart 7 gives a closer look at today's rally attempt, and shows the S&P 500 still well below an overhead resistance range between 1340 and 1360 (yellow space). I suspect today's dollar rally, and commodity selloff, had something to do with the late selling in stocks.
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Chart 5
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Chart 6
FOREIGN STOCKS REMAIN WEAK... Last Saturday's message expressed concern about the weak chart patterns in foreign stock indexes. Chart 7 shows EAFE iShares (EFA) trading at a new 2012 low. The EFA recently broke a support line drawn under its October/November lows. An eventual test of its 2012 lows seems likely. Chart 8 shows Emerging Market iShares (EEM) also in a 2012 downtrend. The pattern of rising volume during the downtrend isn't encouraging. All of these markets are in a short-term oversold condition which could lead to short-term bounces. At the moment, however, the trend of foreign stocks is still to the downside. That's not good for U.S. stocks.
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Chart 7
