DOLLAR STRENGTHENS AS EURO FALLS -- CANADIAN DOLLAR DROPS TO SIX-YEAR LOW -- COMMODITY PRICES WEAKEN ON RISING DOLLAR -- ENERGY AND METAL STOCKS WEAKEN -- GOLD AND SILVER STOCKS THREATEN MAJOR SUPPORT LEVELS -- BANK OF AMERICA AND USB PACE BANK RALLY
DOLLAR RISES AGAINST THE EURO -- CANADIAN DOLLAR HITS SIX-YEAR LOW... Chart 1 shows the Power Shares Dollar Bullish Fund (UUP) nearing the highest close in a month, after having broken a three-month falling ressistance line. The longer-range trend of the greenback remains up as shown by the rising 200-day moving average. It has been my view that the pullback since March is just a normal correction within a long-term uptrend. One of the factors pushing the dollar higher is a weaker Euro. Chart 2 shows the Euro having broken a three-month rising support line and starting to roll over to the downside. Commodity currencies are being hit especially hard. The Aussie Dollar is trading at a new six-year low. Chart 3 shows the Canadian Dollar (the loonie) falling to a new six-year low today. Weakness in those two currencies is directly related to falling commodity prices which are the direct result of a firmer dollar.
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Chart 1
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Chart 2
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Chart 3
COMMODITY PRICES NEAR SPRING LOW ... As normally happens, a rising dollar is pushing commodity prices lower. And most commodity prices are under pressure today -- especially energy and metals. Chart 4 shows the DB Commodities Tracking ETF (DBC) falling toward another possible test of its spring low. A close below the March low would put the DBC at a new multi-year low. Not surprisingly, stock groups tied to those commodities are falling as well. Energy and material stocks are the day's weakest groups. Chart 5 shows the Energy SPDR (XLE) still threatening its March low. Falling energy prices lead to weak energy stocks, and vice versa. Metal stocks are also under a lot of selling pressure. That includes base and precious metal producers.
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Chart 4
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Chart 5
GOLD AND SILVER STOCKS BREAKING DOWN... Chart 6 shows the Market Vectors Gold Miners ETF (GDX) threatening its November low. The price of gold (below chart) is in danger of a major breakdown as well. Chart 7 shows the Global X Silver Miners ETF (SIL) testing its March low. The solid line below the chart shows the price of silver (SLV) tracking silver stocks very closely. Both stock ETFs are in danger of falling to multi-year lows, as are the commodities themselves. So are mining stocks tied to aluminum, coal, copper and steel. Chart 8 shows the S&P Metals & Mining SPDR (XME) tumbling to the lowest level in six years. Some of those losses are also tied to the recent plunge in China. [Chinese traded in Shanghai are down -3% today].
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Chart 6
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Chart 7
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Chart 8
BANK OF AMERICA AND USB LEAD BANKS ... Banks led firnancial stocks higher today. The bank rally was led by a 3% jump in Bank of America (BAC). After a blowout second quarter earnings report, the stock gapped up to a new six-month high today in heavy trading (as shown in Chart 9). That puts the stock on pace to move up to its December high. A close above that chart barrier would put the stock at the highest level in five years. BAC has been a laggard in the bank group for several years. Today it was a leader. Chart 10 shows US Bancorp (USB) hitting a new record high in heavy trading. It had a strong second quarter as well.
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Chart 9
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Chart 10
DOW BACKS OFF A BIT -- WATCHING TECH BOUNCE... U.S. stocks have continued the short-term bounce that started last Friday from around the 200-day moving average. Chart 11 shows the Dow Industrials trading above their 50-day average (as are most of the other U.S. stock indexes). Today's pullback is taking place at a resistance line drawn over May/June highs. Upside volume has been light on the rally. What happens from here may depend to a large extent on what happens in the Greek Parliament which is voting on the recent bailout package. We may have a better reading on that tomorrow. Chart 12 shows the Technology SPDR (XLK) bouncing this week as well, but in very light trading. Technology direction may hold important clues for the rest of the market. The XLK has bounced off its 200-day average and chart support at its March low. The XLK, however, is still below its 50-day average and its two-month resistance line. While the short-term market trend has improved, the intermediate picture between now and the autumn is less positive.
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Chart 11
