FALLING DOLLAR GIVES OIL AND GOLD A BOOST -- BARRICK GOLD AND NEWMONT LEAD GOLD MINERS HIGHER -- AMAZON.COM TESTS 200-DAY AVERAGE -- TESLA MOTORS FALLS TO TWO-YEAR LOW -- FINANCIAL STOCKS NEED A REBOUND IN BOND YIELDS
DOLLAR PLUNGES ... The dollar is having its worst day in months. Chart 1 shows the Power Shares Dollar Index (UUP) tumbling to the lowest level in three months. That's due partially to the recent drop in U.S. rates, falling stock prices, and weak economic news which have lowered expectations for another Fed rate hike. Usually, the most immediate beneficiary of a falling dollar are commodity prices, and gold in particular. Commodity prices are bouncing today, as is the price of crude oil along with their respective stocks. The most notable gains, however, are in gold miners.
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Chart 1
GOLD AND MINERS TURN UP ... There are at least three things that drive money into gold and gold mining stocks. One is falling interest rates. Treasury yields have fallen to the lowest level in ten months. A second factor is falling stock prices, which have just had their worst January in years. The third, and maybe most important, is a falling dollar which is plunging today. And gold prices are rising. Chart 2 shows the Gold Trust SPDR (GLD) trading the equivalent of $8.00 dollars higher today. The GLD has cleared its 200-day average for the first time since October. Gold miners are doing even better. Chart 3 shows the Market Vectors Gold Miners ETF (GLD) climbing 6%. The GDX is trading at the highest level in three months, and is nearing a challenge of its 200-day average. Its relative strength ratio (below chart) has risen to the highest level since October. That's a good combination of absolute and relative strength.
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Chart 2
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Chart 3
BARRICK AND NEWMONT ARE MINING LEADERS ... Chart 4 shows Barrick Gold (ABX) surging 8% to a new seven-month high after clearing its 200-day average. Its relative strength line (top of chart) is also rising. Chart 5 shows Newmont Mining (NEM) jumping nearly 10% to the highest level in seven months. NEM has also cleared its 200-day average with a rising relative strength line. Newmont is the biggest percentage gainer in the S&P 500 and is leading a strong materials sector higher.
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Chart 4
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Chart 5
NASDAQ TESTS CHART SUPPORT... The Nasdaq was the day's weakest stock index. Chart 6 shows the Nasdaq Composite Index trying to recover from a test of initial chart support near 4450. The Nasdaq/SPX ratio (bottom of chart) has already fallen to the lowest level since last spring. Internet stocks are the day's weakest group. Chart 6 shows Amazon.com (AMZN) down 3% and in the process of testing its 200-day average. That's an important test. [Amazon is also the biggest holding in the Consumer Discretionary SPDR (XLY)].
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Chart 6
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Chart 7
TESLA MOTORS COMPLETES MAJOR TOP ... Tesla Motors (TSLA) trades on the Nasdaq market and is having a very bad chart day. The daily bars show TSLA falling -6% to the lowest level in two years. It has completed a major "double top" reversal pattern (see two circles). That's a very bearish looking chart. That's helping make autos one of the day's weakest groups. Big drops by Ford and General Motors aren't helping either. Falling autos are also weighing on the cyclical sector.
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Chart 8
TEN YEAR TREASURY YIELD TESTS APRIL LOW... Treasury yields continue to drop. The daily bars in Chart 9 show the 10-Year Treasury Yield touching the lowest intra-day level since last February before reversing higher. Part of that is the result of a flight into Treasury bonds as stocks have weakened, along with declining foreign bond yields. The threat of economic weakness is another factor. Financial stocks are following yields lower -- including banks, brokers, and life insurance stocks. Higher bond yields are needed to provide some relief for beaten-down financials.
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Chart 9
BOUNCING OIL MARKET HELPS DOW... In the face of building inventories, the price of WTIC crude oil jumped $2.48 (8%) to end above $32. That gave a big boost to energy stocks which had a strong day. Exxon Mobil (XOM) gained 4.5% to lead the Dow Industrials higher. Chevron (CVX) gained 3.5%. Heading into the last hour of trading, the Dow is trading higher. The daily bars in Chart 10 show the Dow Industrials scoring an upside reversal day after earlier losses. The bounce in commodity prices had something to do with that. And that was mainly due to the plunge in the U.S. dollar which is where we started this message.
