Sunday, August 9, 2009

Video Updates - US Dollar and Equities





The videos cover the US Dollar and stocks. I used a video capture program that I haven't used before, and the video quality doesn't look that good, but Oh well.

During this bear market, the dollar has tended to turn up before equities top out, so even if the dollar has bottomed, there may be a period of a few weeks before stocks reach their peak.

My suspicion is that this week may see some sparks fly. There is an FOMC meeting I believe, and also there are multiple bond auctions yet again. Much of the Fed's game plan (assuming the goal is what we believe it to be - growth, economic expansion, etc) relies on keeping interest rates low, and conversely bond and treasury prices high. This is at the same time as the Treasury is flooding the market with auctions for treasuries securities to fund debt/federal obligations. So the Fed has to fight supply and demand as well - try to keep the prices up while supply is being driven up enormously. So the point is, that while these auctions have been occurring regularly recently, it is arguable that the most recent auctions have shown waning demand. This would result in buyers requiring higher yields on the debt they are buying (which would equate to a higher US dollar value and lower bond/treasury prices).

As another side note, the Equity P/C ratio came in very low at 0.49 Friday in conjunction with a spinning top candlestick and a gap up on monthly payroll data which has tended to result in give back of the gains over the next couple days. Readings that low in the P/C ratio have consistently led to negative next day returns. Also, this is basically the lowest reading of the bear market, so this may be an indication of maxing complacency. In addition the VIX has not confirmed the recent move to new highs in stocks, and several sectors did not confirm the indexes to new highs the last few days. So on at least a short-term basis there is divergence and complacency which I expect to lead to a decline larger than the miniscule ones since July 8th.

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