Insights

The Market Today – Sell, Sell, Sell! Buy, Buy Buy!

After taking a beating yesterday and closing a mere 4 points off its low, the Dow Jones Industrial Average was looking very weak coming into today’s open.  Worries about the situation in Greece, Portugal and Spain had bubbled over into the U.S. equity markets as money ran to the safety of the dollar causing a sharp sell-off in stocks.  Even with this morning’s unemployment headline number dropping from 10% to 9.7%, the market opened and proceeded to continue selling off.  It looked like the bottom was nowhere in sight as nervous investors started pulling the ripcord on holdings.

Sell, Sell, Sell Mortimer!

And then at 1:59 p.m.

Buy, Buy Buy Randolph!  Buy it all!

The DJIA bottomed at 9835.09 (-167.09, -1.67%) at 1:59 p.m., which just happened to be the exact same minute that the PowerShares DB US Dollar ETF (NYSE: UUP) peaked at $23.77.  For anyone that thinks the carry trade is not a factor, think again.  As the market and the dollar are trading inversely these days, looking at the charts shows you have a hammer in stocks, and a shooting star in the dollar.  The market bottomed at 1:59 but that was not the buy signal unless you cleanly picked the bottom as Randolph and Mortimer might have if they got the real orange juice report.  The buy signal came at about 3:00 p.m., when the DJIA broke up through the intra-day downtrend line that had been putting a lid on stocks since the sell-off began yesterday after the open.

At about 3:00 p.m. the market fired higher and the volume on the S&P 500 ETF (NYSE: SPY) spiked as you could almost see traders hitting the buy button to cover their short positions from yesterday.  The S&P 500 jumped from 1,051 to 1,064 in under 15 minutes and the DJIA ripped from 9,890 to 9,999 – 109 points straight up and the rally was on!

The Dow Jones Industrial Average closed up 10.05 points (+0.10%, 10,012.23) after being off as much as 167 during the day.  This is only 10 points on the day but a victory nonetheless as the sell-off was reversed.  The S&P 500 gained 1.91 points (+0.19%, 1,065.15) and the Nasdaq 100 logged the biggest gain today up 13.13 Mockingbird Lane points (+0.75%, 1,746.12)

Nymex crude traded below $70 and was down $3.64 a barrel before bouncing back with the decline in the dollar and was trading $71.74 (-$1.40, -1.91%) at 4:10 p.m.

Gold finished strong after being weak in the morning.  New York spot gold gained 80 cents ($1,064, 4:21 p.m.) an ounce and once again held support at $1,060.  Gold also put in a nice hammer like stocks did, and this hammer pierced support forming what is called a ‘hammer and spring’, which is a powerful reversal indicator.  One of the guys on Fast Money was saying gold was ‘broke’ yesterday and I completely disagree.  After listening to everyone tell me for years now that gold was ‘over’ or in a ‘bubble’, I stayed put and watched the shiny yellow metal climb from the high $600’s in March of 2006 to the $720 bottoming out in November of 2008 to $1,060 now.  I guess I was wrong and up 55%.  Gold has pulled back from the $1200 peak but there is no direction but up if that $1.56 trillion budget deficit gets passed.  It is all about macroeconomics at this point – the one investing wave that might take awhile to play out, but is virtually unstoppable.

Looking at the Tracked.com Industries page we see that the strongest sector today was Metals, up 3.42%.  In this sector are the gold, copper, iron, aluminum, etc… producing companies and they got supercharged as traders are betting that the intra-day top in the dollar today will be the top for awhile.  When you see the market finish up a quarter of a percent (S&P 500) after being down big, and the metals rip for multiple percentage points, what you are seeing is traders trying to get on the commodities train which means they expect weakness in the dollar.  How much worse can the news get on the euro and in Greece anyway?

By buying the companies that mine and produce gold and copper, you get levered to the price of the commodity and ‘buy it cheap.’  If gold is selling for $1,064 on the commodities exchange and you buy a gold miner that digs it out of the ground for $350 dollars an ounce, you are in effect buying gold a lot cheaper than if you bought gold.

This week the DJIA (-55, -0.55%) finished off better than last week (-129, -1.26%).  Last week finished down but finished off better than the week before that (-437, -4.12%).  We are still losing ground, but the pace of the decline is slowing.  Always try to look at the silver lining. (I have friends that might fall over if they ever heard me say that)

Want more good news?  It is Friday afternoon!  Go have a great weekend!