Wednesday, November 07, 2007

Dollar Concerns and Oil Spike Weigh on Stocks

The market got hit with heavy selling in early trading after a high ranking Chinese official said that China might adjust its foreign currency reserves (read: sell dollars). This caused the dollar to fall, and helped contribute to the rally in commodities.

The Yen spiked to its highest levels since 8/16. You may recall that was the date that the market bottomed in the summer. So this is a significant level. You know that the Yen has been my chief "tell" for the short-term direction of the market. So if you are bullish then you want to see the Yen stop its ascent, and start coming back down. Wishful thinking?

Commodities continue to go crazy, and oil topped $98. It is almost hard to fathom that oil could touch $100. I remember laughing when people suggested that, but it just goes to show you, anything can happen in the markets. Fortunately, gas hasn't enjoyed the same rise. If gas prices shoot up, then I think the consumer will become far more concerned.

A couple of other news items this morning didn't help the cause. GM reported a much larger than expected loss and took a $39 billion charge. The WSJ wrote that Morgan Stanley (MS) may take an additional $3-6 billion write-down, which is reigniting credit concerns.

All of this overshadowed the positive economic data this morning, which showed that productivity rose at a 4.9% rate in Q3. That's very solid.

So I will be keeping my eye on oil and the Yen today. If those two can come off their highs and move lower during the day, then the market could find some solid footing. The last few days the market has been weak in the early part of the day, and stronger into the close. Let's see if the pattern holds.


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