Tuesday, November 17, 2009

Dollar Remains The Primary Driver

The only question you need to ask lately is "what is the dollar doing?" This morning, the dollar is bouncing, and that is weighing on both stocks and commodities.

Stocks are only modestly lower, after breaking out to new highs yesterday. Banks stocks are the strongest so far, while retailers are the weakest.

Commodities are roughly -0.5% lower, with crude oil prices dipping to $78.50 and gold trading down to a still high $1133.

There were also some mixed economic reports this morning. Core PPI fell -0.6% in October (where's the inflation?); industrial production increased +0.1% (vs. +0.4% consensus), and capacity utilization remains very low at 70.7%.

On a positive note, there was news this morning that the first commercial mortgage-backed security (CMBS) offering was priced since early 2008. The Fed was prepared to provide up to $150 million in financing, but demand was so strong that the deal was able to get done mostly with private money. I think there has been enough money raised that the commercial real estate debacle that many are warning about will fall short of the dire predictions.

Asian markets were lower overnight. China dismissed calls for the yuan to rise, despite requests from the IMF to let the yuan rise sooner rather than later.

The 10-year yield is higher to 3.35%; the VIX is also slightly higher to 23.14.

Trading comment: Yesterday's breakout to new highs was very positive. The market has reached overbought territory again, and with this week being expiration week we could see a pullback at any time. That said, I continue to think that dips can be bought, and I am focusing on the leading stocks such as big-cap tech, medical tech, as well as emerging market and commodity-related sectors.


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