Despite Dubai Fears, Several Sectors Back At New Highs

The market is putting the Dubai fears behind it, and rallying strongly this morning. Some of this also has to do with the weak dollar today, as well as new money for the first of the month being put to work.

Last yesterday it was reported that Dubai World is negotiating to restructure $26 billion in debt, and that the amount in question is well below initial estimates. This helped European and Asian markets rally overnight and this morning.

In Asia, the Bank of Japan decided to further ease monetary policy to help curb the rising yen and address the falling CPI (deflation). In Australia, its central bank raised benchmark interest rates for a third time as that economy quickly recovers.

Commodities are also getting a boost from the weaker dollar. Gold prices hit a new record high this morning, briefly touching $1200 before settling in near $1193. Crude oil prices are also higher, around $78.70. The CRB Index is up +1.0%.

In economic news, the ISM Manufacturing Index came in at 53.6 for November, which although below the 55.0 consensus still represents further expansion in the manufacturing sector. Following the last 2 positive housing reports, pending home sales for October jumped +3.7%, which is much better than the -1.0% decline that many expected.

The 10-year yield is higher to 3.25%, and the VIX is plunging -9.0% back below its 50-day to 22.30.

Despite all the handwringing that Dubai could be a shot across the bow and spread to other global markets, I am seeing many sectors shrug off the concerns and rally right back to new highs for the year. Here are some of the etfs that are making new highs today:

• global materials (MXI)
• steel (SLX)
• gold (GLD)
• industrials (XLI)
• utilities (XLU)
• Brazil (EWZ)
• India (INP)

And the S&P 500 is just 4 points away from a new high, despite the fact that financials aren't participating in today's rally.

Trading comment: Despite the concerns I mentioned yesterday, the key to successful investing is to take your clues from the market. If today's action holds, and volume on up days can pick up, then I would take that as the market's cue that the stair-step rally continues and the recent slide was just the market slipping on one of the steps, but quickly regaining its footing.

BIA clients are long GLD, MXI, EWZ, INP