Wednesday, December 14, 2011

The Euro Is In Charge

In recent months I have mentioned from time to time that if you want to know if the market is up or down on a given day, all you had to do was ask how the euro was doing. For the last few days, the euro has been under pressure and that has been weighing on the market.

Today, the euro is breaking down further and nearing a one-year low. Results from debt auctions in Germany and Italy failed to inspire any confidence. And the credit gauges in euroland have been deteriorating for weeks. I hope EU officials develop more of a sense of urgency.

The weak euro has pushed the dollar higher and led to a sharp selloff in commodities. Metals are down across the board today, led by silver. But gold prices are also getting hit hard and are now well below the $1600 level. Oil prices have also fallen down to the $96 level, a big drop from yesterday's rally to $100.

All of the 10 major sectors are lower so far, led by energy. Healthcare and utilities are down the least. Interestingly, REITs are actually mostly green on the day. Growth stocks are down the most relative to value stocks.

The 10-year yield is lower to 1.92%. It sure didn't stay above 2.0% for long. As for the VIX, it is up +7.7% today to 27.37, but still well below last weeks highs and yesterday it briefly dipped below 25 for the first time in months.

Trading comment: I have been trying to remain constructive on stocks, but this latest euro plunge is garnering all of the market's attention this week. The market is no longer overbought, and soon will be back to oversold levels. The SPX has broken below its 50-day average near 1226 and is currently trading near 1210. I don't want to see this 50-day average become resistance, so we need to see it recaptured in short order. Also, keep an eye on leading growth stocks, which had been looking okay but today are taking the brunt of the selling. I am watching our recent trades like RVBD, SCSS, TSCO, and ULTA closely.



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