Dallas, TX
November 19, 2009, 08:00 EST		 Dr. Joe Duarte's Market I.Q.


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Intelligence, Market Timing, And Trading Strategy For Traders and Investors

U.S. Dollar May Be Bottoming Out
What's Hot Today:
U.S. stock index futures were pointing to a flat opening on Wednesday morning. Global markets were mixed overnight with an upward bias. The S & P 500 has spent two days above the 1100 area.

Today's Economic Calendar:
  • Jobless Claims 8:30 AM ET

  • Leading Indicators 10:00 AM ET

  • Philadelphia Fed Survey 10:00 AM ET

  • EIA Natural Gas Report 10:30 AM ET

  • 3-Month Bill Announcement 11:00 AM ET

  • 6-Month Bill Announcement 11:00 AM ET

  • 2-Yr Note Announcement 11:00 AM ET

  • 5-Yr Note Announcement 11:00 AM ET

  • 7-Yr Note Announcement 11:00 AM ET

  • Fed Balance Sheet 4:30 PM ET

  • Money Supply 4:30 PM ET
News For Thought

Foreigners again left holding the New York real state bag. According to The Wall Street Journal: "The U.S. real estate arm of Africa Israel Investments has tentatively agreed with creditors to restructure its disastrous acquisition of the former New York Times headquarters in a deal that will wipe out $400 million in debt." The deal is reminiscent of the Japanese purchase of Rockefeller Center in the 1980s.

Higher tax threat rises again. If the Democrats get their way in the Senate, couples that make more than $250,000 per year will face higher Medicare taxes in order to pay for expanding health care to 31 million uninsured Americans.

Breast cancer guidelines raise the roof. According to The New York Times: "The Obama administration distanced itself Wednesday from new standards on breast cancer screening that were recommended this week by a federally appointed task force, saying government insurance programs would continue to cover routine mammograms for women starting at age 40."

GAO concludes White House jobs saved/created numbers are flawed. According to CNBC.com: "A new report from the Government Accountability Office concludes that the Obama administration's recent claims about the number of jobs saved or created by stimulus spending are flawed." The GAO does not supply a number, but it's clear that it disagrees with the 640,000 number bandied about by the White House.

We'll see whether the White House gets a pass on this one too from the mainstream media. What could be interesting is what may happen if the GAO recommendations are incorporated into the methodology of counting the jobs. In that case, the number could be higher.

U.S. Dollar May Be Bottoming Out
Is A Trend Reversal Ahead?
The stock market's rally is suddenly in doubt, as President Obama is morphing into Mr. Fiscal Responsibility during his Asian tour. Yet, as Presidents Carter and Nixon painfully learned, presidents who wade into economic forecasting and directly meddling with markets and economy often find that their well meaning actions and words often have unintended consequences.

As the polls turn further against him, Mr. Obama has gone from considering a second stimulus package to pounding the table on deficit restricition. His reversal comes at a very crucial time and may be putting his relationship with the Federal Reserve on touchy grounds.

So, instead of talking about health care reform, the president is now warning about the possibility for a double dip recession if the U.S. debt load, and deficits aren't trimmed. The effect on the markets, after his remarks, was swift as overnight trading turned negative, especially in U.S. stock index futures and the dollar.



Chart Courtesy of StockCharts.com


And this is the key to the current situation. The U.S. Dollar (USD) and the S & P 500 (SPX) have been moving in diametrically opposite directions for months. The rationale is that a weak dollar will improve U.S. exports and help keep the U.S. economy from falling further.

So far, it's been a great bet, and it has been this market's carry trade, where investors borrow dollars at low interest rates and invest them abroad for a higher return. They pay back the loans and pocket the difference, gained from the investment. The same thing happened with the Yen a few years ago, and lots of folks made out like bandits.



Chart Courtesy of StockCharts.com


But here's the problem. The Federal Reserve is starting to hint that it's going to raise interest rates at some point in the future. The Fed isn't sure as to when it will raise rates. And Mr. Bernanke has gone out of his way to tell the markets that he won't be raising rates too soon. Yet, other Fed governors have been weighing in on the subject, as well, and on both sides of the question, with some suggesting that rate increases may be coming sooner rather than later.

When the president, clearly motivated by the shift in the polls that show that voters are now more concerned about the economy, jobs, and deficits, more than about his health care reform, starts talking about double dip recessions, the market starts to pay attention. This isn't the Federal Reserve debating policy at the lectern. This is the president of the U.S. making a 180 degree turn in public. He's going from spend, spend, spend policies, to sounding like Calvin Coolidge.

When you look at the charts of the dollar and the S & P 500, it's clear that after huge profits on very well established trends on both, it wouldn't take much to get players to start taking profits, especially when it's the end of the year, and this is an options expiration week.

Conclusion

Yesterday, in this space we noted that we are headed into a traditionally bullish time of the year for the stock market. We noted that the way it usually works out is that the Thanksgiving week has an upward bias, but prices drift higher in low volume.

We added that on a fairly regular basis some kind of rally in stocks is fairly common in early December and that it can be a sizeable advance.

But we also noted that this year may be different as money managers try to lock up profits from a good year and taht some end of the year window dressing is likely, so prices may actually climb just for that reason.

Now, though, things are starting to look a little dicey. When the currency markets become the primary mover in the financial spectrum, anything is possible. That's because the currency markets are both huge and volatile, and when that much money starts to churn and bubble, things happen, and often the things that happen aren't good.

The currency markets had been orderly. It was a given that the dollar would stay low and that the U.S. wanted it that way. Now, currency traders are starting to question that notion and things are getting stirred up.

Mr. Obama is not exactly recognized as an economics maven. And his forays into bailouts, and "spreading the wealth" are not exactly calling cards for being at the center of economic debate, not at a level that can actually influence the markets.

What are we saying? We are suddenly in a very dangerous situation for the financial markets as the President of the United States is morphing into the economic prophet of the United States and the markets are listening.

Responsible investors would do well to examine all open positions and decide what their role in their financial future might be, as life could become very interesting in the next few days.

Know when to sell and how to make money when the market falls. Get a detailed trading plan in your pocket. Read Dr. Duarte's All NEW Books "Market Timing For Dummies." and "Trading Futures For Dummies." The Trading Manuals for All Seasons. Also Available As Kindle Books.

 

Market Moves - Stock Of The Day
Proshares Ultrashort Euro ETF (NYSE: EUO) Is Worth A Look If The Dollar Rallies
Aggressive investors should be monitoring the Proshares Ultrashort Euro ETF (NYSE: EUO) in the current climate.



Chart Courtesy of StockCharts.com


The relationship between the U.S. Dollar and the Euro may be altered in the next few days to weeks, as the Federal Reserve starts to ponder when it will start raising interest rates.

Already, mention of the rising U.S. debt by president Obama on 11-18 in an interview with Fox News was enough to create some turbulance in the stock and currency markets overnight.

So here are the important concepts. Currencies are influenced by interest rates, the economy of their country, and the political situation in the country and the world.

U.S. interest rates can go no lower. So the path of least resistance for that variable is up, if not now, eventually. The U.S. economy, at least for now, is stabilizing. That in and of itself, may be supportive of the dollar.

So that leaves politics as the intangible. Mr. Obama has reversed the Bush policy spectrum. Yet, the dollar which tanked under Bush, has continued to tank under Obama. This is due to even higher deficits under Obama than under Bush, as well as to the potential for even higher deficits down the road due to Mr. Obama's health care legislation and the continued support of the financial industry, Fannie and Freddie Mac, and the automotive sector.

But, that may be changing, at least rhetorically, as Mr. Obama is trying to sound fiscally responsible. In the short term, talk can influence the markets. And if talk turns into action, trends can reverse.

If there is a trend reversal, and the dollar rallies, the Euro may get hit fairly hard. EUO shorts the Euro. It is a leveraged ETF, which doubles the price movement of the underlying currency. That means that gains and losses could be big and fast, so this is an ETF for experienced investors.

It's also an ETF that shorts the Euro. That means that when the Euro falls, this ETF rises in price. Short selling is more volatile than being long assets.

It may, however, be useful in the next few days to weeks. We are neither recommeding the sale or the purchase of EUO. The purpose of this article is to educate subscribers as to the presence of an interesting trend in the market. Dr. Duarte does not own or short shares of EUO.

Technical Look at the Market
S & P 500 Stays Above 1100 Again
The S & P 500 has stubbornly remained above 1100, a point that is positive if you're bullish on this market. Yet, it's not as positive a sign as it might seem at first blush.

There is still a lack of performance in the small stocks. And overall market breadth has suffered. That means that money is moving into large stocks, which are seen as less risky bets.

The market can function like this for a while. But at some point, especially if things get even worse in the rank and file stocks, there will probably be some kind of correction.

Sector and individual stock selection is the most important aspect of trading this market.




Chart Courtesy of StockCharts.com




Chart Courtesy of StockCharts.com

 

 


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