Observations of This weeks Trading

The market continues to rally higher and after the break through $76 on the DXY, there could be a move higher to test the 1100-1125 level on the S&P (Correlation between the falling dollar and rising markets is downright scary). Better Oil inventory numbers, lower jobless claims, and earnings beats have set the stage for a bullish week.

Some notable observations I have made.

1) It’s taking larger and larger drops in the dollar to fuel gains in the indices.
2) The more the dollar drops, the more oil rises, the less most consumers can spend.
3) There have been more and more companies being sold on the news that bought.
4) Copper inventories…..just keep on rising (though China did announce that they imported 25% more this month than last).
5) VIX broke through to a new 52 week low. Next stop on this indicator is 18. Complacency is starting to fill the air.
6) Underlying economic numbers continue to come in rather pitiful for how much we have rallied — ie not V-Shaped. (The tsunami of cash is hitting all the financial market asset classes, but is not hitting the real economy)….fundamentally, the market should not be trading anywhere near these levels.
7) Jobless claims are falling, but there is no signs of strong revival in hiring.
8) Chinese markets could be hitting a bearish cross of the 50 and 100 day moving averages. Remember this market has led the world over the last 3 years.

Around the Corner…..
1) Israel / Iran front is quiet, but should begin to pick up steam coming towards the end of the year. Will Iran accept and show all, or will it be a stalemate? Escalation of the conflict could bring about disastrous consequences as oil would skyrocket.
2) Commercial Real Estate and a ton of Foreclosures should start making headlines in Q4. Remember many foreclosures were held back due to moratoriums and now are starting to hit the stat books.

Although I am more medium to long term bearish, I am neutral in the short term due to more earnings surprises and a falling dollar possibly pushing the markets even higher. However, there’s a lot of dry timber in the form of dollar shorts. A spark will cause shorts to cover, a very strong move in the dollar, and subsequent drops in Stock and commodity markets. We are in a Twilight Zone…careful though cause it’s a land-mine now.

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