The US Dollar opened at its highs, and has proceeded to back off those highs. As a result, after opening weak, US Equities have since strengthened.
For short sellers of the REFLATION trade, this has been frustrating, but respect and understand that there are still a lot of funds chasing performance into mutual fund year end AND that mathematical correlations aren’t 100%, particularly on shorter durations.
High R-Squares of inverse correlations (like SPX vs USD) are never perpetual. The #1 risk to my current market view is that, as the Burning Buck becomes consensus, that this dominating 2009 inverse correlation starts to unwind. In the long run, I think raising rates is bullish for America’s balance sheet. And don’t forget that after the Australians raised rates earlier this week, their stock market went straight UP!
For now, the risk management setup is as follows:
1. Immediate term TRADE resistance (dotted red line) = 1080
2. Immediate term TRADE support (dotted green line) = 1047
A close above 1071 (the YTD high) would be very bullish for price momentum. A close below 1047 puts this market’s bullish TREND line of support in play. That line, however, is a lot lower, down at 990 (see chart below).
Keith R. McCullough
Chief Executive Officer