S&P Finishes Higher but Erases Most Day-Session Gains
All three major stock indices finished higher but intra-day
trading action suggests that the markets may be getting expensive at current
levels.This morning the three indices
surged to the upside mostly on strong buying in Asia and Europe
overnight.These markets were buoyed by
the weaker Dollar and strong demand for higher yielding assets.
Overnight, stock indices got a boost when the Dollar
weakened following bearish comments from St. Louis Fed President Bullard.He suggested that the Fed consider extending
its mortgage buyback program beyond the March 2010 ending date.This put pressure on the Dollar because it
told traders that interest rates would remain low for a long time.It also offered hints at how Bullard feels
about the economic recovery.This caused
traders to pile on the Dollar and drive up stocks and commodities.
After an initial surge following the U.S. opening,
traders got a dose of reality with a better than expected U.S. Existing Home
Sales Report.The Dollar strengthened on
the friendly report triggering a profit-taking break in stocks.
Treasury futures started the day weak and traded lower until
the existing home sales number was released.The strengthening Dollar and the weakening intra-day stock market helped
drive down yields throughout the day.Trading was light because of tomorrowâ€™s U.S. GDP number and a
After early morning weakness plunged the Dollar toward last
weekâ€™s low at 74.75, shorts began covering their positions when the U.S.
reported better than expected existing home sales.
The Dollar was trading sharply lower overnight and had
retraced more than 50% of last weekâ€™s rally following bearish comments over the
weekend by St. Louis Fed President James Bullard who restated his case for
extending the central bankâ€™s mortgage buyback program.Bullard said, â€śunemployment is high, and
labor markets are lagging.â€ťThis comment
triggered a sell-off in the Dollar because it strongly supported the Fedâ€™s
stance that interest rates would remain low for a â€śprolonged periodâ€ť.
The December Euro once again took a run at the psychological
resistance at $1.5000 before sellers stepped in.The rally in the Euro is being triggered by
Bullardâ€™s bearish Dollar comments and last Fridayâ€™s news that European Central
Bank would take steps to make it tougher for banks to make loans.
Traders are starting to look at the fundamentals which drive
currency markets, namely the interest rate differential.If the ECB is getting ready to exit its
stimulus programs then this is a sign that interest rates will remain at 1% and
possibly move higher by early next year.This would make the Euro a more attractive investment than the Dollar
because the Fed is not set to raise interest rates until at least mid-2010.
This morningâ€™s U.S. existing home sales report
came out better than expected.This
stopped the decline in the Dollar as it indicated the economy may be stronger
than previously thought. Rather than take the risk of holding large positions
into tomorrowâ€™s U.S. GDP Report, many traders used todayâ€™s housing report as an
excuse to lighten up on the long side.
The December British Pound was able to hold onto its
gains.Traders are now beginning to
think that the U.K. economy
is in a position to recover faster than the U.S. economy.
December Gold posted a new all-time high overnight, but the
market fell from the high as the Dollar strengthened throughout the day.Central bank buying by Russia helped
boost the market this morning as well as the weaker Dollar.Look for this rally to continue until the
Dollar begins to clearly show signs of a bottom or when central banks stop
buying gold. Cautious traders should watch trading activity in January Platinum
and December Silver for signs of a divergence from the gold market. These two
markets may be in a position to take over the leadership in the metals complex
because of overbought technical conditions in gold.
January Crude Oil tried to rally along with other higher
risk assets but failed to hold on to early gains.The supply/demand picture is still bearish as
a faltering U.S.
economy is leading consumers to drive less and use fewer gallons of gasoline.
This market went up early in the session on geopolitical news from Iran, higher
equity prices and a lower Dollar.Once
traders realized that the Iranian situation was a non-event and stocks began to
give back gains, crude oil turned lower.
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