Today was a light day for economic data and futures pointed to a higher open. After yesterday’s 300 point drop in the Dow it would be important selling would not accelerate. Once again weakness in the Euro and Yen was in focus. The Dollar index crept towards par on the session and is well within reach of hitting it. The lack of follow through with volume on the downside does present some good news for the bulls. AAPL continues to be a thorn in the NASDAQ’s side. All-in-all today was not all that bad session, but we will need to see some improvement and soon.
At the moment the biggest story out there is how the rise in the US Dollar is going to pin down the Federal Reserve Bank. Raising rates will likely cause the US Dollar to rise further putting tremendous pressure on exports. Exports are vital to US Multinationals and in at least the short term will cause earnings to suffer. Many companies have already highlighted the pressures they face with a rising dollar. The two key drivers are the Euro and Yen where both Central Banks controlling the each currency is bound and determined to drive higher inflation. But, how can the US central bank keep a Zero Rate Interest Policy when unemployment is at 5.5%? Quite the conundrum the central bank is in.
This current pullback from the highs has not been a great one for market bulls. However, it has not been devastating. The NASDAQ Composite index only has 4 days of distribution while the S&P 500 does have 5. We have seen this market shake off more than 6 or 7 days of distribution and return to highs. One key difference was certainly all the QE programs launched by the Federal Reserve. Remember, we do have the ECB pumping free Euros into the system. It is probably why the DAX is at its highs. While we are in neutral mode we are not giving up on this market potentially moving higher.
What is also interesting was the massive amount of buybacks announced by big financial firms after the bell. Billions will be pumped back into the market by the way of the buyback. When you can borrow next to nothing and simply generate a few percentage points above your borrowing costs on your cash it makes sense to borrow and buy your shares. It will certainly help keep a floor in your stock price!
We are simply trend followers trying to find trends. Whether up or down we simply ride the wave and get off when we it is time to get off. Keep it simple.
