Back To The Norm

Two weeks ago, investors were worried about the removal of stimulus (i.e. Australia, Norway, & India), rising U.S. rates, and a strengthening dollar.  On Monday, investors woke up to news that the IMF was quoted as saying the dollar was still overvalued, G20 finance ministers were saying they were committed to more stimulus, and the dollar was weakening.  In fact, all that talk about the dollar strengthening, the call buying, buying in the ETF UUP (bullish dollar ETF) all went away Monday.  In fact, you can see that as I mentioned in my video newsletter, unless the dollar index breaks above the 50-day moving average, there was nothing to worry about.  Well, it failed at the 50-day moving average once again last week and is headed down further.

dollar index 11 9 09

Weak dollar, more stimulus, and low interest rates.  This is the recipe for owning pretty much anything.  Risk assets moved up once again.  Commodities, stocks, materials, emerging markets, U.S. stocks, etc. all moved up.  We may be entering the more selective phase in the rally where not everything goes up but if this reflation recipe is still being served, the coast is clear.  But, let’s watch for underlying weakness even though the indices are moving higher.
That’ll be a sign that this rally is getting tired.


2 Responses to “Back To The Norm”

  1. 1 tom November 9, 2009 at 3:03 pm

    Karl, what’s your take on this rally today, volume on Spiders- SPY looked very low.

    • 2 keggerss November 9, 2009 at 7:23 pm

      As long as the dollar is weak, interest rates are low, and nobody wants to aggressively remove extra stimulus, it’ll keep rallying. Volume hasn’t been an issue since March. Quality, not quantity.

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