March 24, 2010

A SUDDEN AVERSION TO MARKET RISK

 

Investors rediscovered risk Wednesday as the Greek situation dragged on and Fitch downgraded Portugal's debt.  Those two events combined to rally the dollar sharply against most currencies while trashing commodity prices.  And, as we've postulated often, if commodities can't rally, there's only sluggish economic growth taking place.  In the U.S., new-home sales data came in much worse than expected (snowstorms and such we suppose) while durable goods orders increased about as expected.  

As to home-sales data, it's a supply/demand market.  It wasn't snowing in the South or West to interfere as sales there fell as well.  Let's face it, there are too many new homes for sale, and builders, if they want to keep their business going, need to always be building and selling.  In the meantime Zillow.com says there's still plenty of unsold housing inventory.

Volume Wednesday was a little above average for the recent period while breadth was negative per the WSJ.

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Markets remain overbought from multiple views but this can continue longer than most generally accept as possible.  It can continue as long as the punchbowl remains full and well-spiked. 

The news from Europe and a dismal Treasury auction were a serious one-two punch for markets.  Yet bulls are a determined bunch and the trends aren't broken yet. 

The rally in the dollar makes it the best house in a bad neighborhood at least for now.  What happens with the Chinese yuan is also of great interest in currency markets.  However, this rally undermines gold prices and most commodities.  Without reasonable growth in that sector, economic growth can only remain sluggish.  As for gold, check out this doozy of an article having to do with alleged government manipulation of gold prices to aid Gordon Brown.

Thursday will feature jobless claims, and that should get plenty of attention with consensus estimates for around to remain around 450K.

Let's see what happens.  You can follow our pithy comments on twitter and become a fan of ETF Digest on facebook.

 

Disclaimer:  Among other issues the ETF Digest maintains positions in: RSP, QQQQ, IWM, MDY, VTI, XLY, XLF, KRE, KBE, IYR, UUP, EWC and EPI.

 

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