Market Week in Review, Sept 20 – 24

Last week the US stock market broke decisively above the summer trading range, giving a bullish signal.

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The week began and ended with 2% gains, with a mid week pullback. All of the SPX sectors gained between 1.5 and 3% for the week – except the financials,  which did finally see some buying on Friday to end the week near break even. Most of the major domestic and foreign stock indexes also had positive weeks.

With risk assets rallying, Treasury bonds continued to consolidate, but at a high level; the chart for the benchmark 10 year note remains impressive.

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Gold powered to new all-time high price levels…

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…while the US Dollar broke down through the 80 level…

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…and oil finally seems to be responding to the Dollar’s fall, though it remains inside the $70 – $80 range.

(click to enlarge)

So, what to make of all this?

1. We have a bull move in stocks. and that could very well take the SPX back to the 2010 high, which is another 6% up from here.

2. Treasury bonds and gold have been moving up together, which runs counter to the long term correlation between those assets, and we need to understand what this is signaling. For the moment, gold is very overbought, while bonds are in a consolidation that is working off an overbought condition. Short term, bullish for bonds, bearish for gold?

3. The US Dollar has broken major support after the Fed announcement. How far can it fall? How will that move commodity prices (remember, most commodities are priced in $US) – especially oil. Will oil break out of its intermediate term price range? Which way?

Bear in mind, we are entering what is often a volatile time of year. With unusual inter-market correlations, and mid term elections approaching, there could be more volatility than usual.

To have stocks, bonds, and commodities rally at the same time is highly unlikely to last for very long – at any time of year. We’ll keep watching the markets, and rather than trying to predict the future, we’ll let the markets show us where they are going. We won’t catch the top or bottom of any move that way, but the risk/reward profile of any trade should be favorable

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