The US Dollar index has broken the 73 level to the downside. It is highly probable that we will see the 72 support area of summer 2008 in the coming days. Implications for stocks and commodities in the near term are bullish, but those markets are not acting as we might expect.
The CRB index made a new high – barely – earlier this month and is drifting sideways with a slight downward bias. Momentum indicators are showing weakness. Major stock indexes have powered to new high but the internals are questionable. Consumer stapes, health care and utilities are strong sectors. Materials and energy are looking toppy, while tech is having trouble overall even with the Intel and Apple blowout earnings. Clearly tech is a mixed bag where stock picking matters.
Overall, my take is that the commodity run looks like its pretty much done, and with the action in stocks we need to proceed with caution. The Dollar index has broken every intermediate support level on the way down, and who knows whether 72 will hold; as we are this close, my inclination would be to continue to be patient and wait to see what develops.
Readers should be aware that my outlook is that of a longer term swing trader. Positions are typically held for a minimum of six months and up to several years. Short term traders may have a different view.