Stocks, Euro & Commodities Negatively Reverse As Dollar Soars!


Tuesday, May 18 ,2010
Market Commentary: 

Stocks negatively reversed, opened higher but closed lower, on Tuesday after the Euro plunged to a fresh four year low against the US dollar. Volume totals were reported higher on the Nasdaq and the NYSE compared to Monday’s total which was not an encouraging sign. Decliners trumped advancers by about a 3-to-1 ratio on the NYSE and the Nasdaq exchange. New 52-week highs outnumbered new 52-week lows on both major exchanges. There were 15 high-ranked companies from the Leaders List that made a new 52-week high and appeared on the BreakOuts Page, higher than the 7 issues that appeared on the prior session.

Germany Bans Naked Short Selling:

The major averages opened higher but quickly turned tail after the euro plunged to a fresh four year low against the greenback. The big news of the day came out of Germany. Germany placed a temporary ban on naked short selling of euro bonds, banks, and insurers in an attempt to curb the month long decline and ease contagion woes. Germany’s BaFin financial-services regulator said that the plan will be effective midnight and remain in effect until March 31, 2011. This sent the euro plunging below $1.22 for the first time since April 17, 2006. The stronger dollar sent a slew of dollar denominated assets (mainly stocks and commodities) lower. Crude oil negatively reversed and fell -3.5% and closed below $70 a barrel for the first time in months which has negative ramifications on economy.

Market Action- In A Correction:

The NYSE Composite Index closed below its 200 DMA line for the third straight session which is not a healthy sign. The Nasdaq Composite and S&P 500 Index did not undercut Monday’s lows which technically means that Tuesday marked Day 2 of their current rally attempt and the earliest a possible FTD can emerge for either index would be Thursday. However, if yesterday’s lows are breached then the day count will be reset. Meanwhile, the Dow Jones Industrial Average has yet to violate last Monday’s low, which means that it just finished Day 7 of its current rally attempt and the window for a proper FTD remains open (unless its 5/10/10 low of 10,386 is breached). What does all of this mean for investors? Simple, the market is in a correction which reiterates the importance of adopting a defense stance until a new rally is confirmed. Trade accordingly.

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