Stop me if you’ve already heard this one… Ugly economic reports, US dollar shooting higher, euro and yen breaking down, equity markets selling off after huge uninterrupted gains…
What could go wrong? I’ll play along on the downside… again… but can’t help wonder if this merely proves I’m the most stupid person alive.
Bad news is good news, right? There’s plenty here. With the EURUSD continuing to slide…
…and the dollar soars, testing the July 2012 highs…
…in the midst of a downturn in US manufacturing as evidenced by falling Empire State Manufacturing numbers (big miss), declining PPI, declining industrial production, declining capacity utilization (smaller misses)…
Needless to say, a rising dollar won’t do much to help US manufacturing. Simply put, our stuff will be more expensive to foreign buyers, and their stuff will be less expensive to US buyers.
It’s great if you have your eye on a new Prius or HD TV. Not so great if you’ve recently hired a bunch of factory workers for the economic rebound everyone’s talking about.
On the off chance that it matters, this chart sums up the May Empire State manufacturing survey.
There are few bright spots in the entire report. Pretty much every category shows weakness.
The stock market, however, thinks this is just fine. As long as truckloads of cash continue to be injected into the markets, no problem. The lack of inflationary pressures, continued weakness in manufacturing and employment… these factors play nicely into the doves’ hands.
UPDATE: 10:20 AM
SPX sold off almost 4 points, but has since retraced almost .786 of the losses since yesterday’s high.
SPX has obviously traded above the latest 2.24 extension (small purple), the 2.24 extension of the 1474-1343 correction last fall (yellow), the TL from the 1994 & 2002 lows (dashed purple) and the red channel midline.
We should see a reversal at the .786 at 1650.15. If that’s the full extent of the retracement, we could get some momentum on the downside. Otherwise, SPX would be pointing to 1652.52 and higher.
UPDATE: 10:59 AM
It’s pretty obvious we’re heading to 1652.52 or higher. Switching to a long position here at 1650, stops at 1649.
If anyone’s wondering, that whooshing sound is my foot striking…nothing; the football was yanked away once again.
It makes sense to take stock at this point and figure out the rules of this “new normal” — if that’s indeed what it is. Some thoughts on trading this market…
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