Stocks up, Dollar up

q1205.pngStock indexes were up sharply today, with gains in the broad indexes of more than two per cent. There were some encouraging economic reports, but the real driver is probably the interest rate cut next week, with some still expecting a half point cut, but more likely will be a quarter. There may well be a half point cut in the discount rate, with the quarter point in the fed funds rate. The Nasdaq/QQQQ ended the day session a bit off the highs, leaving a little tail, but it is driving higher in the after hours session as I write this. A clear break-out of the high of four days ago would obviously be bullish, and would most likely turn the trend indicators up. Short term momentum has kinked back up from a high level. I hate trading breakouts, as most fail, so would rather wait for the first pullback, and if the trend indicators are positive would take the signal when the double stochastic turns up from under the lower reference line, if that should occur. Some breakouts do have follow-through, and is possible to miss a move by waiting for a pullback. Obviously in a sustained trend the breakouts do have follow-through, but markets spend more time in congestion, and the breakouts more often trap traders on the wrong side. In my experience markets usually will re-test and create a safer entry point after the breakout. I will leave the bear in the box a bit longer. With the market swinging back and forth a couple hundred points at a clip I want to wait until there is more evidence of a trend change.
dollar1205.pngWith the interest rate cut next week a near certainty, one would assume the dollar would start the next leg if its downtrend. Instead, today the dollar rallied up sharply. It cleared some overhead resistance at the line I drew on the chart, and the trend indicator is looking like it wants to turn positive. There should be some news on Thursday regarding ECB and Bank of England rate decision and interpretation of the wording of those decisions. If this trend continues maybe Gisele will start wanting to be paid in dollar again. I expect if that happens it will be at the very top of a long bull market in the dollar. The media has a way of putting out those silly stories right at turning points in markets, and there was no shortage of silly dollar bear stories right at the recent low. The rising dollar put pressure on gold. The Feb contract is now back under $800 in the after hours session. Oil was up early in the day, but closed lower.