Dollar Falls; Stocks & Commodities Up

Thursday, November 4, 2010
Stock Market Commentary:

Stocks and commodities soared as the US dollar fell one day after the Federal Reserve announced a second round of quantitative easing. Volume patterns remain healthy as the major averages are now in their 10th week of their ongoing rally.On average, market internals remain healthy evidenced by an upward sloping Advance/Decline line and the fact that new 52-week highs continue to easily outnumber new 52-week lows on both exchanges.

Dollar Falls; Stocks & Commodities Up:

It is important to note that the euro was trading at 139 before the Fed announced QE 2. One day later, it topped 142 which sparked a broad based rally in dollar denominated assets (mainly stocks and comnmodities). Overnight, stocks soared in Asia and Europe which set the stage for a strong rally in the US. Stocks shrugged off a weaker than expected weekly jobless claims and opened with sizable gains as buyers showed up and bid prices higher. .

Don’t Fight The Fed:

It appears the positive scenario I described yesterday is unfolding and all I can say is Do Not Fight The Fed. Embrace it, and remember that all the ingredients that sent the benchmark S&P 500 vaulting 83% since March 2009 are still in play, if not stronger now (an additional $600B will be added to “help” the system). That said, the USD is falling hard and the inverse relationship appears to be back on track. As always, use protective stops but one would be wise to err on the bullish side until any of the major averages decide to pullback (it’s only a question of when, not if).

Market Action- Confirmed Rally, Week 10:

Heretofore, the action since this rally was confirmed on the September 1, 2010 follow-through day (FTD) has been strong but the market action has been wide-and-loose which is not a healthy sign. The next level of support for the major averages is their September highs, then their respective 200-day moving average (DMA) lines while the next level of resistance is their respective April highs. We have enjoyed large gains since the September 1st FTD and over the past few weeks, the tape remains somewhat sloppy.  Trade accordingly.

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