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Is U.S. Dollar Still In Trouble?

 January 31, 2013 09:49 AM


The consensus of our technical indicators has been on an intermediate-term sell signal for the U.S. dollar since early August. Its latest attempt to rally failed at its important 30-week m.a.

And the short-term charts are not encouraging. The dollar tried to rally in early January but that attempt ended at a lower short-term high. And now another attempt seems to have ended at an even lower high, and the dollar index is potentially breaking out of a symmetrical triangle pattern to the downside.

 

Will Monthly Strength Period Keep Market Rally Going?

[Related -Chart Says This Retailer's Comeback Isn't Finished]

As we have been reminding subscribers we are in what we have always referred to as the ‘monthly strength period'.

The market has a strong historical pattern of often being up the last two days of each month and the first four trading days of the following month. The influence is the sizable extra chunks of money that flow into the market at month ends, from month end stock and bond dividends usually marked for automatic re-investment, month-end contributions to 401K and IRA plans, inflow from those who follow a strategy of dollar-cost averaging into the market on a monthly basis, etc.

[Related -ETF Performance Review: Major Asset Classes | 19 Dec 2014]

Can that short-term seasonal effect hold the market up while the short-term overbought condition above the 50-day moving average has everyone expecting at least a short-term pullback, and many expecting the intermediate-term rally, or even the bull market, to end?

Yesterday in the U.S. Market.

In spite of the unexpected report of the economy contracting in the 4th quarter, it was another low volatility day. The Dow traded in a narrow range of just 70 points from its intraday high to its intraday low, and closed down 44 points, or 0.3%. Trading volume remained about where it's been lately with 0.7 billion shares traded on the NYSE, 1.9 billion on the Nasdaq.

The best performing indexes in the rally, therefore the most overbought above 50-day moving averages, the DJ Transportation Avg, and the Russell 2000, closed down considerably more than the other indexes.

The Dow closed down 44 points, or 0.3%. The S&P 500 closed down 0.4%. The NYSE Composite closed down 0.4%. The Nasdaq closed down 0.4%. The Nasdaq 100 closed down 0.2%. The Russell 2000 closed down 1.1%. The DJ Transportation Avg. closed down 1.5%. The DJ Utilities Avg closed up 0.1%.

Gold closed up $15 an ounce at $1,677.

Oil closed up $0.37 a barrel at $97.94 a barrel.

The U.S. dollar etf UUP closed down 0.4%.

The U.S. Treasury bond etf TLT closed down 0.2%.

Markets This Morning:

European markets are mostly down this morning. The London FTSE is down 0.5%. The German DAX is down 0.3%. France's CAC is down 0.8%. Spain is down 1.9%. Greece is down 2.2%. Italy is down 0.5%. Russia up 0.2%.

Oil is down $.82 a barrel at $97.12.

Gold is down $8 an ounce at $1,669.

This Morning in the U.S. Market:

This is a very heavy week for potential market-moving economic reports, including Durable Goods Orders, Consumer Confidence, another revision to 4th quarter GDP, the Fed's FOMC meeting, the Labor Dept's Employment Report for January, etc. To see the full list click here, and look at the left side of the page it takes you to.

Monday's reports were that Durable Goods Orders surged up 4.6% in December, almost double the consensus forecast of a gain of 2.5%. And the Dallas Fed Mfg Index rose sharply in January, jumping from 3.5 in December to 12.9 in January. The new orders component jumped from minus 0.8 to 12.2, in highest reading in almost two years. But Pending Home Sales fell 4.3% in December, blamed on the low inventory of homes for sale.

Tuesday's reports were that the Case-Shiller Home Price Index showed home prices rose 0.6% in November, and were up 5.5% year-over-year. It was the 10th straight month of increases and the best year-over-year increase since August 2006. But Consumer Confidence surprised on the downside, falling from 68.1 in December to 58.6 in January, its lowest level in 14 months, and worse than the consensus forecast of a smaller decline to 64.3.

In yesterday's reports the ADP monthly jobs report showed 192,000 new jobs were created in the private sector in January, better than the consensus forecast of 173,000.  But the Commerce Department reported GDP growth in the 4th quarter slowed all the way into contraction, negative 0.1%. It was the first quarter of no growth at all, in fact contraction, since the economy began recovering from the last recession in 2009. And it was worse than the consensus forecast for the economy to slow in the 4th quarter but to remain positive at 1.0% growth. However, the headline number was less important than the significant positives within the report. Subscribers: see our analysis of the report in yesterday's in-depth Market Report.

Also yesterday the Fed's two-day FOMC meeting ended and its statement after the meeting in which it said  

This morning's reports are that new weekly unemployment claims jumped by 38,000 last week to 368,000. The consensus forecast was for an increase of 25,000. The more important four-week moving average rose by only 250 to 352,000. And Personal Incomes were up a sizable 2.6% in December, matching the consensus forecast. It was the fastest monthly pace in 8 years, but was due to the numerous one-time dividend payouts in December to beat the increase in dividend taxes that was expected with the new year. Meanwhile, Consumer Spending rose a more normal 0.2%.

Still to come is the Chicago PMI Index, which will be released at 9:45 am. It is often a precursor of the National ISM Mfg Index, which will be released tomorrow morning.

The reports had no effect on the pre-open indicators which have been fractionally negative all morning.

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