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October 26, 2006

Yesterday Comes Again

There's not much new to be extracted from today's market action. Bulls continued enjoying the combined effects of month-end tape painting and shorts running for the hills. Like yesterday, a brief bluff to the downside was quickly denied, and we strained tortuously higher to close on the highs. The SPX has still not suffered three consecutive losing days since early August, and the NDX now sits within 20 points of its May high. I expect more of the same action over the last two trading days of October. If the market doesn't start showing some weakness in November, though, the bears may be the only consumer group cutting back on spending!

At least the metals continued their recent rally, with gold up nearly a percent and silver up nearly two. Miners took a breather from the action, but not in an way that should cause concern. The metals seemed to be helped by a solid drop in the dollar, which has now shed about 2% in two weeks as measured by the U.S. Dollar Index. Should its decline evolve into a serious sell-off, we would almost certainly see trouble in the equity markets. It is a correlation I used to discuss, but have not touched upon in a whileÂ… when the dollar starts dropping, stocks typically follow about 3-5 weeks later.

Barring some surprising action, I will likely cut out early for the weekend tomorrow, which means no post, but I will try to nail up a new set of charts before Monday.

Disclosure: None

 

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