I really threw up my hands in frustration last night when USD broke to new lows – I have been looking for a break in this slow grinding USD sell-off an the market has not been cooperaing – but now at the close of the day we are getting a big reversal here as the USD turns stronger, supposedly on Microsoft earnings. I’m actually getting my hopes up that we have finally put in a bottom in the USD – though I would like to see some more confirmation here in the coming couple of days.
From a cyclical perspective it makes sense as Bernanke was just out with key testimony and equity markets are on an absurdly unsustainable charge that is most likely a short squeeze more than anything else: evidence abounds that high frequency trading houses have essentially taken over the market like a school of evil sharks and that lousy stocks are outperforming good ones. Company earnings are beating expectations in many cases, but they are still lower than for this quarter last year and they are beating based on austerity and productivity gains (fire an employee and make your scared remaining employees work harder = more profits per employee!).
Earnings are not rising on end demand. UPS was very honest last night about its visibility after a very ugly Q2, saying “we don’t see any convincing signs of firming, [though] it appears that things are flattening out” Also, the S&P500 action higher today occurred on the break of an upside-down head and shoulders formation neckline break that is now reversing after the close. This comes only a couple of weeks after everyone – including CNBC - was talking about the head and shoulders formation that saw a false downside break below 900 (and was immediately reversed to the tune of over 100 points). If markets have shown us anything of late, it is that technical breaks are not working…. Let’s see what the coming couple of days bring before we get too excited about this view. We’ll need to see EM assets and currencies lose their shine as well if this is to blossom into a bigger move.
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