As far as US exchange-traded funds (ETFs) are concerned, John Nyaradi (Wall Street Sector Selector) reports that the strongest sectors this week were energy, commodities and emerging markets. Leaders included SPDR S&P Oil and Gas Exploration (XOP) (+7.6%), PowerShares Commodity Tracking Index (DBC) (+9.4%) and iShares MSCI South Korea Index (EWY) +7.5%. On the other end of the performance spectrum Real Estate Investment Trust (REIT) stocks had a torrid time, with SPDR DJ Wilshire REIT (RWR) losing 12.3% and Vanguard REIT (VNQ) down by 10.3%.

Notwithstanding supply concerns and a US budget deficit expected to hit $1.8 trillion this year, government bond yields around the globe declined as the US central bank joined the Bank of England, the Bank of Japan and the Swiss National Bank in a policy of quantitative easing. Yields of 10-year Treasuries and Bonds were down by 22 and 5 basis points respectively on the week. However, the yield on the 10-year Gilt rose by 7 basis points even as the Bank of England continued to buy long-dated bonds.

“I think the US government bond market is a disaster waiting to happen for the simple reason that the requirements of the government to cover its fiscal deficit will be very, very high,” said Marc Faber in a CNBC interview. “There will be a time when the Federal Reserve will have to increase interest rates to fight inflation, and it will be reluctant to do so because the cost of servicing government debt will rise substantially.”

Not surprisingly, the US dollar got whacked. According to Bespoke, the US Dollar Index had its third biggest 1-day decline (-2.69%) on Wednesday since daily pricing started back in 1970. The greenback broke below its 50-day moving average and short-term uptrend, but is still trading above its 200-day moving average and longer-term uptrend. Given the Fed’s “nuclear” strategy, further damage appears likely.



In the expectation that the Fed’s printing of massive amounts of money will stoke inflationary pressures, Treasury Inflation-protected Securities (TIPS) surged to a level last seen in October 2009, as shown by the performance of iShares TIPS Bond ETF (TIP).



Bernanke’s “inflate or die” approach also caused gold bullion to shine. After having traded below $884 prior to the Fed’s announcement, the yellow metal rose sharply to $967 before easing back to close the week at $952.

Commodities benefited as the Fed’s announcement saw the US dollar nose-diving, with West Texas Intermediate Crude (+10.7%) rising above $50 for the first time since November. Similarly, copper touched a four-month high as the price breached $4,000 a metric ton.

Turning to the stock market again, the 800 level on the S&P 500 Index needs to be exceeded for stocks to make further headway. It not only represents a 50% retracement of the January/March decline, but is also the resistance level of the 2-month downtrend and the 50-day moving average.



The key chart levels for the major US indices are provided in the table below.



Kevin Lane, technical analyst of Fusion IQ, said:

“... we continue to view this current rally as having legs with maybe another 10-15% up from present levels. However, ultimately we think this rally will fade and we will get a retest of the recent lows (check the history books, we almost always get a retest). How the market handles that retest will tell us a lot with regard to the longer-term picture.”

“While our sense is that the rally has more to go on the upside in the weeks to come, we feel it is still too early to say the final bottom has been put in place,” added Jeffrey Saut of Raymond James.