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Weak Spot


We are now seeing the weakest part of the day as far as flows go. VWAP programs are asleep as some buying was done in the morning and much needs to be saved for later in the day.

Collar unwinds won't kick in until 3:30 or so.

We are watching to see how weak the market will get in this time. This will give us a good gauge of supply and demand once these secondary sources of demand dry up.

Several Minyans have asked why the weak dollar hasn't affected stocks negatively, and in fact, seems to be positive for stocks. The answer in my mind is that a weaker dollar by itself is not directly negative for stocks.

I have been looking for the weak dollar to affect bonds first: foreigners demanding higher U.S. rates to counter dollar losses. This has not happened. The Japanese, for uneconomic reasons that I have pointed out, have supported bond prices in the face of and because of a declining dollar: it seems they are willing to lose whatever it takes to support the yen. I do believe that at some point the weak dollar will force even the Japanese to either slow down their buying of U.S. treasuries or even turn into sellers.

Until we see that happen, and it may happen very quickly, we cannot consider a weak dollar as an impetus for a declining equity market.

And in fact today's surprising (to some) employment report has rallied treasuries sharply. The market in this way is like a tight-rope walker: there are no problems until he falls off.
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