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The Strong Dollar Is the Wildcard

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The dollar's strength and the euro's weakness hit gold, copper, and crude oil.

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Editor's Note: This article was written by Richard Suttmeier, chief market strategist at ValuEngine.com, which is a fundamentally-based quant research firm in Princeton, New Jersey, that covers more than 5,000 stocks every day.


The US Treasury announced $81 billion in note auctions for next week.
Wall Street must underwrite $40 billion in 3-Year notes on Tuesday, $25 billion in 10-Year notes on Wednesday, and $16 billion in 30-Year bonds on Thursday.

The yield on the 10-Year is trading around my semiannual pivot at 3.675, which is my line in the sand between supply concern and risk aversion. A weekly close richer than 3.675 continues risk aversion with potential strength to my monthly resistance at 3.504. Otherwise, weekly support is 3.858, which may be necessary to absorb all of the supply.


Source: Thomson / Reuters

The dollar is strong as the euro remains weak, which hits gold, copper, and crude oil.


The weekly chart for the Dollar Index is positive but overbought with quarterly resistance at $80.23 and the 200-week simple moving average at $80.59. A weekly close above these key resistances signals the next wave up for the greenback. Dollar strength has been the wildcard so far in 2010.


Source: Thomson / Reuters

The weekly chart for the euro is just below its 200-week simple moving average at 1.3850 this morning. A weekly close below puts the focus on euro country problems such as Greece and Spain.


Source: Thomson / Reuters

The stronger dollar lessens the value of gold as currency of last resort. The weekly chart for gold stays negative on a close this week below my annual pivot at $1115.2.

Copper has weakened significantly since peaking on January 7 and a close this week below the 200-week simple moving average at 299.92 is a sign that the global growth story is losing credibility. The risk is to my quarterly support at 265.00.


Source: Thomson / Reuters

Crude oil has returned to my annual pivot at $77.05 while alleviating the oversold condition on its daily chart. The weekly chart stays negative on a weekly close below the 200-week simple moving average at $76.21. My quarterly support is $67.22 with monthly resistance at $79.90.

This time it's different for the Dow and the major equity averages.

When I incorrectly shifted from Bull to Bear in the May-to-July period last year it was after a rally of around 40% from the March 5 low. The 21-day simple moving average crossed below the 50-day in July and this crossover proved false as the 200-day provided stability. This time the 200-day is at 9,460. Today's support is 10,236 with weekly and annual resistances at 10,341 and 10,379. The 21-day at 10,434 will be crossing below the 50-day at 10,431 today or tomorrow.

The July low established the Ascending Wedge support on the weekly chart, and this trend held until three weeks ago. This time it's different as the breaking of an Ascending Wedge is technically significant. My quarterly support lags at 6,705, which can be temporarily blocked by weekly support next week.


Source: Thomson / Reuters



Source: Thomson / Reuters

The housing market, and community and regional banks have held up, but appear vulnerable.


Source: Thomson / Reuters

The Housing Market Index (HGX) up 3.3% in 2010 shifts to negative on a weekly close below 103.00.


Source: Thomson / Reuters

The America's Community Bankers Index
(ABAQ), up 1.5% in 2010, shifts to negative on a weekly close below 150.25. My semiannual support is 146.67.

The Regional Banking Index
(BKX), up 8.2% in 2010, shifts to neutral on a weekly close below $40.76. My semiannual support is $40.76.

Send me your comments and questions to Rsuttmeier@Gmail.com.

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No positions in stocks mentioned.

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