Don’t do it, don’t let yourself get distracted. With Ben Bernanke scheduled to testify before Congress at 10:00 am est and the financial media crediting the recent bounce in the market to optimism over what he might say, you need to focus on what is important. The real tells relative to anything Bernanke might hint at will be the action in commodities and currencies, mainly gold, oil, copper, and the U.S. dollar.
Looking at gold the chart actually looks semi-bullish here. The precious metal withstood a critical test of key support at the 1,525 level and has since rallied more than 5%. What’s more, gold broke above its most recent high at $1,600 this week and any pullbacks that hold the $1,580-$1,600 will keep the uptrend off of the 1,525 firmly in tact. However, considering gold made an extremely bullish move from 1,525 to its all time high around 1,925 last August when SPX was plunging, overall market bulls shouldn’t look to gold’s recent strength for solace during the recent broader market weakness.
At this point our skepticism of the activity in oil is well documented, but we’ve failed to point out that copper has been arguably even more dismal. Unlike oil, copper was never able to break above its Summer and Fall 2011 highs. In addition, while oil’s pullback has come on lower volume relative to its Fall 2011 pullback, the copper’s has been just as high as that period. Copper could theoretically rally another 7% to $3.60 and still not undue the broader bearish look to its chart.
As for the dollar, well the greenback has the best looking chart of the four, as it recently broke out to its highest level since September 2010. If the market truly expected a grand dose of quantitative easing (something that results in more supply of dollars coming into the market, thus presumably depressing its value) we wouldn’t expect to the dollar to have ever gotten to this point in the first place. The dollar looks poised to test resistance around $85 so long as it manages to find support at its prior breakout level between $80-$81.
The more charts we look at and analyze them relative to recent periods of broader market weakness the more convinced we become that the market remains on shaky ground and this recent bounce should not be trusted. With that said, stocks like UA, CMG, BAC, WFM, ALLT, AAPL, KMB continue to whether broader market weakness and we advise focusing on stocks that are holding up well. While the beaten down stocks will make the harder bounces, they will also generally be much more inconsistent with their moves and prone to sudden reversals.
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