The markets showed incredible resilience last week in their ability to look past Japan’s potential supply chain and nuclear problem, continued MENA instability, $100 plus crude oil, and the recent cover of Newsweek. The VIX experienced its second biggest weekly decline. All the major U.S. equity indices we follow recaptured their 50-day moving averages with the Russell 2000 and Nasdaq outperforming, both up over 3.6 percent for the week.
The European indices, hit much harder in the recent sell-off, generated textbook bounces off their 200-day with France and Germany jumping over 4 percent for the week. The Mexican Bolsa down big last week was up over 3 percent and India, which is down the most year-to-date, experienced the largest bounce, up over 5 percent. This week will be a key test as to whether last week’s equity rally was just an oversold bounce or the end of the correction.
The Dollar was even able to bounce. Natural gas was up 6.48 percent and should continue to be a major beneficiary of the anti-nuke sentiment sweeping the world. Today’s elections in Germany were, among other things, a slap at Merkel’s nuclear policy. Furthermore, the BTU equivalent crude oil price relative to natural gas is $24.11 per bbl. This huge gap, in our opinion, is not sustainable.
Gold made a historic high on Thursday only to reverse sharply. It look likes the sellers have drawn a line in the sand at $1,450. The key short-term support levels to watch are $1419 and $1382. Our biggest concern for gold and all commodities, for that matter, is the potential for a spike in U.S. interest rates as we come to the end of QE2.
We’re watching $/Euro closely and think it should weaken given the German election results and Europe’s sovereign debt problems. A move above last week’s cash high of 1.42474 would be a surprise and signal a major problem with the Dollar, in our opinion.
We like U.S. tech, natural gas, and clean tech stocks. China, Korean, and Brazil equities look like decent trades. We think U.S. bonds move lower and the Dollar is in for a short-term bounce. We have positions in all x/China and Korea and are hedged with SPY puts. We’re expressing opinions here and you know we never make investment or trading recommendations. Have a great week!
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