Monday, March 26, 2012

Risk is "on" & Tech is back!

I suspected a "pop" in the market last Friday afternoon and I positioned myself accordingly.  Ben Bernanke assisted my trade by giving a "goose" to stocks with his early morning statements today.

I've been posting updates on the Russell 2000 for weeks waiting for a move in the index and we finally got a clean break to the upside today (see below).The Russell's renewed strength is a harbinger of higher equity prices ahead:

(click on chart for larger view)

And Tech is back!  The NASDAQ Composite has been languishing since the dotcom bubble burst in 2000.  The technical damage done to the index has lingered for a decade but we are seeing continued strength in the index.  Here's a 15 year view of the index and the purple horizontal line delineates the recent highs the Composite has taken out:

With end of month and quarter "window dressing" by big institutions, the prevailing view is that we should see strength into early April.  And to this I won't disagree.  But I took off my profitable position today and I'm watching the Dollar and the Euro to glean where the market is going in the short term.

Stocks and the Euro are inversely correlated to the Dollar.  And if you review the commentary I posted yesterday you can see a chart of the Dollar which is clearly in a short term downtrend.  But here's the Currency Shares Euro Trust ETF (FXE) that tracks the Euro:

The Euro has also decisively pierced a significant down trend line (red circle & green dashed line) but I'm watching the area identified by the black arrow which is the 50% Fibonacci retracement area.  Europe is not getting a lot of press these days but that doesn't mean that all is well.  I don't believe that the fundamentals support a move in this ETF over 134. 

We'll have to see what happens. Determining the direction of the Euro has been an incredible challenge for the trading community since 2010.  But if I'm right and the Euro weakens (Dollar strengthens) we will see a "garden variety" correction in stocks very soon.

In any case, at this point the uptrend for April is intact and I'll be looking to reassess the market at the end of next month based on seasonal factors.