Market Analysis 03/28/2010

March 28, 2010 · Posted in Weekly Posts

Our Macro Strategy post is now available in the Member’s Only Section. We will be phasing out the Member’s Only content in May at which point everything will become public.

Friday saw some interesting action as the US dollar came back after the European nations agreed on a framework for helping Greece. Stocks were little changed. Gold held its uptrend line and successfully bounced off of it. Energy stocks and basic materials largely declined in what looks to us a as consolidation.

Greece will auction another set of bonds this week, likely in the first half of the week. If this goes well, meaning there is strong interest and especially if the interest rate demanded is lower than the previous bond auction, then we think we will see a rally in the Euro and a decline in the US dollar and treasuries. If this happens, then some decline in US stocks is a given as our market has been propped up by European investment fund flows for the past few weeks. However, if this scenario pays out then, as we illustrate below, we may well see breakouts to the upside in copper, oil, gold, basic materials, and energy. That said, any new crisis could completely change that picture.

While we know that currency and sovereign debt issues exist in Spain, Portugal, Italy, Ireland, and the UK as well as the US, we think that the near term resolution of the Greek episode will shift the focus back on the US. In fact we think this year will see this whack-a-mole game of where the current sovereign debt focus is at any time. Now Greece, now the US, now Britain, now Spain, etc. This will cause volatility to be sure. If however, global growth remains solid and especially in Asia, then demand for basic materials and energy should lift those sectors while inflation and sovereign debt concerns lift gold. We note that Asian physical gold buying has been reported as strong these past few weeks but that the US dollar appreciation has caused selling over here. In fact he typical night has seen gold prices rise in Asia and then decline here.

On the inflation front (of which there is no inflation expectation in the US…ever…for all time…) we note that the Israeli central bank raised rates this weekend on heightened inflation concerns.

Remember too this is a shortened trading week due to Good Friday.

The following annotated charts are included below. We emphasize that much hinges on the near term behavior of the US dollar. Any macro shock in the Euro zone, the mid-east or Asia can invalidate some or all of the patterns we are seeing. Wait for breakouts (or breakdowns) to enter positions. Note that most of these charts are weekly this week to capture the longer term picture.