Why Investors Need To Keep Watching The Dollar

Daily State of the Markets 
Monday Morning – May 9, 2011  

Good morning. There is little doubt that the bulls remain largely in control of the ball game – after all, it was just five short days ago that all the major indices were movin’ on up to new highs for the current bull cycle. However, given the duration of the current bull run, the action last week suggests that our heroes in horns may be suffering from a lack of conviction at the present time.

Exhibit A in our argument would be the action/reaction to the news that the U.S. had finally “gotten their man” via the operation in Pakistan. Although futures rallied nicely on the official pronouncement that Bin Laden was dead, the lack of follow through during Monday’s session suggested that perhaps traders had other things on their mind (such as the potential bottoming action in the dollar).

The second exhibit to be presented from our side of the table is market’s action on Friday. After three fairly disappointing data points last week, the bulls finally got some good news on the jobs front as the Nonfarm Payroll report came in well ahead of expectations. Once again, the market popped up nicely in the early going only to succumb to selling throughout the remainder of the day.

Sure, the news that Greece may (or may not) be talking about leaving the Eurozone, or defaulting on debt, etc., could have caused traders to think twice about getting too excited in front the weekend news cycle. And it is true that the dollar once again put in a spirited performance. But, the bottom line from a chart perspective is Friday’s action wasn’t exactly positive.

Next up in our pseudo presentation this morning is the relatively lackluster readings from many of our market models. When markets are making new highs, the market’s internal indicators typically tend to sing a happy tune and confirm the move. And while our models are not suggesting that there is trouble ahead, the distinct lack of enthusiasm in the majority of the readings may be a sign that the current run for the roses could be getting long in the tooth. (As an example, our weekly market model has had difficulty staying positive for the past couple of months now.)

But then again, all of the points presented above may be unimportant as the reversal in the dollar may actually be the primary factor driving the action. As we’ve been suggesting with regularity lately, the recent reversal in the dollar could easily be causing traders to bail on the risk/dollar-carry trade. Remember, a rising dollar puts a crimp in all kinds of popular trading strategies being implemented by the fast money these days.

So, if you are trying to determine the driving factors in the stock market right now and the macro picture isn’t your thing, you can always just continue to watch the dollar. At some point, the current spike higher in the greenback will reverse and the “risk assets” will likely bounce. And after that, it will be interesting to see if it’s “game back on” for the risk trade.

For now though, we’ll continue to watch the dollar and be on the lookout for renewed signs of conviction from the bull camp.

Turning to this morning… Greece is back in the news again this morning as S&P has downgraded the country’s sovereign debt rating. And while stocks are falling in Europe, the futures in the U.S. are still modestly green at this point.

On the Economic front… We do not have any economic data to review before the bell.

Thought for the day… Remember, you’ve got to be in it in order to win it…

Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell…


  • Major Foreign Markets: Australia: +0.32% Shanghai: +0.32% Hong Kong: +0.76% Japan: -0.66% France: -1.33% Germany: -1.11% London: -0.64%
  • Australia: +0.32%
  • Shanghai: +0.32%
  • Hong Kong: +0.76%
  • Japan: -0.66%
  • France: -1.33%
  • Germany: -1.11%
  • London: -0.64%
  • Crude Oil Futures: +$2.17 to $99.35
  • Gold: $+8.20 to $1499.80
  • Dollar: higher against the Yen, Euro and Pound
  • 10-Year Bond Yield: Currently trading at 3.179%
  • Stocks Futures Ahead of Open in U.S. (relative to fair value): S&P 500: +1.40 Dow Jones Industrial Average: +15 NASDAQ Composite: +3.50
  • S&P 500: +1.40
  • Dow Jones Industrial Average: +15
  • NASDAQ Composite: +3.50


Wall Street Research Summary


Baker Hughes (BHI) – Barclays Ulta Petroleum (UPL) – Canaccord Genuity Continental Resources (CLR) – Canaccord Genuity American Water (AWK) – Citi Ross Stores (ROST) – Citi Diamond Offshore (DO) – Duncan-Williams Helmerich & Payne (HP) – Duncan-Williams Noble Corp (NE) – Duncan-Williams E*Trade (ETFC) – Goldman Sachs Ameriprise Financial (AMP) – Added to Conviction Buy at Goldman XL Group (XL) – Added to Conviction Buy at Goldman Evercore Partners (EVR) – Added to Conviction Buy at Goldman Medtronic (MDT) – Target increasded at Oppenheimer Infinity Pharmaceuticals (INFI) – Piper Jaffray Airgas (ARG) – Soleil   Downgrades: Mack-Cali Realty (CLI) – BAC/ML Highwoods Properties (HIW) – BAC/ML Brandywine Realty (BDN) – BAC/ML Occidental Petroleum (OXY) – Barclays Telefonica (TEF) – Deutsche Bank TD Ameritrade (AMTD) – Goldman Sachs Digital Realty (DLR) – Removed from Conviction Buy at Goldman T. Rowe Price (TROW) – Removed from Conviction Buy at Goldman   Long positions in stocks mentioned: none For more “top stock” portfolios and research, visit TopStockPortfolios.com       The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report and on our website is for informational purposes only. No part of the material presented in this report or on our websites is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program. The opinions and forecasts expressed are those of the editors of TopStockPortfolios and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. Stocks should always consult an investment professional before making any investment. Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that the investment objectives outlined will actually come to pass. All opinions expressed herein are subject to change without notice. Neither the editor, employees, nor any of their affiliates shall have any liability for any loss sustained by anyone who has relied on the information provided. The analysis provided is based on both technical and fundamental research and is provided “as is” without warranty of any kind, either expressed or implied. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed. The information contained in this report is provided by Ridge Publishing Co. Inc. (Ridge). One of the principals of Ridge, Mr. David Moenning, is also President and majority shareholder of Heritage Capital Management, Inc. (HCM) a Chicago-based money management firm. HCM is registered with the U.S. Securities and Exchange Commission as an investment adviser. HCM also serves as a sub-advisor to other investment advisory firms. Ridge is a publisher and has not registered as an investment adviser. Neither HCM nor Ridge is registered as a broker-dealer. Employees and affiliates of HCM and Ridge may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Editors will indicate whether they or HCM has a position in stocks or other securities mentioned in any publication. The disclosures will be accurate as of the time of publication and may change thereafter without notice. Investments in equities carry an inherent element of risk including the potential for significant loss of principal. Past performance is not an indication of future results.