Daily Investment Interpretations

December 19, 2008

2008-12-19:  Stocks marched in place today. The NASDAQ advanced 12 points (0.77%) to 1,564, the Dow gave up 26 points (-0.3%) to close at 8,679, and the S&P rose 2.6 (0.29%) to 888. Oil dropped $2.36, and gold fell $23.40 to $837.40. The VIX lost another 2.41 to end the day at 45.
    The continuing decline of the VIX is a bullish sign. However, the market indices are recoiling from their... resistance levels?... of around 1,600 for the NASDAQ, 9,000 for the Dow, and a little above 910 for the S&P 500. A visit to the Minyanville village square has been rewarded with two articles:  and   The first of these two articles, The Rally We've Been Waiting For?, suggests that "We might have yet another try to reach the top of the channel, which remains in the vicinity of the 940 target. Will that be the Santa rally we’ve all have been waiting for?", but that, the pattern looks like the rallies in May and in August a little before they broke down. 
    The second article, Dr. Prieur de Plessis's Greenback Down for the Count?, observes that although the dollar may stage a relief rally against other currencies, the downtrend will then resume.

The devaluation of the dollar is a subtle form of inflation, in that it boosts the costs of imported goods, which, thanks to the outsourcing of some U. S. manufacturing, is now an important part of our durable goods buffet. Dr. de Plessis says of this: "On Tuesday, the Federal Reserve signalled they were hell-bent on pursuing an 'inflate or die' approach to rescuing the ailing US economy and fending off the forces of deflation. The Fed is now inflating at a level possibly not seen by a developed nation since Weimar Germany".
    “'Either we are going to pay for our policy sins via higher interest rates or via a weaker dollar. And for an economy as levered as the one in the US, the former choice is not an option,' said Minyanville Professor Stephanie Pomboy. 'So a weaker dollar is the natural valve'.”
    Dr. de Plessis suggests that the precipitous fall of the dollar shown in the above graph may give rise to a "relief rally" or "dead-cat bounce" before it drops again. But he adds, "
Lastly, a sustained break in the uptrends of the US dollar and the Japanese yen -- low-yielding currencies previously used for funding risky investments -- should indicate that forced selling due to deleveraging is starting to subside. As this situation plays itself out, we should see a return of confidence and a calmer period for stock markets in general, and also some support for precious metals and commodities."
    "Lastly, a sustained break in the uptrends of the US dollar and the Japanese yen -- low-yielding currencies previously used for funding risky investments -- should indicate that forced selling due to deleveraging is starting to subside. As this situation plays itself out, we should see a return of confidence and a calmer period for stock markets in general, and also some support for precious metals and commodities."
    Mark Hulbert offers this article, 2009 Honor Roll- Bruised but bullish..
    Peter Brimelow has provided this. Brimelow's Top Ten for 2008.