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Stocks following dollar lower

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The broader market averages are stuck near their session lows and have followed a weaker U.S. dollar as depicted by the US Dollar Index (dx00y) 108.05 -0.81% to its December 2000 lows at what looks to be a market bracing for a potential leg lower.

However, today's decline in the US$ isn't finding quite as much bullishness from the Gold sector as one might have thought would take place. While the Gold/Silver Index (XAU.X) 79.22 +0.41% is the only sector index showing a gain as we reach the mid-point of the session, the best levels have been the 79.79 level.

Current action in the precious metals sector does look "speculative" currently as my "speculative stock" that I like to monitor in Bema Gold (AMEX:BGO) $1.64 +8.6% is showing larger gains that a more institutional type stock like Newmont Mining (NYSE:NEM) $29.15 +0.20%, where an institution would tend to be more attracted based on liquidity and less ease of manipulation.

The Dow Industrials (INDU) 9.278 -1.62% are right back at last Friday's intra-day lows of 9,261 and this correlates very closely with what we're seeing as it relates to the US Dollar Index (dx00y) trading back at its December 2000 lows.

This most likely as traders very jittery at current levels, with the thinking that any further weakness in the US $ against major foreign currencies could have a major market average like the Dow Industrials (INDU) breaking to a new relative low and becoming further suspect to downside action.

Treasuries are seeing buying once again today and this will further "starve" equities for the cash, so dearly needed to have their stock prices hold together. The benchmark 10-year YIELD ($TNX.X) is lower at 4.756% and now trades at the exact level found intra-day yesterday, just prior to the Philly Fed report.

Current stock market action really looks to be dictated by the weakness in the U.S. Dollar Index (dx00y).

While equity bulls need a rebound in the US $, equity bears are holding their breath and looking for a break of capitulation lower.

Jeff Bailey
Senior Market Technician
Option Investor

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