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Index Wrap

Dollar's rise was gold's demise

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The major equity indices found a mixed to lower close, where weaker than forecasted housing starts and building permits put a lid on bullish gains.

Despite many economists saying sub-freezing temperatures that blanketed the northeast were most likely the negative variable for January's 8% month-over-month decline for housing starts, a 4.9% gain in the Mortgage Bankers Association weekly Mortgage Applications Index, which reversed three straight weekly declines, wasn't enough to keep the Dow Jones Home Construction Index (DJUSHB) 600.17 -1.18% from falling 7.2 points.

While major equity index traders may have been lulled to sleep in today's trade, there was more than enough volatility in the currency markets.

The dollar rebounded sharply after hitting new lows against the euro and the pound earlier in the day, when the European common currency pushed above $1.29 for the first time in its five-year history.

The dollar's intra-day reversal back higher was driven primarily by comments by French President Jacques Chirac about exchange rate volatility.

"Europe must be much more offensive in its treatment of international economic questions," Chirac said at a summit with German Chancellor Gerhard Schroeder and British Prime Minister Tony Blair.

Greater exchange rate stability is "absolutely necessary" to secure lasting economic growth in Europe, he said.

Mr. Chirac's comments had the dollar finding gains against major foreign currencies with the U.S. Dollar Index (dx00y) 85.76 +0.87% rising to 86.12.

Commenting on the euro's intra-day reversal, Sean Callow, a currency strategist at IDEA, a New York-based global financial research firm said, "A 2-cent pullback is remarkable and the trading is not for the faint-hearted." Mr. Callow added that, "It is a testament to the fact that everyone is on the same bandwagon and when everyone is looking for dollars to fall, you soon run out of sellers."

While the euro reversed course against the dollar, gold stocks as depicted by the AMEX Gold Bugs Index ($HUI.X) 230.55 -4.74% suffered an 11.4-point decline.

U.S. Market Watch - 02/18/04 Close

In last week's Wednesday evening Index Trader Wrap we took a look at my QCharts U.S. Market Watch table. For the most part, the major indices have seen some gains, but just less than 1%.

The Broker/Dealer Index ($XBD.X) 738.73 -0.15% traded an all-time high in today's session before falling back to lose 1.14 points, but has tacked on an additional 5% gain since last week. The economically sensitive Airlines Index ($XAL.X) 62.21 -1.69% had scrapped back to close above its flattening 21-day SMA (62.46) yesterday, but slipped back to rest comfortably above its intermediate-term 50-day SMA (61.68) by today's close.

Market Snapshot / Internals - 02/18/04 Close

For the most part, technology stocks bucked some broader market weakness in today's trade, with the NASDAQ-100 Index (NDX.X) 1,507.49 +0.06% holding onto a 1-point gain by the close, with a BIG move in Biogen Idec (NASDAQ:BIIB) $53.23 +20.26% not only helping the QQQ hold positive ground for the bulk of today's trade, but also having the Biotechnology Index (BTK.X) 539.90 +1.24% finishing as today's only sector to gain more than 1%.

A blowout quarter from Applied Materials (NASDAQ:AMAT) $22.31 +1.68% and upbeat forward guidance has this semiconductor- equipment giant jumping to $23.52 in extended hours, which has also lifted the QQQ to $37.72 in its extended hours trade.

Pivot Analysis Matrix -

Support correlations abound at the WEEKLY Pivots for the major indices in tomorrow's trade. January's Producer Price Index (PPI) data was scheduled to be released tomorrow morning, but has been delayed as the government fine tunes some of its indicators for this read on inflation at the producer level. However, traders will have plenty of economic data to digest in the form of weekly initial jobless claims (forecast 352,000 vs. prior week's 363,000), January leading Indicators (forecast +0.5% versus December's +0.2%) and February's Philadelphia Fed (forecast 35.0 versus January's 38.8).

With AMAT jumping in after-hours trade, I've highlighted in PINK tomorrow's DAILY R2 in the SOX.X at 530.08, which may be a key level of resistance as it relates to the SOX chart we looked at in last night's Index Trader Wrap.

AMEX Gold Bugs Index ($HUI.X) - Daily Intervals

I've been more apt to trade some gold stocks from both the long and short side in recent weeks, trying to use shorter-term moves in the dollar as an indicator. One sign of looming weakness in my book is that while the dollar hit a new low against the euro and the U.S. Dollar Index (dx00y) hit a multi-year low this morning, gold stocks as depicted by the $HUI.X, which is an unweighted basket of gold stocks hasn't come close to challenging its recent double-top highs, where further dollar strength and $HUI.X weakness below today's lows has gold stocks falling into a lower trending channel.

One of the most frequently pondered questions is if a strengthening dollar might be "doom" for U.S. equities. I'm not sure, but I don't necessarily think so. The reason I think this way is months ago, I was concerned that a strengthening euro would be "doom" for some of the European bourses, and they are all near their highs, just like many of the major U.S. equity indices.

NYSE Composite ($NYA.X) - Daily Intervals

A quick look at the very broad NYSE Composite ($NYA.X) would have near-term support at 6,680, where after being broken to the upside on February 10th, immediately served support on a pullback as if prior sellers turned into buyers.

In late January, when the NYA.X traded 6,680 and fell back to 6,500, the NYSE NH/NL 10-day average ratio had reached 99.5%, where perhaps there just wasn't enough room to 100% without some profit taking needing to have taken place.

NASDAQ Composite ($COMPX) Chart - Daily Intervals

It has been awhile (several weeks) since a large 4-lettered bellwether like Applied Materials (NASDAQ:AMAT) has seen a positive response in after-hours trade to a quarterly earnings report. While some fundamental analysts expected a blowout quarter from AMAT, those same analysts felt the market had factored the blowout results into things. If not, then a broader rally in the NASDAQ would be found above the 2,100.00 level, if not the 21-day SMA which has been serving up some resistance in recent sessions.

Jeff Bailey

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