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Warning! Crash imminent

Today's Financial News - Posted December 4, 2009

It is a pivotal day for the markets. Unemployment took a surprise trip downward, giving the dollar some well-needed strength. For a look at what the future holds, check out the gold market. It isn’t pretty.

By Andrew Snyder, TodaysFinancialNews.com

Baltimore – (TFN): What a difference a week makes. Five trading days ago, the Street was expecting yet another major collapse after news of Dubai debt trouble was brewing. Today, thanks to solid employment data, investors are in a partying mood.

So who’s right? Last week’s bears or this week’s bulls?

Chances are, none of them are right. To see why, all we have to do is look at the value of the dollar and its relationship with equities market over the past few months.

Almost without exception, the Dow has moved inversely to the dollar. When the greenback weakened against the euro, the equities market was green. When the dollar strengthened, we saw red.

But today is different. The dollar is up and the equities market is up.. or at least it started the day up. As I asked TFN Strategic Trader members earlier today, is it the start of a new trend or a one-day slipup?

My answer… don’t get used to it.

Going to get bad

The Dow is sitting at 10,400 not because of economic strength, but because of the trade-related benefits of a weak dollar. Because our currency is cheap, export revenues will rise and bottom lines will increase.

But thanks to today’s stronger-than-expected unemployment data, foreign investors are once again looking at our economy and wondering if rates will rise sooner rather than later.

If interest rates begin to rise, the dollar will gain strength fast. And that means all those points the Dow gained from a weak dollar will have to be given back. That is, if the markets remain rational.

In fact, it is already happening today.

If you’ve been watching the ticker tape, you’ve notice the markets gave back all of their early session gains as the dollar continues to increase in value. As I write, the euro is trading for $1.4877, 1.3% below yesterday’s settlement price of $1.5074.

That is not good news for gold bugs. The precious metal has given back a whopping $40 in valuation today, taking its worth (at least to today’s investors) to $1177, a decline of 3.4%.

So what’s an investor to do?

This is going to sound weird, but the better the news gets, the more cover you need to find. If the dollar continues to strengthen relative to its international brethren – especially the euro – the equities market will be forced to give buck much of the recent gains.

For the next month or so, I recommend oil shorts, domestic importers and, dare I say it, retailers. Most everything that has been categorically weak over the past four months is about to have its time in the spotlight.
I have been warning that it’s going to happen, and it finally has. Hopefully you were prepared.


Next Article: Options: Going Deep-in-the-Money to find new highs

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Posted by Andrew Snyder · Filed Under Investment Strategies 

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