A Quick Thought

First of all, I want to correct an error I noticed in my post last night.  The ISM and ADP data I mentioned are actually scheduled for release tomorrow rather than today, so my apologies for the discrepancy.  For whatever reason I was thinking today was December 1st rather than November 30th. 

As far as today’s trading goes, it appears that the equity market is trying to reenact yesterday’s price action as the S&P 500 is down nearly 1% in trading.  European debt concerns continue to be looked to as the catalyst for the early move lower as well as the strength of the U.S. Dollar and gold bullion.  Even Treasury securities are seeing significant bids this morning as the 10 and 30 year yields are down about 5 basis points respectively.  With yields down about 15 basis points over the past week and half, it’s worth noting that some of the default concerns that appear to have run rampant in the U.S. Treasury market shortly after the announcement of the Federal Reserve’s latest round of monetary intervention may be pulling back a bit.  As a result, Treasuries appear to be seen as a ‘flight to quality’ asset once again, which is a marked change from two weeks ago.

For the remainder of the session, I’ll be watching the U.S. Dollar and gold quite closely.  Having breached the 1.30 level against the Euro, the greenback is bumping up against technical resistance while simultaneously seeing its near-term momentum profile become fairly overbought.  As such, I wouldn’t be surprised to see the U.S. Dollar weaken throughout the session and set the stage for some relief selling.  Fundamental developments from the Continent could render these technical indications moot, but, for now, the parabolic move in the Euro/Dollar cross begs for some sort of consolidation.  When/if this retracement materializes, the trade in gold bullion will become VERY interesting.  Having bounced around in a 6% range for the past month, gold has been mired in a tug of war between the bulls and bears and has been searching for a catalyst of some sort.  Given the strength of the Dollar of late, many would have expected a sharper sell off in bullion prices as the dollar-denominated value of the yellow metal has fallen.  The fact that this selling has not materialized in the face of this development is highly suggestive of meaningful bids underneath the bullion market and the European issues certainly appear to be adding to these bids.  If the Dollar does pullback over the coming week, as I expect, and gold breaks to new highs during that time, this will be a sign, to me, that my short gold trade is over.  For now, though, it still appears that gold is still trying to reconcile which direction it wants to go.  And given the scale and speed of its move up to current levels, the risks still seem shaded to the downside in my opinion. 

Until later….