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May 31, 2009 / Jeb

Market Summary Week Ending 5/29/09

spy 5-29The S&P 500 remains above the 20 and 50 day moving average.  The S&P has moved sideways making a base after breaking out to the downside of a rising wedge pattern.  This rally has been on low volume.  So this rise has been on the back of other factors such as a seriously declining dollar,  a bear market in treasuries and a major rally in the emerging markets.

If you remember when the stock market crashed last year everyone was running into treasuries and the dollar.  Now the opposite is the case people are running out of treasuries and cash.  The stock markets have rallied and companies with real commodity assets are soaring.  It seems as though the opinion that a deflation will precede inflation has been confirmed.

The dollar was hit hard on Friday leading to a huge rally in gold mining stocks and basic materials.  GDX 5-29As you can see the rally is impressive, however it is extended.  Investors need to be cautious in chasing after this sector.

Last week I showed the chart of TBT which is the short etf fund and I mentioned not to get to excited and wait for a pullback.  That pullback has come and from the high volume sell off it seems as though the pull back could take longer as it is extremely overbought.  I would wait until it approaches the 50 day moving average before taking new positions.

tbt 5-29

The rally in China is strong and hope has come back that the worst is over which has caused a major upturn in commodity industrial stocks.  As you can see the I Shares Hong Kong is much more impressive than the US indices.  Other emerging markets such as Brazil and India are also outperforming.

ewh 5-29

That’s it for this week.

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