T3’s Market Wrap: Dollar Down, Gold Rocks
Via T3.com
The euro got a big boost this morning after the European Central Bank made its monetary policy statement
As expected, there were no changes, so traders focused squarely on ECB President Mario Draghi’s comments.
Draghi said “the global recovery is firming up,” giving markets a major vote of confidence.
Funny — remember all the doom and gloom forecasts after the Brexit? Look at the chart below of the iShares Germany ETF (EWG) since the Brexit.
However, Draghi added that inflation is still not approaching the ECB’s targets, though he believes it will come back. This is actually reminiscent of recent remarks from the Fed about weak inflation trends in the US.
Draghi also referenced the challenges of high debt levels and poor demographic trends in advanced economies.
As far as QE goes, Draghi said the bank will make decisions in October.
Many market observers viewed Draghi’s overall message as dovish, yet the euro ripped against the dollar today.
The drop in the dollar sent gold on another wild ride higher, hitting $1355.5, the highest level since September 2016.
Gold mining stocks rallied hard, with the Vaneck Vectors Gold Miners ETF (GDX) up 2.3%.
Meanwhile the drop in the dollar and US Treasury yields once again stifled banks, with the S&P Financials (XLF) down -1.9%. The volatile regionals did even worse.
The underperformance of the financials this year is worrying some traders, since bank stock weakness was one of the precursors to the 2008-2009 financial crisis.
While the SPX peaked on October 2007, the banks had actually started declining in April of that year.
But keep in mind comparisons with 2007 are extraordinarily unscientific, because you’re dealing with a sample size of just 1, and in any case, the market is impacted by so many factors that you can’t point to just one thing and say “this is the end.”
Today, the SPX opened higher with a peak of 2468.64 before settling into a low-volatility funk without much movement. The index finished flat at 2465.10.
The Nasdaq did slightly better with a 0.1% gain, while the Russell 2000 fell -0.3%.
The Nasdaq Biotech ETF (IBB), which has been ripping since Gilead (GILD) announced it was acquiring Kite Pharma (KITE), rose off morning lows to gain 0.3%.
This morning, T3 Live’s Jeff Cooper alerted Daily Market Report subscribers that should be closely watching the action in IBB.
Jeff said it is “important to watch the action in IBB here as the leading edge of speculative sentiment as it may have satisfied a 3-month or 90 degree Megaphone Top formation here.”
If IBB has indeed traced out a top and falls from here, that could give the bulls a scare.
The weakness in small caps and banks is certainly hurting the mood, and sagging biotechs would make things even worse.
But let’s take a look at market levels.
This morning, Scott Relder said that if “SPX holds 2446-2459, it’s hard to get too bearish.”
With SPX staying away from Scott’s outlined range, it looks like the bulls will live to fight yet another day.
But for now, I’d keep an eye on sentiment.
The CBOE equity put-call ratio has been below average for 6 of the last 7 days.
This indicates high demand for call options — which is common at market tops. I’m not saying we’re about to drop, but this is a trend to keep an eye on.
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