A theme which has been playing some pretty ominous background music these last few weeks has been the increasing strength of gold and the decrease in the value of the dollar. I’ve referred to this in passing in several blog posts, but let’s devote some time to it. For several years now, gold has been strong and the dollar gradually weaker so this is not new news. But as noted before, the rate at which the divergent movements in the two entities is picking up is rather alarming. In the immediate-term, it is a good thing. With the exception of jewelry, nobody really needs gold in a currency-denominated society. Furthermore, as the value of the dollar decreases, it makes the value of American goods cheaper relative to the wares of other nation. Thus, it makes our products that much affordable/desirable to the rest of the world. This is also a good reason for a stock market to rally in the near-term because American stocks appear very cheap in currency terms to foreingers. Furthermore, it gives Americans an incentive to not spend as much. For instance, when I visited Australia on my honeymoon in August 2001, the dollar was at the apex of its value; a taxi from the Sydney airport to my hotel was $14. My brother-in-law went earlier this year and the exact same ride to the exact same hotel was $53. Perhaps this is not the best example because, well, if one is going to Australia on a vacation, one is going to take a taxi from the airport! But it does illustrate my point in that it is much much more expensive to purchase things from other nations the weaker one’s native nation’s currency happens to be. There is something much more sinister at play here potentially, however. Friday morning was the first morning of my career that I remember the dollar being down not just against the yen or the Euro but against every traded industrialized nation currency on the planet. As gold continues to stampede higher, what this indicates on a macro scale is the gradual belief that gold is more valuable to hold than the greenback. Now, this may well not be true, but this is certainly what the markets are saying. Let’s put it this way- if the Nikkei and Dow were both 10% on the year and the yen appreciated 20% against the dollar, the relative strength of the gains in Tokyo is 40% more in purchasing power terms due to currency translation. Furthermore and more on point, the market is telling us it’s better to be a gold owner than a dollar owner. But it’s doing so on a bigger and bigger scale. What if people start actually believing this notion particularly if there is an unexpected bombshell or two out there? What if presaging said bombshell- what if the trend accelerates? Is it possible that we are beginning to witness the end of the dominance of the Untied States in international finance? I don’t know. I do know that the continuing issuance of debt which increases the amount of dollars is not good. I also know that a rapidly declining dollar is not good because it makes other people wondering these same things and that is never good for the stock market. Furthermore, a rapid decline in the American dollar may well be negative for foreign companies which could spark a decline in those averages which of course spreads state-side. Thus the bottom line for day traders: if the dollar’s decline remains orderly, the market can likely hold its gains if not build. But if the dollar’s value continues to fall and gold accelerates its rise, watch out.
Stocks in Asia were hit overnight with Tokyo down 2% and Hong Kong down 1% amid concern over the strengthening yen and how that will affect profitability of Asian companies. Prices in Europe are down 1/2 % to ¾% across the board. Oil is down 1%, gold is down fractionally, and the dollar is actually bouncing slightly. Futures are down after the poor performance of foreign markets. With a relative paucity of news (no earnings out this morning), look for a fairly quiet albeit down day. The weather is beautiful so a few people may take a 3-day’er. Pick selected spots otherwise be in capital preservation mode.
Watch list:
09142009Eriklist.zip
Reiterating-
Please understand that if the ideas do not get to the hoped for set-ups cited below, more often than not, one should not blindly trade the symbol next to said idea.
If the whole story is not there -
If something is good, assume either a short thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified.If something is bad, assume either a buy thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified-
Good- The following stocks have good news and/or a strong technical pattern
TIV, WRES, BRNC- closed near a high in the small cap mania in gold/oil stocks
ECA- proceeded with plan to spilt into two companies; closed near a high
ENER- closed near a high on continued takeover rumors
TA- closed near a high after FDX pre-announced great earnings
ZRBA- closed near a high after the company announced it was seeking strategic alternatives
AMIE- closed near a high after announcing a restructuring plan
HSTX, CRNT, DOW- mentioned on “Mad Money” on Friday
SLXP- announced statistically significant result for its Rifraxamin
LVS- upgraded at Bank of America/Merrill Lynch
XOMA- getting royalties from Genentech payments to fully repay Goldman Sachs loan
S- rumored deal with Deutsche Telekom discussed in U.K. newspaper The Sunday Telegraph over the weekend
THRX- got FDA approval for Vibativ
PLX- completed phase III trial for prGCD with no adverse events reported in trial
KERX- phase II data for Perifosine selected for presentation at the 8th International Kidney Cancer Symposium
Bad-The following stocks have bad news and/or a weak technical pattern
REGN- announced discontinuation of phase III trial which evaluated Aflibercept plus Gemcitabine
BRC- closed near a low after posting bad earnings
MON- closed near a low
UNG- disclosed in a 8K on Friday that it will not be able to match its investment goals meaning that the share price may be higher than its net asset value
SAH- announced nine million share offering
ALXA- preliminary AZ-104 phase 2b trial did not meet primary endpoint
Earnings:
MON SEP 14 BEFORE
none
MON SEP 14 AFTER
PLL
Good luck today.
Epiphany Trading, LLC
www.epiphanytrading.com
Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
Joseph R. McCandless- Managing Partner
D. Timothy Seaquist- Managing Partner
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