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Low Demand for Equities Indicative of Top

James Hyerczyk from ForexHound.com at 11/07/09


U.S. equity markets traded sideway-to-better after the government released a weaker than expected jobs report.  The unemployment rate hit also hit a 26-year high at 10.2%. The bears see this report as a sign the economy is worsening.  The bulls read it as a chance to continue to demand higher risk because it reduces the likelihood of a Fed rate hike until mid-2010.  This means that liquidity will be readily available for at least the next six months.  While this may be true, equity traders failed to pounce on the chance to drive the markets higher.  This is an indication that stocks may be overvalued and ready to roll-over.


Treasury futures moved up as yields fell  Expectations are for interest rates to remain low well into 2010 as Chicago financial market traders reduced their bets calling for an interest rate hike around April 2010.  Treasury Bonds and Notes seem to have survived the recent attempt at a sell-off.  This could mean a sustained rally next week even though the Treasury will auction more debt. 


The U.S. Dollar closed trading mixed after trading in a range most of the day following the release of a poor October jobs data report.  The loss of 190,000 jobs was somewhat of a surprise. Traders were positioned for a loss of 175,000 jobs. The unemployment rate climbed to a 26-year high to 10.2% and the world didn’t fall apart.  Traders either believe this is the bottom in unemployment or they have become complacent which could mean huge volatility is looming.


The Dollar was treated as a safe-haven by some currencies while others remained focused on their own fundamentals.  The action in the outside markets suggests lower interest rates and a weaker economy. Chicago financial market traders increased bets that the Fed will keep interest rates low for some time.


December Gold traded up to 1101.90 but failed to close over $1000.00.  Traders seem to be cautious about getting aggressively long at current price levels. Although interest rates are expected to remain low, the Dollar did not weaken as much as expected.  This action kept the gold in a tight trading range throughout the day.  A failure at $1100.00 again could trigger a sell-off back to $1072.00.


December Crude Oil broke hard after the unemployment news was released.  There was no close under $77.00, but this market did come close to reversing the week to down.  The market was also able to withstand an aggressive attempt to break the bottom at $76.55.  This move would’ve changed the main trend down.  Bullish speculators may finally be throwing in the towel on the long side after the release of the bearish U.S. jobs report.  More jobs lost mean fewer employees driving to work.  Lower gasoline demand will take down the price of crude oil.  Mixed equities and a higher Dollar are also contributing to the downside pressure.  A stronger Dollar and weaker equities could send this market sharply lower next week.

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