Mining For Dollars
The closely followed S&P 500 index is pulling back for a second day after
stopping and reversing at the 50-day moving average in a Connors Turtle Soup as
the broad market declines. The failure to hold the 50-day and quick turnaround
in the “soup” setup, implies a bigger-picture decline out of a
classical head-and-shoulders top in the index.
The S&P 500 is off 17.06 at 1224.49, the Dow is down
188 at 10,683, and the Nasdaq is down 59.94 at 2061.72.
The labor department said producer, or wholesale, prices
rose .1% last month, suggesting that wholesale inflation is contained. But a
multi-year high in the dollar versus the currencies of some of the US’s largest
trading partners may be hindering US industry from recovering from negative
growth. The National Association of Manufacturers says it will pressure the Bush
Administration to weaken the strong dollar and thereby stimulate overseas demand
for US manufactured goods. But weakening the dollar could have an inflationary
effect as the cost of imports rises.
The Fed could also play a role in fueling inflation.
Europe and Japan are seen as limited in their ability to revive their own fledgling
economies and stimulate world demand. Japan’s rates have been under 1% for six
years and just reported their economy shrank by .2%. Europe has exceeded
its 2% inflation goal all year and is also seen as hamstrung and unlikely to cut
rates below their current 4.5%. This leaves the Fed alone to kickstart US
manufacturing and the global economy. But the rapid rate cuts are inflationary
and the Fed has already cut rates 2.5% this year, unprecedented under
Greenspan’s tenure.
The burden to revive the world economy and devalue the
dollar is an inflationary mix. The Federal Funds futures
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in as much as a 72% chance of a 50-basis-point rate cut by October, which would
leave rates at 3.5%.
With the dollar and implied interest rates falling, the
price of gold has shot up nearly $5 an ounce today And stocks in the gold and
silver index
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today’s jump in gold prices. Newmont Mining
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and Homestake Mining
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PowerRating) are all up 3.6% to 4.5% and rallied out Slim Jim
consolidations of intraday ascending triangles before gold exploded
today.
Although the effect has been absent for years, gold is
considered a traditional hedge against inflation. A lower dollar often results
in higher gold prices.
Scattered healthcare, drug, and biotech stocks are
showing limited upside as the market pullbacks. Lincare Holding
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PowerRating), a
stock mentioned in Gary Kaltbaum’s Intermediate-Term Insights column, is up 1.46
at 61.06. Biotech Teva
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PowerRating), up 1.62 at 64.09, is set up to challenge its
February highs. And one of the leaders from the biotech index IDEC Pharma
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is 1.55 higher at 70.05 and trading in day six of a pullback from its highest
level of 2001.