A dominant theme in the markets over the past year has been the inverse correlation between the Dollar and equities. Starting in September, the Dollar has been steadily climbing, with regular pullbacks. It is during those pullbacks that equities have bounced back. This last week, the Dollar dropped from a high of 80.2 to Friday’s low of 78.5, and that 2.1% drop in the Dollar coincided with a 2.1% gain in the S&P 500. Stocks enjoyed solid gains as the Dollar pulled back from recent highs. On Friday, however, stocks stumbled while the Dollar recuperated some losses.
Regarding the stock market’s performance on Friday, Lee Adler of the Wall Street Examiner wrote, “failure to penetrate trend resistance did nothing to clarify a cloudy technical picture. I’m inclined to think that the failure to break resistance is the overriding fact here, but on the other hand the 4 week cycle projection actually rose to 1225, and screening data retained a bullish bias. In that context, I have to view any pullback as a temporary prelude at another attempt to break through resistance and make new highs on this rally. Do I have a lot of confidence in this outlook? Uh… no.
“Things could change on Monday. Treasury supply is immense next week, and that should give the market problems going into the latter part of the week.”
The continuing European debt crisis has so dominated the headlines for the last few weeks that little attention has been paid to the budget struggles of the U.S. Again, an October 1 deadline for Congress to pass a spending budget came and went. This marks the 14th year in a row that this deadline has been missed. Instead, a “continuing resolution” was passed on October 4 to extend federal funding through November 18. Meanwhile, the Congressional debt-reduction “Super Committee” is still meeting behind closed doors, trying to create a new budget that will reduce the deficit and increase employment. It needs to be agreed upon by a profoundly divided and fractious Congress.
Indeed, the mood on Capitol Hill has been getting darker and less collegial, with testy standoffs and intemperate exchanges becoming commonplace. In a standoff last week, Senate Majority Leader Harry Reid and Minority Leader Mitch McConnell sparred at length over arcane procedural rules while debating the Chinese currency bill. Finally, a frustrated Reid “invoked the rarely-used ‘tactical nuclear option’ to change the Senate rules by a simple-majority vote to make it impossible for the minority party to call for such votes... McConnell was irate at the rules change, calling it ‘a big mistake.’” (Harry Reid Just used A ‘Tactical Nuke’ To Rewrite Senate Rules And Block The GOP) Regardless of the merits of Reid’s action, this is illustrative of the increasingly hostile atmosphere in Washington. It does not bode well for future budget deliberations.
With unemployment remaining at 9.1% and the broader U-6 unemployment rate running at 16%, the low readings on the Bloomberg Consumer Comfort Index are not surprising. This last week’s reading of -50.2 continues the trend of the index being stuck below -40 since February. Readings below the -40 level are associated with recessions and their aftermaths.
The “Occupy Wall Street” protests have been growing, with increasing numbers of people showing up in cities around the country to express their anger at the widespread corruption and unfairness in the U.S. financial system. (See an excellent interview by The Real News Network with Michael Hudson on the OWSers and their mission.)
Whether due to anger about unemployment, or economic inequality, or rising prices, or a general sense of unfairness, or a combination, the protests that began with fewer than a dozen college students camping out in Zuccotti Park have spread like wildfire. Tens of thousands of people are now demonstrating on Wall Street. Protests are spontaneously breaking out in other cities across the United States. Marches and rallies have spread to 45 states. The Guardian U.K. reported that protestors are “complaining about tax breaks for oil companies, excessive lobbying in Washington, astronomical pay and bonuses for financiers, and the bailout of the banking sector.” (Occupy America: protests against Wall Street and inequality hit 70 cities) While the message and demands of the protestors may be somewhat discordant, the outrage expressed is justified and long overdue.
For a new trade idea, Pharmboy’s interest in Illumina Inc. (ILMN, $27.18) was piqued by its dramatic selloff on Friday. Illumina develops and manufactures life science tools and integrated systems for genetic analysis. It provides “a line of genetic analysis solutions, with products and services that serve a range of interconnected markets, including sequencing, genotyping, gene expression, and molecular diagnostics.” (Google finance) Pharmboy submitted, “This week we will look at a beaten down biotech that has made the news by missing its revenues for Q3, and withdrawing its full year forecast - Illumina. I smell an opportunity, but it must be at the right price. While I expect (potentially) more downside, that does not mean it is not a good company. Like many in its field, the company is dependent upon government spending (grants for academia). I think selling 1 put at the December $20 strike for $1 or better is a good way to possibly buy into this small, profitable company.”