Ralph Shell's  Instablog

Some better earnings and US fundamental news gave us a turn around in the equities markets this morning.  After Friday's dire performance, the weak Asian markets were expected, but Euro stock markets were mixed and the US markets bolted to the upside.  The US ISM Manufacturing PMI came in at 55.7 better than the 53.1 expected and 52.6 in the previous period.   US construction spending also came in better than expected.   Pending home sales home sales were up 6.1% on a month to month basis better than the 0.2% forecast.  Analyst are quick to point out that the large numbers are to be expected since time is running out to collect the $8000 tax credit.

Dr. Nouriel Roubini, the perennial bear and all purpose worry wart has a new concern, the dollar carry trade.   He claims the dollar carry trade is a disaster in the making.   The short term easy money in the US is spreading to the world, and is creating a gigantic asset bubble.   Free short term money is being invested by investors preferred assets...gold, oil, condo's in China etc.   All is well, until the people who have borrowed short term and invested long term stop buying and try to sell.   Yes it could be a mess in the making.

Recently markets have had a much easier time trading higher in the morning session, and then fading into the close.   This action, the excess of downside volume versus the upside, and the increased volatility in equities around the 10,000 level for the Dow, is attracting an increasing number of bears to the market.   Once more the Euro rallied up to the 1.4843 and failed to move higher.  Currently we have retreated to 1.4818.  So far there is no sign of the late afternoon equity swoon, but we wonder how the Euro will fare if that happens.

So far the pair is stuck in a 1.47 to 1.4850 trading range.  Should the market take out the resistance in the 1.4850, it is possible we can again check out the 1.50 handle.  At the CME futures market, traders continue to liquidate trades with the open interest down 4,323 contracts on Friday.  We would expect the market to break out of this trading range this week but it will be interesting to see which way, and if the market can continue on that path.