It looks like yesterday's equity rally does not have legs. The GDP number gave the market a change in sentiment, but a more careful analysis revealed the 3.5% is an annualized number and the quarterly increase in the GDP was only .875%. This meager .875% was achieved by massive government subsidy for the cash for clunkers and the first time home buyers program. Neither program remains in place going forward, so there is reason to be suspicious of the market's performance.
This morning's fundamental news was not encouraging for the recovery trade group. German retail sales came in at -0.5% less than the expected +0.7% while the Euro unemployment rate came in as expected at 9.7%. US personal spending and income projections were on the light side, and the core price index at 0.1% was a little less than the 0.2% expected. The Chicago PMI climber above 50 to 54.2, the highest in 13 months.
Yesterday's bounce in the Euro from the 1.47 handle was impressive. Traders at the CME in Chicago were also impressed and added 8600 contracts to the open interest. With the current market trading at 1.4740, down from the high of 1.4859 we wonder if there is some buyer's remorse.
The markets feeble rally after the sell off this week makes us feel there may be more to come on the down side. Sometimes it is good to look at a longer term chart for a different perspective.
This weeks bearish engulfing candle looks like an ominous sign. Even Marc Faber, a seasoned global investor with John Templeton, and a mega dollar bear says here the dollar might be entitled to a short covering rally. Looking at the weekly chart, a sell off under 1.45 would shuffle a lot of equity around, but not alter the longer term trend.