After yesterday's rally, the sellers returned in full force today, driving down stocks and sending the US Dollar to a fresh 12+ year high as it soared almost 1% higher against a basket of depreciating currencies. I'll get into the US Dollar and the basket of depreciating currencies later, let's look at the market, where it could be headed, and what we can do about it.
Unusual Option Action:
Friday's Unusual Option Activity
I still think the market is setting up for a nice rally next week. It is a FED week and, although you hear it before each meeting, I do think this is the most important one since the Financial Crisis. It was easy throwing cheap money at a crumbling economy. But what do you do about this runaway US Dollar? (More on that here.)
I like how the small caps hung in there this week. Firmly resting above the key $120 level and poised for a $6+ breakout in the short term.
This long term chart puts it into perspective in a simple manner:
The NASDAQ wasn't as deep in the red as the S&P500 and the DJIA. Some names were hit particularly hard with $AAPL and $GOOGL $GOOG faking out longs in a cruel and nasty reversal.
GOOGL had its second Friday in a row with an analyst upgrade, and fell yet again. Analysts seem to be top ticking stocks more now than in recent memory. Is that a sign the top is here? I don't like saying up and down. I like to have conviction, but the current long term chart says $GOOGL is running up against resistance. I still think it heads to record highs, but the upcoming action will determine if its now or later:
$PCLN was clobbered today - which is a good thing if you own the puts. The $1165 puts went from $1.00 to over $10.00 today.
The $PCLN decline started at long term resistance that I highlighted a few weeks ago.
$GPRO was strong in spite of the sell-off. I like this stock and continue to trade it for a bounce back to $45. From there we re-evaluate.
$QQQ the Nasdaq remains at a key level. I will be watching the $105 level like a hawk next week.
With the US Dollar going strong, Crude oil has resumed its descent. Today it rolled over and looks poised to take out the lows from earlier this year.
My chart from before the open today:
Today's chart after the close:
Now onto the US Dollar. It's running like a momentum stock. A full on short squeeze. Nothing is going to stop it... right?
Aside from the Swiss National Bank, who not only openly manipulate their currency, but have their spouses front run these moves, Central Banks don't outright manipulate their currency. They do it behind closed doors, via jawboning, or indirectly through monetary policy. A weaker currency is supposed to help a struggling economy, by making their exports cheaper, which should theoretically increase demand. Some 6+ years into unprecedented global Central Bank asset price manipulation, its clear that a currency skirmish is emerging and a great piece from the WSJ, written 7 years ago highlights what happens when the 'goal posts' are moved.
Next week will go down as one of the most, if not the most important week of 2015. What will the FED say, what will the market do. Will support hold? Will the US Dollar continue unabated to the QB. Will bonds see a sharp rally? Is Greece ever going to get resolved favorably?
I wish I had all the answers. I don't, but after next week we will have a better grasp on the outlook for stocks, the US Dollar, and bonds heading into the summer.
Have a great weekend.