It has been a very interesting day for the market with a number of complicated crosscurrents. Most action is being caused by the strong employment news this morning; some will dispute whether this report really is as positive as it sounds, but certainly the headlines sound pretty good.
The bulls obviously argue that this report is great for the market, as it shows the economy really is recovering. The problem is that if it really is good news, then it is going to cause the dollar to rally, and a weak dollar has been a major positive for this market since the bottom way back in March.
For months the market has had a very strong inverse correlation to the dollar, which means it has also been positively correlated with gold. All we have needed for the market to rally lately was a little softness in the greenback. Today, for the first time since April, the UDN is set to close below its 50-day simple moving average.
It is possible that the dollar will weaken again, but if today marks a change in trend, there is going to be some major selling pressure created as traders exit all the weak-dollar plays that have done so well for so long. That is going to be the key to the market. Maybe we'll see some rotation into sectors less sensitive to the dollar, but it is going to be a bumpy ride.
The other interesting crosscurrent today was the secondary offering of BAC. It turned out that the shares issued are considered to be common shares rather than preferred, which means that all the index funds have to buy BAC shares and reduce other holdings in the indices. That is causing higher-than-average volume today and some artificial movement that will likely be reversed rather quickly. Financials are still in a precarious position even though many seem to think BAC's repayment of TARP funds is a positive for the sector.
Overall the action today was a victory for the bears, but the problem with the bears is that they have been totally inept when it comes to producing follow-through. Maybe if the dollar stays strong they will have better success, but they still have work to do. AAPL continues its sickening sell-off....I'm buying more next week....