Monthly Trend Shift Lower for Stocks & Carry Trade
By Jay Norris 5-30-2010
Despite a game attempt by the U.S. economy over the last 13-months to recover from the stock market collapse and economic contraction of 2007-08, the monthly trend for the major stock indices reversed lower in May to leave the S&P 500 now down for the year — see Figure 1. The carry trade followed dutifully lower, leaving global investors no doubt that without a supportive environment for blue chip stocks, there will be no global interest-rate plays worth the risk — see Figure 2. Given that the major stock indices retraced less than 60% of the 2007-2008 sell-off over the past year of so, it can be said with confidence from a technical perspective that the Primary Stock Market Trend – think year over year — is still down.
Figure 1
Figure 2
It did not go unnoticed in May that both core retail sales and core durable goods, hard numbers that prove an accurate reflection of the U.S. population’s economic health and spending, came in lower than expected and lower than the previous month.
It looks like the structural change that began in 2007 and will lead to a leveling out of living and spending standards between the U.S. and many of her major trading partners has one more leg down. One of the likley affects of this will be a strong U.S. Dollar, as central bankers around the globe opt for the U.S. Fed and Treasury’s stealth policy of a weak currency to offset slowing growth. With that playing field getting more crowded going forward the U.S. will take on the role of less weak economy, which in the relative world of money and markets = a strong currency. May 2010 might just prove to be a microcosm of the next 1-1/2 years.
Jay Norris is the author of Mastering the Currency Market, McGraw-Hill, 2009, and a Senior Market Strategist with BrewerFX.com To sign up for a free interactive tutorial with Jay on how to determine market direction go to: One on One Trading Tutorial
DISCLAIMER: Forex (off-exchange foreign currency futures and options or FX) trading involves substantial risk of loss and is not suitable for every investor. Risks include the potential that changing political/economic conditions may substantially affect the price/liquidity of a currency. Investors may lose all or more than their original investments.