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There are a few problems with the recent rally that traders and investors should know. First, the stock market seems to rally only when the U.S. Dollar Index plummets lower. We all know that the U.S. Dollar is the worlds reserve currency, however, the more the dollar declines the more inflation is created. Gasoline has been climbing sharply higher since June 27, 2011. The United States Gasoline Fund (NYSE:UGA) is just three points from its 52 week high. Everyone knows that the U.S. consumer cannot handle $4.00 gasoline at the pump.
The second negative factor for this rally is the semiconductor sector. The semiconductors are really lagging the NASDAQ Composite. This is usually a sign of weakness for the markets. The semiconductor sector should be leading the NASDAQ Composite, not lag the tech heavy index. Traders can simply compare a chart of the Semiconductor Holders Trust (NYSE:SMH) with the Powershares QQQ Trust (NASDAQ:QQQ). It is obvious and easy to see how the semiconductor sector is still very weak, that is not a sign market strength.
Another problem for these markets is copper. Copper is one of the most important commodities in any rally. Strong copper represents growth in construction. We all know that growth is not taking place in the United States and Europe, however, growth is taking place in Asia. The Chinese and Indian economies have been the strength for copper. Asia is clearly starting to slow down now. Just look at the Chinese data last night, Chinese manufacturing is beginning to slow. Chinese growth is more important than anyone realizes at this time. Last night, the Shanghai Composite traded down by more than 1.0 percent. If the Asian markets slowdown investors better watch out.
These are just a few of the obvious signs that traders can see as major headwinds for the markets. There are many more reasons for the coming weakness such as the poor action on the financial stocks, more European problems on the horizon and the weak trading volume. Stay tuned as this rally may not have much more strength left in the tank. This is a traders market and it should be this way for the remainder of 2011. Trade with the best, learn and profit with them. The real Pro Traders at InTheMoneyStocks.com guide subscribers to financial freedom through two main services; theIntra Day Stock Chat which is the only place a day traders should be, and theResearch Center where the multi day swing trades the Pros are entering are revealed. You can take a Free Trial to both services here and take control of your financial future now.
However Obama’s July 22nd deadline is looking very vulnerable right now and the lack of concrete developments over the past few days means it is very possible that a short term debt solution will be needed. If Friday comes to pass with no major news, we could see panic selling of U.S. dollars. The greenback traded lower against all of the major currencies today while stocks held steady in anticipation of the big event risks scheduled for the next 48 hours.
The markets are looking towards the government over the rest of the week. This is a good reason for a pause day today and maybe even a little downside. The politicians have days to complete some sort of debt ceiling resolution or face a possible U.S. default. While unlikely, the market hates uncertainty.
Earnings will continue to be reported in the next few days, however, with such good earnings driving the markets higher, future earnings reports must be even better to get the same market reaction. Note today how Apple Inc. (NASDAQ:AAPL) is having little impact on the markets. They reported a stellar quarter but with such gains in the markets already, it appears it was already priced in. Take the seven day free trial of theResearch Center and start getting swing trade alerts from the pros. These trade alerts have a 90% success rate and are unparalleled in the world. Join now.
Gareth Soloway
Chief Market Strategist
www.InTheMoneyStocks.com
