Equities Rebound and U.S. Dollar Firms

May 18, 2017 - 6:31pm

 by Gary Wagner

After taking a short breather, U.S. equities regained favor today with the Dow Jones and Standard & Poor’s 500 closing fractionally higher on the day. Both the Dow and S&P 500 gained about a third of a percent in value, with the Dow Jones average closing up 56 points at 20,663, a net gain of +0.27%.

The NASDAQ composite once again shined brightly, outperforming the other major indexes with a net gain of +0.71% today, to close at 6053.77. However, the NASDAQ is not currently on track to close at a new record weekly high. This would end the most recent historical climb of the NASDAQ index, which has closed at a record high for the last four consecutive weeks.

U.S. Dollar Rebounds

The U.S. dollar also firmed in trading today, ending a four-day losing streak which amounted to an approximately 1% drop in value. However, in the case of the U.S. dollar, wild market gyrations were evident as the dollar surged and then fell as market participants pondered the extent of legal worries that the current administration faces.

According to CNBC, “The U.S. dollar briefly surged against the British pound and other currencies Thursday in a sudden move that was at first unexplainable by many traders contacted. Later, currency traders and participants from other markets cited the reemergence of a CSPAN video from earlier in the month that some falsely interpreted as former FBI Director James Comey saying he was never pressured to end an FBI probe.”

Contributing to today’s U.S. dollar rally were hawkish statements made by Loretta Mester, president of the Federal Reserve Bank of Cleveland, in a speech to members of the economic club of Minnesota today. Per MarketWatch, in her speech, “Mester said the Fed needs to keep raising interest rates this year if economic conditions continue on their current pace. Mester doesn’t hold a vote on monetary policy in 2017 as part of the Fed’s rotational panel.”

Precious Metals Giveback a Percentage of Recent Gains

In response to a stronger U.S. dollar and U.S. equities, which are once again in favor (at least for today), both gold and silver prices dropped sharply today. Gold futures closed under pressure, trading roughly $12 lower on the day, a 1% drop that resulted in gold futures closing at $1246.80. Silver prices suffered a much greater daily drawdown, losing a little over 2% on the day as silver futures closed at 16.565.

The real question is whether today signals a return to what has been the prevalent direction of equities, gold, and the U.S. dollar. As a longer-term trend has been solidly higher in U.S. equities, market participants ponder whether recent events in Washington have put a cap on the recent price advances, or if these events can stifle one of the greatest equities rallies in history.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer

Sentiment Indicator:

Gold Forecast: Proper Action
On Thursday,  May 11th, we sent out a TRADE ALERT:  We are issuing an aggressive BUY Signal in Gold. This morning we sent out a trade alert to move stops up!
Maintain long gold @ 1225. Stop below 1245
Maintain long silver @ 16.32. Stop below 16.41
Gold Market Forecast

Although today's trading activity resulted in moderate selling pressure in both gold and silver, the real question is whether or not today's directional price change is indicative of a key reversal or simply a blip on the screen.

Current events in Washington,Specifically the ongoing investigation into Russia's influence in our last election and possible collusion between members of this administration and Russia, will greatly impact the financial markets.

In other words, the outcome of this investigation will be a primary underlying outside force that could either derail the current equities rally or strengthen it. This author has no insight as to how this investigation will conclude, and like the majority of market participants simply await for these events to unfold.