The Dow Jones and the S&P 500 started off the week with impressive gains, making up for just about the whole slide from the previous week. The Dow finished the week up 2.3%, although, it spent Thursday and Friday selling off.
We are looking at the 10,400 level in the Dow and the 1120 level in the S&P which are their 50% retracements for bulls. As a case for the bears, the Euro currency has hit an 18 month low as a reaction to the European Union’s $1 trillion emergency package. If we see the Euro continue to slide, we are likely to see it weigh on equities and cause increased volatility in the coming weeks.
With gold stocks performing relatively well, we are seeing a “gold to stocks ratio” at only 1.1, this almost perfect correlation is a rarity, occurring only a few times dating back to 1928. As gold is a safe haven for investors in case of lower equities, we could possibly see a change in this correlation, I.e. (higher gold prices, lower equity prices).
With the Euro at 18 month lows and concerns overseas, we are likely to see continued volatility, which should be a very profitable environment for traders. Don’t forget we have options expiry this Friday, happy trading everyone!