Energy Takes A HIT!

FUNDAMENTAL ANALYSIS
Energy led the way down today as oil and other dollar based commodities retreat as the dollar rebounds. Uncle Ben certainly triggered the turning point in the dollar by his comments today but that has turned out to be a double edged sword. On the one hand, oil really found a strong reason for retreat and on the other hand, chances of further rate cuts are so slim that it almost cannot be seen. The result is the huge retreat in the energy sector and profit taking from rate cut speculators, netting a 100 points retreat in the Dow. So, is a strong dollar a good or bad thing? A strong dollar is definitely a good thing not only for the US but for the world economy as well. After the collaspe of the Bretton Woods system, the US dollar is the main standard the world economy is based on right now. A weaker dollar is going to result in food and energy inflation all over the world, its results are of course quite obvious by now. So, it is a good thing for long term, stable growth and as Uncle Ben said, the Fed policy is well positioned for moderate economic growth. After the rate cut speculators give way to the value investors over the next few days, we should start seeing the real effects of today's announcements and actions. Of course, all eyes are still on this Friday's Job Report (see economic calendar) for more indications of a recovering economy.

TECHNICAL ANALYSIS
Market action these couple of days are certainly a lot more technical than fundamentally driven and the "Sell In May & Go Away" adage of the stock market once again stood the test of time this year as the Dow retreated right from the beginning of May. The Dow has broken its 12500 support on rising volume, suggesting that more and more traders are catching on with that old adage, creating a self reinforcing process. This self reinforcing and self defeating process is the true dynamic behind technical analysis. It has also broken the bottom of its bullish regression channel, suggesting a bearish channel break down, which again is extremely bearish. This bearishness is also reflected in the rising VIX and Put Call Index (see option trader hq). The new direction has been decided upon right now and the bulls have just one last chance within the next couple of days to make a strong breakout in order to nullify this breakdown, failing which, the March lows could be where the Dow will be heading for once again.

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