Weaker Dollar Fails to Ignite Strong Equity Rally
The weaker U.S. Dollar failed to ignite the strong rally in the equity markets that many investors had been counting on. Last week the equity markets sold off on news that Dubai World was having problems meeting its debt obligations. On Friday, however, the stock markets posted a strong recovery as bargain-hunters snapped up cheap stocks on the news that the Dubai situation was overblown. Today, many investors expected a follow-through rally after Dubai World creditors said that the situation was under control. In addition, many stock traders believe that that the issue was a more local than global problem.
Throughout the day, the stock indices failed to attract strong buying despite the weaker Dollar and mild demand for higher yielding assets. This could be a sign that investors are content with this year’s gains and fearful of adding additional risk to this year’s portfolio.
Watch for increased volatility the next few day as technical factors indicate this market is ripe for some big moves. If a secondary lower top has been formed in the indices, then look for a sharp break to the downside.
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