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Monday May 22, 2006 – Morning Notes
Global markets feeling pressure BBC
Despite crashing by 10% and losing more than 22% in the last 8-sessions (intraday high to low), India’s main stock index, the Bombay Exchange Sensitive Index, ended today nearly 1,000 points above its 200 day-moving-average. A similar situation is seen in Japan: despite being down by nearly 9% over the last month and ending today below 16,000 for the first time since March 8, the Nikkei is still 873 points above its 200 DMA. Point being, it is important to remember that global stock market slump follows what was one of the most dramatic and broadly based stock market rallies in history, and if a global slow down is about arrive there is plenty of downside left.
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The first major global index to break below its 200 DMA was the Nasdaq. The Nasdaq has yet to bounce. The second notable break was seen earlier today in the FTSE 100 - there was no bounce. Before today’s opening bell the S&P 500 is 10-points above its 200 DMA and the Dow is 305 points above its 200 DMA. With futures pointing for a weaker open are ‘bargain hunters’ about to step in as more 200 DMAs come into focus?
As for the price of gold, which is following the general sell off in commodities, it remains more than $100 above its 200 DMA ($526 spot). If the trend of rising commodity prices and US dollar volatility/uncertainty continues to pause, gold must make the difficult transition from inflation hedge to financial crisis hedge. During the 2001 recession and 2000-2002 bear market gold was unable to make this leap and prices stagnated. In short, a period of USD calm could prove devastating to precious metal prices. As money moves out of riskier assets in search of safe haven this Monday morning, USD calm is exactly what we are seeing.
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