"Water shapes its course according to the nature of the ground over which it flows; the soldier works out his victory in relation to the foe whom he is facing. Therefore, just as water retains no constant shape, so in warfare there are no constant conditions."
Sun Tzu

Sunday, May 29, 2011

Next Week: Greece & The Dollar

As usual, the US Dollar will drive market action next week. The Greenback showed some decent weakness last Friday and in fact bounced off its latest 38.2% Fibonacci retracement. It looks like the Dollar is building another leg to the downside and running into the long-term (bullish) declining wedge:

Short-term however, the Dollar has good potential for further declines. The wildcard is Greece and we will see fairly quick next week how things play out. The situation is getting interesting fairly quickly (check out one of the latest post on zero hedge) and could pressure the Euro. My feeling is that most news are already priced into the markets, but we will see in the next days. Should the European currency not get kicked around too much, US Dollar weakness would probably benefit the Basic Materials and Energy sectors. In fact, these sectors outperformed the S&P 500 during the last week and should benefit from the developments in the Dollar:

Similar charts could be shown for Basic Materials as well as certain commodities such as Gold or Crude.

Bottom line: Obviously, I'm mildly bullish and will keep looking for LONG opportunities in sectors, which are sensitive to the Dollar. High on my watch list are APL, CLF, HOC, NSC and PDS.

Disclosure: Covestor Model Portfolio is LONG DIG, DGP