Deep Thoughts From Art Cashin: Follow The Bouncing Buck

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As always insightful trader talk from Art Cashin via UBS Financial Services

Following The Bouncing Buck Continues But Causes Confusion – Stocks began Friday’s session deep in the hole. Pundits noted another move to tighten by China. Of nearly equal importance was the noticeable lack of detail on the presumed Greek “rescue package”. Traders began to wonder if there really was a plan.

Those two developments gave a boost to the dollar. That, in turn, sent gold and oil sharply lower, matching the opening stock selloff.

Around 10:00, the greenback rally paused. Less threatened, stocks, gold and oil responded by churning sideways. As noon approached, the dollar index came off the highs and, in yet one more Pavlovian reaction, stocks, oil and gold cut their losses in response.

Then, around 1:00, the Dollar Index (DXY) began to move up toward the morning highs. As if a bell had rung – stocks, oil, and gold headed back down. Shortly after 2:00, the process was reversed again. In the final 45 minutes, they staged a minor reversal of the previous reversal.

The dominance of the dollar was so evident that I was stunned from time to time to see brokers getting calls from trading desks inquiring “what turned the market?”

Talk about not seeing the forest for the trees.

The Dow closed two-thirds off the lows. That allowed the first up week in the last five. Not quite a resounding victory for the bulls, but a welcome respite at least.

Cocktail Napkin Charting – In Friday’s Comments, we wrote that the napkins suggested support in the S&P was “way down around 1058/1063”. The sharp opening selloff took the S&P to an intra-day low of 1062.97 before they circled the wagons. For today, we’ll stick with the 1058/1063 support. Resistance looks like 1083/1088 and then 1093/1097.

China Watch – Over the weekend, there was some speculation that China is so concerned about a lending bubble and potential inflation that they might allow (cause) their currency to appreciate. If so, authorities must be really concerned.

On another note, Andy Lees passed along a warning from China’s Agriculture University. They claim the over-use of nitrogen fertilizers has so poisoned the soil in South China that nothing will grow in it. The year of food shortages?

Greece And The Euro – The Euro is firming this morning helping gold, oil and stock futures. The European ministers are meeting amid a growing sense that failure is not an option. Additionally, polls show that a majority of the Greek populace believe austerity measures are necessary and, likely, overdue. That offers some hope of reform without street backlash.

Sunspots Before My Eyes – Sunspot activity perked up markedly last week. In fact, the numbers returned to almost normal levels. The sunspot numbers for February 4th through the 10th were: 11, 22, 30, 51, 71, 63 and 55. We haven’t seen a number as large as 71 since spring of 2006. To keep things in perspective, lets again review the average daily sunspot numbers in prior years. For the period from 1999 through 2009, the average daily sunspot numbers were 136.3; 173; 170.3; 176.6; 109.2; 68.6; 48.9; 26.1; 12.8; 4.7 and 5. Let’s not put away that sweater just yet.

Consensus – It’s still all about the dollar (DXY). The above noted hopes for some resolution to the Greek crisis have gold, oil and stock futures all doing better. In 17 of the last 20 weeks, we’ve begun with a rally. Follow the bouncing buck. Stay very, very nimble.

Trivia Corner

Answer - The only letter not used in spelling the names of all 50 states is "Q".

Today’s Question – Two term presidencies are not as common as you think. We’ve only had three back to back two termers once in our history. Who were they?

and the obligatory history parable:

On this day (-1) in 1922, a 28 year old kid named Sam Hammett resigned from the Pinkerton Detective Agency. The Pinkerton's were the most famous detective agency in the world. Begun over 60 years earlier, Alan Pinkerton's firm was the model for the U.S. Secret Service. And, when Pinkerton took his tactics private, he chose as his logo an open and possibly all-seeing eye. Thus the Public adopted the image of a nonpolice detective as a "private eye."

Sam Hammett resigned from what he thought had become a bureaucratic form of investigation. He liked free style - lone wolf.

So he left the firm, dropped his first name and began to write about the private eye he always dreamed he'd be. So Sam Hammett became the writer Dashiel Hammett and invented Sam Spade (The Maltese Falcon) as well as Nick Charles (The Thin Man) and set the tone of hard boiled, hard drinking shamuses that would captivate Americans for half a century.

To celebrate, tell Vilma to park the gum, and tell the skirt on the phone that a partner is a partner not a prom date. And if a messenger arrives with a newspaper-wrapped dingus - send it, along with most of whatever else you have, to the I.R.S.

Traders could have used a detective to tell them what was going on yesterday last week. The markets puzzled about what was the solution to the Greek question and what was going on in China. That puzzling led to some volatile trading.