This Sector May Be Particularly Vulnerable to a Sell-off

Advertisement

Stocks fell Tuesday to their lowest levels in more than two weeks. According to The Wall Street Journal, profit-taking and trader “exhaustion” took its toll. However, underlying the downturn is the fear of an earlier-than-expected hike in interest rates and the threat of a terrorist attack on the anniversary of 9/11.

Added to the many existing geopolitical concerns is a new one — the possible independence of Scotland, which has the European markets worried despite the fact that no one has been able to express what it will mean to the U.K. The FTSE 100 fell 0.1%, and the Stoxx Europe 600 fell 0.4%. The British pound traded near a 10-month low against the U.S. dollar.

Apple (AAPL) surged higher on the opening on the unveiling of the new versions of the iPhone. But it later gave back those gains after revealing the Apple Watch, which is expected to be available next year. Apple’s sell-off appeared to have a negative impact on the technology sector and the overall market.

Job openings for July decreased slightly to 4.673 million from 4.675 million.

At Tuesday’s close, the Dow Jones Industrial Average fell 98 points to 17,014, the S&P 500 was off 13 points at 1,988, the Nasdaq was down 40 points at 4,552, and the Russell 2000 lost 14 points at 1,159. The NYSE traded 2.9 billion shares, and the Nasdaq crossed 2 billion shares. On both major exchanges, decliners outpaced advancers by about 3.2-to-1.

UUP Chart
Click to Enlarge

The U.S. dollar, as evidenced by the PowerShares DB US Dollar Bullish ETF (UUP), has broken a five-year downtrend line against a basket of currencies. The currency hit its highest level in 14 months against the euro and a nine-month high against the pound.

The dollar’s strength came amid expectations that the Federal Reserce “will send firmer signals on higher interest rates” next week (Wall Street Journal). Fed Chair Janet Yellen is expected to announce another $10 billion to $15 billion cut in the bond-buying program and end it by October.

Emerging markets are particularly vulnerable to the strength in the buck. So those invested in emerging market ETFs should be aware that the gains may slow or even reverse.

VIX Chart
Click to Enlarge

Note that the CBOE Volatility Index (VIX) is not even close to a new low even though last week the S&P 500 closed at a new high. Thus, market sentiment is still strong, indicating that more new highs are in the near future.

Conclusion

Despite Tuesday’s profit-taking, the S&P 500 has confirmed its break to new highs with shallow selling pressure. Initial support is at 1,990, with its 50-day moving average now at 1,971.

A short-term bearish signal was issued by the S&P 500 Tuesday, and we will watch that closely. However, chances are high that support at 1,971 will hold and any pullbacks should be viewed as a buying opportunity.

With gold, crude oil and other commodities running opposite to the stronger dollar and the stock market, it may be time to sell your gold and take a European vacation.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.


Article printed from InvestorPlace Media, https://investorplace.com/2014/09/us-dollar-strength-hurt-emerging-markets/.

©2024 InvestorPlace Media, LLC