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My indicators reflect bearish sentiment in the market at this time, and we’re beginning to see the “sell in May and go away” mantra place pressure on equities over a broad front. Now, this doesn’t happen every year, but the adage is suitable because the market is up against heavy overhead resistance after its extended run higher, so the indices are likely to correct some more from here.
Oddly enough, the number of Americans collecting unemployment benefits has fallen to 16-year lows, but it’s more of a reflection of the low rate of layoffs than anything else. We also can’t forget about those individuals who have been out of the job market for quite some time that do not show up in those statistics because they’re not collecting benefits anymore. The participation rate is still quite low, so there’s nothing to get excited about on that end either.
Overseas, China continues to expand its credit bubble and appears unwilling to make the necessary adjustments to avoid economic disaster. No one is going to want to leave the party halfway through, so we really have no choice but to observe the situation closely and be prepared to make the necessary portfolio adjustments to blunt any incoming damage when the time is right.
On the currency front, a stronger dollar incentivizes greater spending on goods and services abroad, making businesses less competitive at home in the process. With the broader equity markets looking ready to roll over, we could begin to see a flight to safety that has historically been found in the U.S dollar. So we’ll look to pick up shares at a discount on the index.
Buy the PowerShares DB US Dollar Index (UUP) Sep. 24 Call options at $0.65 or lower.
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