Markets face snap back after irrationally exuberant jobs move

Currencies:

The September U.S. Dollar Index (NYBOT:DXU13) closed at 8470, up 124.9 points on the U.S. jobs data as well as the ECB decision to use "low rates for an extended period," according to Mario Draghi. Losses included the euro (FOREX:EURUSD), giving up 1,85c to $1.2832, the Swiss franc (FOREX:CHFUSD) closing at $1.0387, down 1.85c, the Japanese yen (FOREX:USDJPY) .09887, down 1.07, the British pound (FOREX:GBPUSD) losing 3.75C to $1.4892, the Canadian dollar (FOREX:CADUSD) down half a cent to 94.40c and the Australian dollar (FOREX:AUDUSD) 24 points to 90.12c. The U.S. jobs data pushed yields higher and that attracts dollar investment. We had suggested taking some profits in our long standing bullish bias for the dollar but holding some dollar long positions. We now feel taking additional profits off the table on the basis of an expected correction in the Treasury and equity markets could impact the dollar. Move to the sidelines for now. I will be advising clients of any change during the week. We are awaiting the Federal Open Market Committee’s minutes on Wednesday.

Energies:

August crude oil (NYMEX:CLQ13)closed at $103.22 per barrel on Friday, up $1.98, or 2.36% tied to the gains in U.S. equity markets, and concern over the potential for disruptions of Middle East oil through the Suez Canal because of the Egyptian crisis. We suggest the sidelines for now even though current supply/demand does not warrant these elevated price levels. Stay out.

Copper:

September copper (COMEX:HGU13)) closed at $3.0710 per pound, down 10.35c reflecting reduced demand from China as well as the dollar strength in which it is denominated. We are long term bears for copper and see no need to change our opinion other than to suggest taking profits "off the table." The market action of late has produced what we feel were extreme reactions to economic and geopolitical reports and tantamount to pulling a "rubber band too far in one direction only to have it rebound too far in the other." The sidelines now is the prudent posture.

Precious Metals:

August gold (COMEX:GCQ13) closed at $1,212.70 per ounce, down $39.20 or 3.1% on Friday tied mostly to the larger than expected gain in U.S. jobs last month as well as the dollar strength in which it is denominated. Our sideline posture remains unchanged. Once again I have had to remind those that asked me about purchasing gold of the 1980 move when gold first trading at $875 per ounce. It took those investors more than 25 years to break even. I view that as a "poor" return on investment…and it could happen again. As I mentioned, I had a few one ounce gold Eagle coins in a drawer and sold them at $1,747 per ounce after gold retreated from over $1,900 per ounce and that resulted, in hindsight, (20/20) my best trade of 2012. For those that "must have" a precious metal in their portfolio, try silver (COMEX:SIU13),which has outperformed gold on a percentage basis. September silver closed at $18.815 per ounce, down 88.5c and may be ready for a "technical" bounce. October platinum (NYMEX:PLV13) closed at $1,3280 per ounce, down $18.80 while September palladium (NYMEX:PAU13) closed at $682.20, down $3.50. My spread suggestion of long palladium/short platinum continues to perform even in a down direction. Platinum lost 1.4% Friday while palladium lost 0.5%. For my retail clients I suggest the sidelines in precious metals. My professional clients can use Fridays weakness to put on long palladium/short platinum spreads. Bear in mind the contract size in palladium is 100 ounces while platinum is 50 ounces. The dollar move difference is the consideration, not the contract size.

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