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June 14, 2006
Nikkei bounces, gold bounces, Wed. 6/14/2006 6:46 AM
Coming off a slide of immense proportions in Japan, the Nikkei 225 has taken a bounce. Today's move is likely only a correction of an extreme over-sold condition (222 out of 225 stocks were down yesterday).
At today's open, the Nikkei 225 had dropped -18.4 pct from its May 10 high (i.e., leading up to the last FOMC decision to raise rates), which the market had been hoping would be accompanied by an indication of future rate relief.
The Japanese equity market slide commenced with the slide of the Yen (as the USD started to strengthen after the May 10 FOMC decision to raise rates). Apparently U.S. hedge fund capital started withdrawing from Japan as with Russia, India, Brazil and so on, at the same time, as the carry trades started to be unwound.
This bounce in the Nikkei 225 was coordinated with the bounce in gold early this morning. The implication here is that unless more carry trades are put on, the gold market bounce will not be a sustainable rally.
The marketplace has not yet settle out as to a decision on trend. These directional moves are most likely to be corrections in over-sold positions than the result of fundamental market drivers.
My view is that fundamentally the USD will weaken, and that gold will start to move back higher.
Posted by Posted by Bill Cara on June 14, 2006 06:46:24 AM | Category: Cara Today in the Market