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February 5, 2010 – 11:32 am
The economy is gaining strength but that has not and is not translating into astronger stock market at this point. Yesterday we had a stronger than expected retail sales report, up 3.3% when it was expected to be up 2.5% and factoryorders were up 1%. That too was better than expected. However, it was the big productivity report that was truly surprising.  It was up 6% and the work week increased.

Jobs are the focus this morning.

The stock market pressure seems to be coming from a stronger dollar because of the weakness in the Euro. This is a very interesting scenario. Our economy is now looking better than Europe’s and because of that the dollar is gaining strength. The dollar bottomed at the beginning of December and much of that month the stock market continued higher though the pace was very slow. Then in January the market began to correct starting in the middle of the month as the dollar kept gaining strength.

Why this is so interesting is that history has taught us that a strong U.S. dollar means a strong stock market. That relationship has been turned around.

At some point the strong dollar will be viewed as a benefit by investors and traders. It makes sense because the dollar gains strength against other currencies because our economy is looking better than theirs. Of course today it is a world economy and that might be why it’s different this time. However, whenever you think it’s different this time it reverts back to the norm.

This is a correction, one that was expected. It’s a matter of degree.

Good Trading
Steve Peasley

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