Stocks Fall As Investors Turn To Gold For Safety

Ricardo Caballero said on May 21, 2010 that “the fundamental problem … is a shortage of safe “AAA” assets“; that proved quite true today as BP and RIG sold off heavily, causing energy service, OIH, and energy producers, XLE, to fall significantly.  MSNBC reports that Attorney General Eric Holder said that federal authorities have opened criminal and civil investigations into the Deepwater Horizon explosion and oil spill. Holder would not specify which companies or individuals might be the targets of the probe, saying he did not “want to cast aspersions” while investigators come to their conclusions.

And today, the financial institutions capitalized by Ben Bernanke, RWW, were not considered safe; causing a sell off in the financially sensitive small cap value shares, RZV, and IWM. Investors further abandoned yen carry traded investments in Poland, PLND, Asian, DNH, Steel, SLX, Metal Manufacturing, XME, Oil, USO, and base metals, DBB. 

The euro-yen carry trade, FXE:FXY, fell lower, causing European shares, FEZ, to fall lower as well. International financial shares, IYG, fell lower too.  Joe Weisentahal writes TED Spread On The Verge of Touching 40, As Bank Confidence Continues To Deteriorate and Paul Taylor writes Euro Markets Weaken On Bank Debt Worries

Investors no longer consider US Treasuries, IEF, safe; as they barely rose on a day that stocks, VTI, turned down!

Investors turned to the safe haven of gold, GLD, which was up 0.9%.

OIH -8.9% on RIG’s 11% fall

XME -5.6% on yen carry trade disinvestment 

XLE -4.75% on BP’s 15% fall

PLND -4.4% on carry trade disinvestment

SLX -4.1% on yen carry trade disinvestment

RZV -3.8% on RWW’s 2.1% fall

XHB -3.7%

DNH -3.5% on yen carry trade disinvestment

IWM -3.0 on RWW’s 2.1% fall; the Russell 2000, IWM, closed at 64.24–a support level going back to March 1, 2010 and January 1, 2010; the chart shows a broadening top pattern; click on image to enlarge.  

RWW -2.1%; these are the too big to fail financial institutions capitalized by Ben Bernanke under TARP and other facilities.

USO -2.5% on yen carry trade disinvestment

DBB -2.5% on yen carry trade disinvestment

UUP was barely up; its chart shows a hanging man candlestick today and a dark cloud cover on May 24, 2010; click on image to enlarge.

The US Dollar closed in a questioning doji at 86.74. Action Forex says: Dollar index’s sharp reversal today suggests that consolidation from 87.46 is still in progress. It could be in form of a triangle or a sideway rectangle pattern. But even in case of another fall, downside should be contained by 38.2% retracement of 80.04 to 87.46 at 84.62. We’d still expecting an eventual break of 87.46 resistance to target 2009 high of 89.62. I do not share their bullish conviction. I believe all currencies are going to fall lower together;  click on image to enlarge.

IEF closed barely up at 92.96; its chart shows a dark cloud cover on May 23, 2010 and a hanging man candlestick today; it’s a very bearish picture here

Institutions such as banks and insurance companies may want to consider the 300% bear US Treasury ETF, TMV, which recently made a double bottom.

GDX fell 0.1% to close at strong resistance at 49.81; while GLD rose 0.9%; Gold, $gold, closed at $1,125. Personally I am invested in gold coins.

Symbols used in this report


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