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Investors Put Too Many Eggs In 'Weak Dollar' Basket?

Tuesday, 16 Nov 2010 | 6:12 PM ET

Investors ran for the exits on Tuesday pushing the S&P sharply lower as overseas developments threatened to derail the very foundation of recent market strength – we're talking dollar weakness.

The prospect of more European bailouts and worries that China will rein in inflation sent the dollar to 7-week highs against a basket of currencies.

The stronger dollar hit commodity prices – in turn, that sent equities lower, with natural resources companies leading the way down.

The question becomes, "Is dollar strength just a correction in a larger trend of dollar weakness, or are we beginning to turn around here?" says Bill Strazzullo, partner and chief investment strategist of Bell Curve in a Reuters interview.

"If it looks like the U.S. dollar is finally stabilizing here and gaining its footing, we're going to have a good-sized pullback in equities and commodities markets," Strazzullo adds.

How should you position now? What should you be watching?

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China has massive food inflation and there’s growing concern that they’re going to use blunt instruments rather than fine tuned instruments to correct that issue, explains Tim Seymour. And in Europe there’s growing dissent about the bailouts. It’s all suggests a stronger dollar.

Investors were short dollar and long European bonds and now that trade is getting unwound, adds Marc Chandler of Brown Brothers Harriman. I suspect the crisis in Europe is in early stages, he adds. I think it’s just beginning. Europe was smoldering over the summer and now it’s bursting into flames. Over the next two months I also expect the dollar to strengthen.

I’m watching the 79.56 on the dollar index, adds says Emily French of ConsiliAgra on the Halftime Report. If we break above that level - I'd take it as a technical signal of further advances.

1172 is a key technical level on the S&P, says Guy Adami. We touched that level then bounced on Tuesday. Combine that action with the decision by GM to increase the size of its IPO and it may signal a short term bottom. That’s the bullish argument, he adds. However, I’m not a bull. I think there’s more selling to come.

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S&P, CRUDE, COPPER GOLD ALL THE SAME TRADE

Adding to the belief that it’s all about the dollar - oil , copper and gold all fell together on Tuesday -- essentially the same trade.

Copper has made an extraordinary move lower in only a few days, adds Karen Finerman. The same is true for gold. They’re starting to feel like capitulations moves – at least to me. I think the worst may be over - at least in the commodities sell-off.

I’m seeing options investors going for the 22 in the SLV, adds Pete Najarian. That suggests to me the move lower in commodities is not over, he counters.

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THE SELLOFF: FINANCIALS CRUSHED

As you might expect the European banks were among the hardest hit on Tuesday with HSBC , RBS and Barclays all sharply lower.

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BREAKING NEWS: GENERAL MOTORS

In breaking news CNBC’s Melissa Lee reveals that GM will increase the size of its IPO by 30%.

According to published reports, GM is expected to file an amended S-1 with the U.S. Securities and Exchange Commission stating that it now plans to sell 478 million shares.

What’s the trade?

They must be very confident, says Karen Finerman. If there was every a bad day to price a deal it would be Tuesday. I would imagine that at some point it will be included in the S&P.

Read More:

Most Anticipated IPO since Google



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Trader disclosure: On November 16th, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Seymour owns (AAPL), (BAC); Seymour is short (FCX); Adami owns (AGU), (BTU), (NUE), (C), (GS), (INTC), (MSFT); Adami’s wife works at Merck; Finerman owns (AAPL); Finerman owns (BAC); Finerman owns (JPM); Finerman’s firm owns (WMT); Finerman and Finerman’s firm owns (JCG); Finerman's Firm Is Short (IWM); Finerman's Firm Is Short (SPY); Finerman's Firm Is Short (MDY); Finerman's Firm Is Short (IJR); Finerman's Firm Is Long Russell Puts; Finerman's Firm Is Long S&P Puts; Pete Najarian owns (BAC); Pete Najarian owns (SLV) and call spreads; Pete Najarian owns (CNI); Pete Najarian owns (F) Bonds; Pete Najarian owns (FIRE)

For Simon Baker
Baker owns (AAPL) for clients
Baker owns (ANN) for clients
Baker owns (BAC) for clients
Baker owns (C) for clients
Baker owns (RIMM) for clients

For Mark Chandler
***No Disclosures***

For Anthony Scaramucci
Scaramucci and SkyBridge Capital own (COH)

For Dan Nathan
***No Disclosures***


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  Price   Change %Change
S&P 500
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BARC
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HSBA
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RBS
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SLV
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