The market took a thrashing today with the biggest one day slide since July 2; major indices were down 2-3% but materials and financials were down 4%. The Dollar Index DXY was up 0.7% to 77.2% just off its one year low of 75. Equities have been tracking the dollar and oil trade and with today’s action no trend could be clearer than dollar up- stocks down. Subtle comments by Ben Bernanke as to the dollar’s status as the global reserve currency were interpreted as a trigger to the dollar rally.

Gains for the dollar squeezed commodity stocks: High-flyer FCX was down 4.6% to 65.4, PAAS down 5% to 21.7, AUY down 5% to 10.1 and BTU down 4% to 35.7; energy stocks were less beaten down with the XLE down 3% to 52.25, SLB down 4% at 57, but COP held steady at 45.5 so look to certain energy stocks for safety. Although the intermediate term trend in the dollar is down any reversal i.e. a strong dollar will take money out of material, gold and silver stocks.

No technicals were broken but the S&P, now at 1030 needs to find support at 1000, where it was in late August. The market has been weak for the last 7 trading days. The upcoming earning season should provide clues to the market’s Q4 direction. All economic data point to a sluggish recovery so the market is due for a rest with safer sectors such as healthcare and utilities due for a play and speculation ebbing.

We appear to be in a benign inflationary environment which is being confirmed the bond market and the dollar. The ETF UltraShort Treasury TBT is down to 42.8 well off its early JY high of 52. Treasuries reached a high yield of 3.9% in a 10 year offering this June.

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