Inflation is not being felt as much here in the U.S. as it is in other countries. That is because alot of the price inflation in food and energy is being offset by lower prices for goods and services in other sectors.
In the U.S. less than 10% of a person's monthly income is spent on food. In the Middle East, 80% of a person's monthly income is spent on food. So when food prices go up, it causes riots and protests. This is what has happened in the Middle East.
This global inflation is causing the ECB to follow China's lead by raising interest rates: most likely the increase will come in April. This is problematic for the U.S. because the Fed can not raise interest rates right now as it would kill the fragile economic recovery. If most other major economies around the world begin raising interest rates and the U.S. does not, it will negatively effect the U.S. dollar making it the world's weakest currency. A downtrending U.S. dollar is good for gold and silver.
Even without other countries raising interest rates, the dollar is under assault by rising energy prices which also are inflationary.
This is why the U.S. dollar began a downtrend as riots in the Middle East spread.
I have added two new inflation tracking charts to the weekly mix. One tracks food inflation and the other tracks energy inflation. As you would expect, both are in strong uptrends.
Even with all this Middle East drama, the bulls still have a slight advantage going into trading next week as evidenced by the trends of the major indices. The Dow is in an uptrend, the S&P 500 is in a weak uptrend, the Nasdaq is in an uptrend, and the Russell 2000 is in a strong uptrend.
Looking at market internals on the NYSE, 70% of stocks are trading above their 50 day moving average, and 82% of stocks are trading above their 200 day moving average.
These trends and market internals mean that the bulls have a slight advantage going into trading next week. However, the VIX is still in a very weak uptrend. Score one for the bears. The VIX measures the amount of put buying (short selling). But this is where I see a lot of amateur traders get their analysis wrong. Amateur traders, when they first learn about a new chart or indicator, have a tendency to overweight that chart or indicator. You must always keep in mind that the VIX is just one chart. You must look at many charts and take account of the entire picture. So even though bears have one chart in their favor, the overwhelming number of other charts are bullish.
Look folks, the best way to play the rise of global inflation is to be long gold and silver. Junior gold miners are in an uptrend while large cap gold miners are in a very weak uptrend. Just like it's bullish for the markets when the Russell 2000 small cap index leads the S&P 500 and the Nasdaq higher, it's bullish for gold mining stocks when junior gold miners lead large cap gold miners higher. That's what we have this week.
Upcoming fundamental analysis reports that can move markets next week are:
Thursday, March 10, 2011 = International Trade
Friday, March 11, 2011 = Retail Sales For the latest updates PRESS CTR + D or visit Stock Market news Today
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