Distribution Alert: Third Day In A Row, Markets Fade
A common theme is developing in the markets this week. Each day, the markets have been up nicely and by the close, faded to the flat line. This seems to be happening again today. The SPDR S&P 500 ETF (NYSE:SPY) is at $133.37, +0.13 (+0.10%) after being as high as $134.00. The high of the day was only a small distance from the 52 week high on the SPY at $134.69.
The fall in the markets each day most likely represents distribution. Distribution occurs when the institutions sell their shares to the individual investors, taking profits. This generally represents the high in the market or near the high. Why would individual, retail investors be putting money into the market? First, between the Middle East, Japan and Europe, the markets have been unbelievably strong. This gives the small investor a false sense of security. They basically think, if all that cannot derail the markets up move, then nothing will and the markets must be headed far higher. In addition, this is the first week of the second quarter for 2011. New money into 401k's and other retirement plans are now available and are flooding into mutual funds. This is a perfect time for institutions to sell into the buying.
The Dollar is down again today, a common theme of late. The one interesting factor is to note that the Dollar has been dropping as the markets have been falling back. This is unusual and should be noted. The most likely reason is commodity prices. As the Dollar continues to fall, commodities like oil just go higher. The $110.00 per barrel level is quickly approaching and the markets are getting nervous. Higher oil means higher prices at the pump. In an economy trying to recover, higher costs to consumers means less spending and a weaker economy. This must be watched. The United States Oil Fund LP (NYSE:USO) is trading at $43.42, +0.32 (+0.74%).
Gold and silver are both flat to higher today. The SPDR Gold Trust (NYSE:GLD) is trading at $142.08, +0.03 (+0.02%) while the iShares Silver Trust (NYSE:SLV) is trading at $38.56, +0.22 (+0.57%).