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Dollar Bull Trend Definitely Over and How This Might Impact Equities
Last week it was "likely" over. This week, I am going to say that the bull trend in the Dollar is "definitely" over. I am basing this observation on the fact that we are starting to see a clustering of negative divergence price bars. This doesn't necessarily mean a top and a reversal, but it most definitely means a significant slowing in price momentum.
Figure 1. Dollar Index/ weekly
Ok, this is all well and good, but what could this mean for equities? Great question. The Dollar model turned bullish on September 30 and since that time the SP500 has gained about 16%. If you would have asked me how stocks were going to perform in the face of a rising Dollar, I would have said very poorly as the pattern over the past decade has been strong Dollar and weak equities. This did not play out this time as the both the Dollar and US equities benefited from European weakness. Money flowed to our shores because we were the safe haven of choice. At least this is what investors want to believe.
All of a sudden a strong Dollar is good for US equities and a sign that capital is flowing to our shores. So what will happen if we get a weaker Dollar? At first blush, I would think that this would be equity positive, but if we are in a new dynamic of money flowing to the US because we are the safe haven, then we should see lower equity prices as the Dollar drifts lower. And in some respect, this may actually make sense especially since the equity markets are at the upper end of their very long term trading ranges. A weaker Dollar along with weaker equity prices may be the new dynamic. Once again, I would defer to the price action as this is the only reliable metric in a world of distorted markets. The breakouts that are occurring - like in the PowerShares QQQ Trust Series (symbol: QQQ) -- need to hold above support levels.
In summary, the bullish trend in the Dollar is over, and we need to monitor how this might effect equities moving forward. Just as investors get comfortable with one thing, the market has a way of serving up a curve ball.
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I like to check the rate on the Chilean Peso. It is a currency backed by commodities and nobody cares enough about it to manipulate it. The CLP has been appreciating since the beginning of the year along with PM. The dollar is falling just not as fast as the Euro. Also, the surge of silver on Friday might be a signal of a upcoming weakening of the dollar. The next week or two should be interesting.
Tell me what Bernanke does this week and I'll tell you what the dollar will do.
Bernanke is running the printing presses full tilt at work and at home he's counting his thousands of Krugerrands.
We'll see. Right now it is in bear flag formation from the previous high. Don't forget a falling(or should I say crushed) dollar = higher equity prices.
I am not silling to state what you are but that is based on the trned lines, i'd say we need another week or few days. on longer trend lines this could easily be a bounce just like october. a bounce from the lower descending channel to the upper line of the descending channel.
the market is a headless chicken running wild on a roller coaster to nowhere good; its the last train to gun hill, a lost fling at playing Thelma and Louise without going off the divide. Watch the slalom as the big guys arbitrate the gates like drunken sailors on last port of call before the trip round Cape Horn; see the cliff hanger as the truck delivers along the Muerta road of Andes vertiginous climb.
Dollar up dollar down, S&P jiving around, what the Euro can't fix the greenback can't displace, its time to find a new fiat god.
Or, run like scared scalded cats to that barbaric relic, the gold standard that made Rome lord of silken road and sparkling gems. Silver deniers and platinum blondes, we all need precious metallic flesh in hand to feel we are kings of the black vaults of Montezuma and the pole dancers of Macao casino land.
Mad world living in levitational gravitas. All we know is that Guantanomalese is now permanent fixture, deadly ingredient of O'Bammy's NDAA legislature, like poison ivy on the wall.
Yes, falak, just buy when the 92.567 day double exponentially smoothed moving average on the daily chart simultaneously thrusts above the harmonic 125 1/3 -day on the weekly and the arithmetic 144.56- day on the monthly chart. Use 100:1 leverage and set trailing stops 0.5% below the current price.
Falak, very impressed with the sheer number of metaphors you rammed into a single post there... all good ;)
Incidentally the pole-dancers of Macau are mainly Russian and not that interesting... the Chinese want 'action' for their fist full of Dollars not some chick gyrating about out of poking distance. The main biz entertainment is to just get down to business at a sauna or massage parlour
"a clustering of negative divergence price bars"
"The Dollar model turned bullish on September 30"
"a significant slowing in price momentum"
"pattern over the past decade.....did not play out this time"
"A weaker Dollar along with weaker equity prices may be the new dynamic"
"need to monitor how this might effect equities moving forward"
What a load of utter garbage
What keeps it so interesting is nobody knows what this market is going to do, but reading the guess blogs are sure fun.
Some will be right, and some will be wrong. Where will you be? Nobody knows!
Treasury movement today was in part driven by shorts. That is telling. During the session, there was a lot of strategic hammering to loosen up long-term rates and flush out short-term traders. Someone wants a better price for bonds while unloading high priced stocks in a trickle. Let these guys do the work for you, but don't be fooled. Equities are going nowhere this year. Nowhere good anyway.
Well let me ask you a question, do you think it's a good time for you to buy and hold for a stock? If yes, then go buy 20,000 shares and keep them for next year without tracking teh market movement...
Took some short positions on Friday! The bear raid soon to come, maybe in Feb/March
Yep. Looking at call/put, VIX and volume is telling. Another rally with a trap door. Agreed on Feb / March but ther is no way I would be holding now.
You know am a market Risk Analyst! last year the investment department in our bank got all hyped up with the last rally, they were buying sotcks like crazy at levels close to the ones now..guess what happened? It triggered the Stop/Loss were fucked by us and know they are fucked by the Audit..
See, i want the best of luck for the bulls only if they were buying the same stocks at the dips ( prices way lower than this) but the way those shares went up like this in just 2 months really fast is very risky on the buy side. the graphs are not indicating a gradual acend, but rather a sky rocket ratchet upwards.
look at your favourite stock peak/bottom historically, and then ask your self? i wish i was there...
be patient, the party will be over very soon
That sentiment really tells you how idiots drive the equity market and how dividend yield came to have no meaning. By my reckoning, by the time we are done, the dividend yield on the S&P 500 should exceed the 30 year UST by a good clip. In the long run, that means much lower stock prices, more expensive treasuries, or most likely a combination of the two.
So, until that day comes, I trade treasuries long and stocks short. Sentiment conditions, the VIX, call/put and volume are almost there for the big short. Just need one piece of unexpected news for the house of cards to tumble again.
Sad that it's come to this nasty investment strategy.
This is comical. Talk about a wild ass guess! This is the kind of market analysis my mom (who is a grandma) gives me. Funny.
The Technical Take guy has been more right than wrong on his calls. But, I think if we see dollar weakness here, it will be reasonably short lived. Fundamentally, the problems in Europe and China are not going away anytime soon. They may bob and weave over the next few months or even a year or two, but these twin problems will blow up in our face soon enough.
China has never once had a soft landing.
And what country has ever had a soft landing?
The super long commercial position in the Euro and short position of the same banksters in the dollar tell me that at some point they will do the old switcheroo again. The Euro will be pumped and the dollar will be dumped. It's like shooting fish in the barrel when you get to pull all the right levers. You know the drill. Wheeeee.
There is a fly in the ointment. Equities have already been ramped. Maybe we can get the S&P to 1400 but the volume is aweful.
I think we're going to have to see what happens at the 50 wk sma - in the mid 76s. There was almost a 62% retracement from the 72.70 low. IMO, we'll find out in 2012 what's going to happen longer term depending on whether the dollar bounces strongly at 76 ("deflationary") or cracks and tests 72.70. A breakdown there is likely to show a pattern of lower highs/lows on the weekly chart. That will tell the tale of the inflation/deflation debate. From a cyclicality standpoint, we should find out near the end of the year. If this is indeed the cyclical high from the 2009 high, odds are pointing to the dollar cracking.
From there, I'd trust the longer term correlation trends until there's at least a consistent 6 month divergence - implying stocks up, dollar down, bonds breaking. We'll have to see how it develops...
I'm curious how many arguments they had in Japan as the JGB curve flatlined and the yen rallied against all logic.
The divergence between stocks and the euro will end once Germany exits and the euro suddenly collapses. The c.o.t. report's extreme short positions in euros suggests a capital flight rather than regular trading. Perhaps a central bank like the Bundesbank or the Chinese central bank is dumping euros and buying gold and silver. The markets right now feel like a horror movie before the first kill.
Nope. It's in it's 3rd wave up after hitting massive resistance at about 81.2. Expect 75-76 support and then off to 84-86. How do I know this? I guage the sentiment on ZH.
That's funny. I also watch ZeroHedge for contrarian dollar / inflation sentiment. When it all starts to rhyme, I know it's getting close to load up on 30 year treasuries. Harder to time the buys, but I think this sucker could eventually make it to 2%.
Wave the dollar good-bye.