The bounce in stocks over the last week has mirrored the bounce in Oil. Indeed, both assets bottomed to the day: January 29th.
With that in mind, it’s worth looking at Oil’s chart.
From July 2014, until last week Oil has lost nearly 60%. Those who are betting on a significant rebound should consider that we have yet to break above even the first real line of resistance at $55.
The real story for Oil is not Saudi Arabia, Oil shale or anything along those lines (they matter, but they're not the most critical item). The real story concerns the US Dollar rally that began in July 2014: the exact moment when Oil began to collapse.
The below chart shows the price of Oil against an inverted chart of the US Dollar (meaning, when the Dollar rallies, the blue line falls). Note how closely the US Dollar’s rally mirrors the plunge in Oil.
Now, consider the US Dollar’s chart. Not the 1-year chart, but the LONG-TERM chart.
You are looking at the single largest falling wedge pattern in modern financial history. The move started in July 2014, broke this pattern. So while we may get a brief correction here (the reason for Oil and Stocks bouncing the last few days), we are truly only just getting started here: the above chart predicts the US Dollar moving to 120 on the next move.
A move like this would demolish stocks. During the last two US Dollar bull markets, stocks fell 30%. This, incidentally, is roughly how stretched stocks are from the long-term trendline of this latest bull market.
In plain terms, the point is not to focus on how stocks bounced the last few days, but how susceptible they are to a very serious collapse occurring when the US Dollar begins its next leg up. Everyone knows stocks are in a bubble. What they don’t realize is that it is the US Dollar that will burst it.
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