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is another temporary respite from the coming storms for savers who choose not to play in the market casino. Ol' Uncle Buck will again rise from the dead and astound its critics and the commodity bulls. Now, don't get me wrong, this will be just another countertrend bounce. But I believe another wave of deflation is needed before we can get to the point of a currency devaluation/cyclical inflation. The US Dollar is sick, just like the global economy and global markets. Yet that didn't stop the global stock indices from embarking on a rip your face off rally that continues to test the resolve (and pocketbooks) of bearish market participants.
Markets don't move in a straight line. After an initial thrust from July 2008 thru November 2008, the US Dollar has been correcting for roughly 10 months now. A second thrust higher is needed to complete this correction and it may have already started. Again, please don't misunderstand my long-term stance - the US Dollar is in big trouble. But I still believe a strong rally in the Dollar is imminent and that it has probably already started.
When the Dollar starts rising significantly, stocks and commodities will be toast (again). Here's what I'm seeing in the charts for the US Dollar. First, the "big picture" view using a 15 year monthly chart:
Next, here is an 18 month daily chart of the US Dollar thru Friday's close:
Finally, here is an ETF of the US Dollar (ticker: UUP) with my attempt at an Elliot Wave count:
I don't know if this count is correct, but if it is, a significant thrust higher in the Dollar is dead ahead. I do know that the Dollar is bottoming on an intermediate-term basis, not topping. I also know that when the turn comes in earnest, it will end the rally in stocks, corporate bonds, and commodities. I don't trade currencies but for those dollar bears out there, take heart: I hold the bulk of my savings in physical Gold. I am talking about a countertrend rally of less than one year for a beaten down fiat currency relative to other fiat currencies. I think the Gold price will take an initial hit when the Dollar starts rallying but will recover quickly as the credit crisis intensifies.
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The good news is that even though the USD rallied thru the whole of 2005, it didn't stop Gold from rallying that year (after spending the better part of the year in a sideways consolidation, just like it has this year).
Hi Adam,
I would encourage you to examine a particularly illuminating commentary written August 21 at thetechnicaltakedotcom.blogspot.com where the author shows that the "Dollar Index closed Friday below the low of its' positive divergence bar" and showing that this has happened 25-times since 1973.
Shorting the dollar since 1973 under these exact circumstances would have yielded 50-points on the Dollar Index......on the other hand, buying and holding the long dollar position would netted minus 18-points. Shorting the Dollar would have been the winning trade in 68% of the cases.
I believe most readers would agree with his article as it is empirically proven. I agree that the dollar seems to be oversold, but it should and could become much weaker because, fundamentally, actually, it is the MOST OVERVALUED CURRENCY on our planet.
GG-
Exactly.
Anon-
Place yer bets!
;]
Adam
Good post--
Thanks for your updates--
Appreciate the time you spend--trying to help people--
I agree with your USD and Index calls---
I've been long USD for about a week--
Choppy--but still in the trade--
Shorted Index (again) Friday--based on Bernanke bragging about how he saved the world--
Bearish to the extreme--
Oil--another ass boot last week-
Waiting for Gold to test some lows as well--before adding to core position in majors--
Like the jrs. chances--
Always long physical Gold--
GG-
agree with your example-in 2005-
Gold-USD--competing as currency--
That's the "real" safehaven play--
Silver should join up too--after the inflationist's puke--jmo
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