The big news today was the resumption of the decline in the dollar. The EuroCurrency closed at a new high against the US Dollar. The Japanese Yen was also higher, but didn’t quite make a new high. The dollar looks like it is in a free-fall against the Swiss Franc. Not much change against the Canadian dollar, but made a new recent low against the British Pound. All this caused the cash dollar index on the NYBOT to close at a new low, although it didn’t quite take out the intra-day lows of a couple weeks ago. Some obscure currency in the basket must have held it up by a hair, but the EuroCurrency made a clear move up from the consolidation of the previous eight days. I have been thinking this slide in the dollar is nearing the end. There has not been any technical evidence of a bottom yet. The only thing that makes me think the end of the bear market in the dollar is near is purely the overwhelmingly bearish sentiment. In thirty years of market watching, I can’t recall any trade as one-sided as that of the dollar.
So far it even looks like super-currency analyst/super-model Gisele has been on the correct side of this trade. Even many dollar bears have pointed out that once a market gets so silly as to highlight comments by super-models and rap-stars, that maybe, possibly, the market has gone a bit too far. Today on CNBC Jim Rogers, complete with bow tie, said everyone should be completely out of the dollar. Of course he hedged himself by saying he wouldn’t be surprised if there was a rally first, pointing out the overwhelmingly bearish sentiment. If you listen to gurus, don’t count on them telling you when the reversal will come. They will tell you when it was in a later interview when it is too late. But Mr. Rogers did make one excellent point. He pointed out the really idiotic comment made by Uncle Ben about the drop in the dollar not really being that important to Americans as long as they only had to buy things in this country. I about fell off my chair when I heard Bernanke say that. I’m glad Mr. Rogers pointed that out, but I think he was a bit off base basically calling him, as well as Paulson, idiots. At least they don’t wear bow ties.
Over the last couple of days I’ve been suggesting that the breakout on the S&P (lower graph) could resume the downtrend if that low pivot, where I drew the red line, was to be taken out, but also suggested that it could be a fake-out break-out since the move would be accompanied by already somewhat oversold momentum readings, and if it reversed back up a divergence could set up. I know I hedged my comments. There are always two sides to every analysis, and the purpose of this blog is commentary and education, not trading signals. It looked like the market, at least in the S&P, tested both sides of my analysis. The market tried to rally early in the session, with the Dow being up about 150 points. Momentum was about to turn back up at that point, but then the market dropped and was down nearly 100 points. A late rally erased all the loss and the Dow closed back to the upside by about 50 points. Similar moves occured in the S&P, with short term momentum kinking back up after kinking down yesterday, all within the context of an overall downtrend. You can see how the S&P (showing the etf this time) rejected the probe to new lows and closed with an up candle. The next point of resistance would be at the cyan line to the dashed purple line. If that dashed line were taken out a case could be made for a short-term low being in place and a further rally. The Nasdaq/QQQQ closed right about where it opened, after making large moves both up and down. But the low at the horizontal line held, at least for now. As with previous comments on the SPY and QQQQ, as long as those lows hold a rally to relieve the oversold condition is possible. If those lows get taken out, especially after the initial rejection, then a resumption of the downtrend is probable. I somewhat favor the first scenario, as those rejected lows often send prices the other way, at least temporarily. But the bear is still in the box.
I haven’t had the Baltic Dry Index up for a while, so here it is. It looks like a double top is forming. The parabolic stop is close under, and if hit will probably see some more serious downside to at least correct the excessive parabolic move in shipping rates. Bubbles usually get blown up larger than seems logical, and they are sometimes very hard and stubborn to pop. If the red dot is taken out and that low point between the two peaks is also taken out, I would expect a fairly good size retracement.
The gold market had a big rally today. The pit contract was up $13.50 and the after-hours contract was up, as of this writing, another $11.30. Bubbles are hard to pop, and in gold the momentum was oversold and some rally would be expected. The trend indicator has gone flat. So far the price action looks like a bull flag after an extended and powerful up-leg. I would assume a little more to the upside to relieve the oversold condition. It’s too soon to tell if another leg up is in the works. I suspect this will roll back down, but that’s just a gut feel. I’m being influenced by my feeling about the dollar being overdone, and any reversal in the dollar would most likely send gold down sharply. I’ll stay on sidelines until conditions clear up.
Crude blasted off to another new high today to close within a couple dollars of that much touted and magic $100 level. That bubble looks like it has been patched up for now. It looks like they want a print over the $100 mark just because they can. I can’t see any fundamentals that support prices anywhere near this level, but technicals are still positive, the trend is up, a bulll-flag just occured with a successful resolution to the upside. I don’t want to stand in front of this even though it seems unjustified. If this keeps up I suppose Gisele will decide she now wants to be paid in crude oil.