Let's review some facts affecting biases. Selling in the past month has been violently amplified by deleveraging across all asset classes. Deleveraging cares not for valuation, but survival. We know in every case market plunges produced powerful rebounds that revert to or near the mean. We are dramatically off significant moving averages. However, aside from these developments alternate indicators cannot rule out the potential for more downside.The dramatic fall in commodities seems to have caused a rise of the US Dollar and a fall in stocks. This is most likely due to the unwinding of leveraged bets back into cash, i.e Dollars.
The chart below indicates the Dollar's rise may not be over implying the potential for more pain in asset classes. I say this tenatively because I believe the Dollars rise is an "effect" not the "cause". The tail doesn't wag the dog, but the chart should nonetheless considered in our decision making.
So is it safe to go back into the pool? Maybe. I sense we're close if not there. The Hedge fund redemption window closed this Saturday. This could signal an end to deleveraging. I'll be watchting the performance of commodities for clues. But let's not get lulled into thinking all lights are green. They are not.
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Hi,
ReplyDeleteHere is my own analysis of the dollar versus the euro ) . There are 3 scenarios possible here I see which are charted but my technical outlook is for further strenght.
I have to agree, the Dollar chart calls for futher strength due to it's triangle breakout. This is one of the things that concerns me. I haven't looked at the USD/EUR though.
ReplyDeleteIt will be interesting to see which influence prevails between commodities, the USD and stocks.
One additional reason the dollar is rising is because other currencies - and their economies - are currently, or are expected to fall faster than the US, so in terms of relative strength, the dollar is rising across virtually all currencies with the exception being the Japanese Yen.
ReplyDeleteThe Dollar breakout from consolidation should lead to further price appreciation, but one has to ask "just how low can commodities go?" I mean, crude oil at $55 is tremendously puzzling, but one cannot doubt the validity of price or the strength of the current trend.
Regarding the S&P in your chart, the Stochastic is not yet 'oversold' and the MACD appears to be crossing back under for a fresh sell signal, despite the horizontal support about the $85 level.
Such interesting time we live in indeed. Good work.
Corey,
ReplyDeleteI think commodities is presenting a great opportunity. Regardless of it's short term direction, I think significant risk has been removed from this market.
Regarding the Stochastics and MACD - I agree. It was my intent to present these as indications against the Bull case. But man we gotta be close.
Isn't there a negative divergence on the Dollar Index? Hence this might turn out to be a false break out?
ReplyDeleteAnon - YES! And I might add that the breakout looks feeble too.
ReplyDeleteI believe we are in store for a powerful stock rally (lasting more than a week!) signaled by a weakening reversal in the Dollar simultaneous with a strengthening in commodities. Keep a close eye on these three. They are the levers of this market IMHO.