Wednesday, June 1, 2011

Some comments...optimisim all over the map

As I think is fairly apparent, the driver of our markets are currencies. The subject of our times, when history is examined will be our currencies. The dollar has been in a pullback to the target zone in the 74's to 74.6. The dollar is currently setting its turn trigger, which has not happened yet...but is VERY close. I see ton's of crazy elliot wave counts. People are targeting the moon on the indexes. I see charts in the 1,500's and 1,450's. There is only one reason we could get to numbers like that and that reason is the Dollar Index. With all the currency stress in the world at this point our dollar is a vehcle of relative attractiveness and will not likely be taking the trip to the 60's as required to hit these crazy patterns that people are posting all over the place. I just wanted to address this, because the market is sloppy, it is not well behaved and due to that characteristic it is confusing people and getting them to flip flop out of and into trades. I found that comment from Jesse Livermore yesterday on a very good blog MacroStory and I think that it is very important to keep Jesse's view in mind.

The market seldom does what people want and people are wild eyed as far as the trading patterns for many of the indexes with wild scenarios. The reality is that commodities did have not reflect the minor dollar weakness that we have had so far - this is not bullish. Also, dollar weakness is not likely to continue despite the best efforts of the carry traders and media who love to trumpet the declining dollar story to no end. Currently the dollar is significantly higher than it was last time the indexes were at these levels and its losing momentum to the downside in preparation its up cycle trigger. That relative performance is telling and will be hard to ignore for the markets. If dollar weakness is not going to continue, there will be NO new highs for the equity markets, which since everyone is looking for them, seems rather likely. The PIMCO trade was really obvious, and highly publicized but so far that trade has been VERY wrong...the public and popular trades are likely to continue the pattern of being wrong. But there will be quite a lot of selling once the dollar bounce begins...and after the EURO wears itself out...which is very nearly complete by the looks of things. One thing that I find interesting is that the inverted head and shoulder that everyone saw has been very sloppy. However, the current markets are putting very clean looking bearish head and shoulders patterns with all the correct construction for follow through.
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