A detailed analysis of the Dollar and the Euro

I will be adding charts to this post over the weekend...please check the post for the additions.

Below is a very large and detailed chart of the dollar index full history daily bars inverted. This means up is down. In this view the dollar is at it highs right now which just gives us a different vantage point for its posture.Please click on it for a detailed view.

To download a very high resolution file of this chart click here.

To download a very high resolution file of this chart click here

This time its different...the popcorn has butter, salt and cheese and what's more its good for you

A nearly 100 point move in the Russell 2000 in a matter of days is an absolute anomaly especially when it is on relatively innocuous news flow and thin participation.  TF is up 9 days in a row and that represents a panic and hysteria to get into this market long - or as is more likely the case, to get out of it short (remember everyone was trying to short the end of QE) and then flip long for the elusive huge miracle trade is just astonishing and at the same time patheric. All in all, as has been confirmed over and over in our market...momentum trading does not work. The realities are most likely the same now as they have been for a long time...prices will take out the maximum stops and entice the maximum buyin and then close the trapdoor. This is why retraces of 88.6% and 112.8% are the most common spot for reversals in our markets over the last few years. Insolvency, or fear of it, seem to be the primary conditions driving our markets, and you can expect anyone stupid enough to be trapped in that psychology will be a good candidate to be trapped in this one.

Several points that significantly undermine this popcorn move:

1. 5, 10 and 30 year bonds are not confirming this move in equities
2. The Dollar is not confirming this move in equities
3. Most commodities are not confirming this move in equities
4. EURO is not confirming this move in equities
5. The Australian dollar is not confirming this move in equities and is about to trigger short
6. Oil is not confirming this move in equities and is about to trigger short
7. VIX is not confirming this move in equities

Points supporting the market:

1. All in all thin support from names like AAPL, Netflix, Priceline and a not too large assortment of other names that are confirming the move in equities
2. News flow has been interpreted positively

And yes...this time its really different...that's why my systems will be adding shorts today and likely into tomorrow if the opportunity presents itself.

Below are the transports:

Popcorn is popping...and the butter is VERY VERY hot

If you recall 2007, you will remember that the world had been shocked by the disorderly unwind of the internal Bear Stearns hedgefund and numerous negative events related to the credit markets...this took the markets on a signficant drop...not all that different from the one we have recently had. Now what was interesting to me was that people got really scared on that drop, but when the market rallied to subsequent highs in the Dow and S&P500 they lost that fear and a last dip was an all out party when it was bought. Every second, third and fourth rate name was bought and if you recall mostly Solar and China names were the absolute epitome of the rage. I recall a solar stock that I traded for a few bucks in a single day that I was quite happy with that ended up rallying something well over 200% in that day (and I only got a few points). I recall quite a few popcorn names in the china space rallying sometimes over 300% in a single session. Below is an esample you may remember of a company hyping china hyperbole and you can see how that turned out:

Well, the attitude that "there was no risk that was not worth taking" in those types of names ended up demonstrating just how disconnected the markets became and how toppy and flimsy the basis for attitudes attempting to levitate the markets. What I see right now reminds me of that period exactly. People are popping popcorn and having a party...the feeling that risk can endup being dangerous is a "subject for another time and definitely not THIS market" - according to the current market collective. The important thing is to understand that "IT IS NEVER DIFFERENT THIS TIME" and the results of this hysterical, manic behavior I am seeing via the deleveraging and momentum crowd seeking to participate in hyped names seems to be fever pitch...so, it looks like we are Dec 2007 all over again, except this time all the problems are much to big to fail. Right?

The butter that may get poured on this popcorn poping fest is likely to be scalding hot...

Bill Still says it EXACTLY like it is...

Charts

Everyone is so focused on not getting short and run over by a truck again that there virtually no credible talk regarding the head and shoulders pattern that is clearly setting up. Instead any excuse to look higher is the theme of the day. Of course rising wedges have been the theme for the market for the last several years...and I show one of these diagonals on the S&P500 weekly linear scaled chart below. However, there are two things to note, advanced diagonal patterns rarely make it to the extreme trendline on the last wave, especially when a huge breakout maybe setting up out of such a pattern. This is a whacky market, so nothing can be ruled out entirely...but the pattern is not my preferred because everyone is looking for new highs - they are NOT looking down. When everyone is looking one direction they are likely to get the very thing they are not looking for - stage left.

Secondly, the resistance that we ran into is formidable and the price patterns indicated a major deleveraging was taking place...most likely either a large institution in Europe or some more central planning intervention. I believe that a (or several) large European institutions is (are) failing and were required to liquidate their US Treasury assets and the equity hedges against them. As I said earlier, I think this is a trap and that the results of the highly leverage financial system are that people are not chasing good investments they are chasing momentum caused by liquidation and insolvency due to leverage. Market participants are chasing other peoples misfortune whether they realise or not. Once that entity or individuals misfortune is liquidated the pattern will stop until a liquidation cascade develops in the other direction. This is what credit and leverage accomplishes - the exact inverse of what we feel is happening. It feels like buying...but is it? Certainly short-covering qualifies as buying...but a liquidating short-seller does not qualify as a strong hand...and a market with strong momentum needs strong hands to keep it going. Sadly that is not the case here and you can squarely blame the over leveraged financial system and its promulgators at the central banks for it.

With China actually on a US Treasury bond buying spree over the last couple years, they have been significantly benefited by the fear was it was otherwise. In fact, China is still accumulating more US debt than published in secondary markets and foreign markets intermediaries. So, the question is, just who was selling Treasuries last week? It certainly was not the Chinese.