Time for dollar rally and apotentail market crash

Dollar at huge support and ideal target. Market at top. Should the dollar rally, as I expect, it will be a huge rally and possibly catastrophic for the markets. Charts to come.

Updated Market

GREAT sell signals on the market this AM...

As of 12:00 this is the view...got good bounce signals...predictive pivots point lower for the close

Update as of 12:50 Est:

Update as of 3:59 EST:

If anyone is interested...I would consider setting up an alert serivce based on the triggers in any of these charts...please let me know by contacting me through email or comments. If there is enough interest...I will put the work in or perhaps do a webinar type screen sharing session.

Looking for feedback...

Current Market Overview

Looks like one more push and then a roll over...should be a pretty good move. Predictive pivots in the indexes argue for selling into the close...These are indicated by the little Red lines on the right of each index. they are significantly below currnet prices...argues for downside this afternoon towards those levels... internal volume trends are not particularly good.

And here is the close: I posted the series of charts so you can see how well the systems track price...also the predictive pivots did indeed turn in to the magnet that I indicated above.

This is not Bullish

NASDAQ 100 was very weak on friday...and has produced these charts...while it is conceivable for a pop here...it seems more conceivable for a drop in these issues after any pop...I will post some index charts as well.

The dollar has completed a small 5 waves up...is in position for a pullback. I would view it that the dollars pullback is within a much larger wave 3 and therefore pullback may simply be a gap down on Monday or some shallow consolidation early next week. Fed has spoken by approving all sorts of numbers and talk that indicates they are prepared to change their stance after providing banks the free money carry trade. Retail numbers did not make sense to me as many of the numbers out lately...what they do reflect of Bernake's approval of messages of change in policy. Most of the numbers will be revised and are not credible. But the fact the a positive message is being sent is a deliberate sign that the Fed will change their message.

Watch the dollar...

The Dollar - pattern broke supports

This is an updated chart of the dollar from several days ago. This raises the odds of some lower probing...with downside targets in the 74.5 area. However, if the multiple turn dates occurring early next week play out the lows could still be in already and the dollar could make a huge move, otherwise it will be more of the same dribbling down.

Interestingly, the large healthcare reform bill being voted before congress may have large implications for the future of the dollar and interest rates. A plan as misguided with regard to debt and constitutionality is likely to cause some real issues with interest rates and could be a good excuse to get 3 of 3 down moving...but for now the dollar chart forecasts weakness.

Dollar Pullback targets

We should bounce at the trend line and then rally hard.

The Dollar - another view

This reflects the same chart as DXY potential for a small bounce in the markets and a dollar pullback to 75.90 or so. The HS pattern looks better on the UUP even than the DXY directly which is why I wanted to show this chart.

above chartcourtesy of matt fraily, breakpointtrades.com

Dollar Analysis - much focus on market bounce - evidence not compelling

Every where I see people looking for a market bounce, while evidence may support a very small one, keep in mind that the dollar did not even take out Thursday's high on Friday while equities got pummeled. From what I see, a pullback in the dollar has maximum potential of around 75.90. That is the dashed support line on the chart below. If the dollar were to take out that level, it would likely be taking out swing lows from the left shoulder and that would be a SIGNIFICANT compromise to the technical picture.

What seems most likely to me is that the dollar makes a small pullback above this support and then breaks out or simply gaps up over resistance at the thick green line. This of course would likely support a market that would cascade lower to the 1016 to 1020 area at least, probably more prior to a good bounce. If we look at the downside risk for the dollar its so minimal that any market rally would have to be rather restrained at best. Again, if the dollar were to take out 75.90 then something else would be playing out.

The thick green trend line immediately above for the dollar is a significant resistance, but the pattern is strong and looks like it is demanding follow through and then consolidation. A breakout of this trend line will cause an avalanche of dollar shorts to cover... potentially in explosive fashion.

Looking at past action in the dollar, pullbacks during the first short squeeze higher are extremely small and more likely gap ups. I will post some examples shortly.

Please click on chart for a sharper view.

Market Observations - Dollar Poised

The dollar is poised and ready...just below key resistance. Ironically, most are looking for a bounce...if the dollar does breakout...then we will need to be looking for a cascade lower. So far, the dollar has guided me very well through this current pattern. Right now, I favor a small bounce followed by a dollar breakout and an equities cascade lower. What this means is that immediate resistance may provide a convenient point for some dollar selling or consolidation...and we can not underestimate how minimal that may be. Once this resistance is broken the effect will be a strong rally for the dollar and heavy selling of inflation assets. SP 500 targets for me on this move will be 970 area with a hesitation at the 1016-1020 area.

EURO divergence has been and will likely continue to be a great trigger for trading and has revealed the dollar and market patterns prior to them occurring - sometimes by as much as 30 minutes. It is currnetly my primary trade setup vehicle. If there is no divergence between the EURO and the SP500 I do NOT do a trade.

The fractional reserve system is dead...and the impact of that will be an exploding dollar. Which is why we have to worry about the impending breakout on the dollar chart. To understand more about this subject please read the feature articles posted on the upper right on this blog.

Below is an unchanged old chart of the SP500 that I posted over the last few weeks.

Below is a very good chart from Matt Fraily for the UUP.

Below is an unchanged old chart of IWM that I posted on the 21st of September.

Below is a chart of Oil that I have been monitoring over the long-term. 

First resistance held...we have not yet made it to the upper resistance which is around 87 to 90...which is rather disappointing for the pattern. Depending on next week's action in the dollar, we will see if there is any upside potential remaining.

The Gold Equities GDX chart below this is from Matt at breakpointtrades.com and demonstrates that gold stocks are leading physical gold, as they usually do. If that is the case, any bounce for commodities will be muted.

Below is another chart from breakpointtrades.com of the SPX.

I do not love the count of the wave 4 as it is labelled. But I do think that we are putting in some sort of triangle or flat here for wave 4. This is appropriate alternation and may reflect what the dollar chart seems to indicate - which is that an upside breakout on the dollar will make equities want new lows before we get a sizable bounce.

above chartcourtesy of matt fraily, breakpointtrades.com

Market Observations - Dollar and EURO

The dollar held support yesterday. As long as it does not break it, I believe the down-trend in the market will persist and charts that are still not broken such as Oil and Gold will break. Contributing to this view was the large negative divergence at yesterday's close between the EURO and equities. This divergence pointed to negative prices today...I would continue to watch the EURO and SP500 for divergence. New highs in the EURO are usually foreshadowing of SP500 new highs and failed highs in the EURO are reliable and early indicators of failure in the SP500 especially when the SP makes a new swing high.

Market Observations - What does the genie say this time?

The dollar genie is below. The gray down trend line that we just broke over is now support. The pattern will not look well with a substantial pullback below this line and I do not anticipate one. That means, we should temper expectations for a pop in the indexes.

There is some additional resistance from the green down trend line at 76.78. A break of this level targets trend reversal confirmation levels at the two red lines. This, in turn, confirms the dollar trend reversal.

So, what this chart looks like is that it is preparing for a large range up candle - and SOON. Sure its overbought...but the markets were overbought for months and still went up - but the dollar has much stronger fundamentals supporting its rally than the stock market did...it also has a much more emotionally and rationally attached contingent looking for a dollar collapse. So, I would temper expectations somewhere between a slight pullback for the dollar and pop for the markets to a mild to negative reception to the GDP numbers triggering a range extension to the current moves in both. The markets do not like to let you into a trade if they don't have to. The dollar chart says to me that Mr. Market is not going to make a lot of room to get short equity indexes and long the dollar.

I have not been posting that much lately as I have had two deaths in the family...hopefully I will be able to get back to normal soon.

Market Observations - One Chart

Only one chart is necessary to guide us for the next few days. The breakout or retrace on the dollar chart below.

I do not see a high likelihood of a test of the lows on this pattern at this time. Additionally, that would also setup an entirely different scenario. But I do think we may have a small argument with the downtrend line immediately above. This resistance level was rejected today. Perhaps we get a retrace back to the 75.60 to 75.80 area. That would afford the market some upward bias consolidation.

However, it may also be possible that we open with a breakout of this downtrend line. In which case I would think that we see very heavy buying of the dollar. 77.40 would be the nearest target in that case. That would set up a range day down potential for the indexes. Personally, as the markets are oversold, I would like to see some bounce or even rally here and thus a pullback in the Dollar...but this market has not been in the habit of doing what we want it or expect it to. So, given the bearishness of the the sentiment for the dollar, there is a lot of pressure to breakout of this resistance area. So, that is the signal I am looking for.

Market Observations - Targets

First, lets talk about the dollar...down trend line at 76.4. Seems obvious that we will complete 5 waves up to test this resistance level. The question is what we get when we reach there. A Breakout? Reversal? Consolidation?

The pattern in the dollar does not leave room for a new low. If the dollar were to break to a new low, it would likely be ushering a different pattern than an ending diagonal...which would likely be a new 5 wave move down, the inflation trade would likely play out. So, it does not seem very likely for a structure like this to be followed be a new low.

Given the intensity of the rise, which was stronger than I was expecting, we are now at nearing formidable resistance with an overly confident set of bears in the market and the divergence in the Euro market, all seem to indicate to me that the amount of bears that will be trapped here could be sizable. If that is the case, a break of the 76.4 area will not give much time to get in. I may not give a retest of consequence and thus the SP500 may find itself in the 1020's lickity split. Incidentally, my target for the SP is 1026 for this initial move down...but we should not count on a big bounce. Just like the rally did not let you in, this bear may be even less understanding.

In any case, it seems like a consolidation is in order for the dollar once it hits 76.40 and that will give us a change to see if the market can muster one last bounce off trend line support. I am not optimistic that the market can stage a rally here given the unexpectedly strong reaction of the dollar here.

thanks to matt fraily, breakpointtrades.com

Short-Term Dollar Chart - but still unfinished business

Below is a chart from Mathew Fraily from yesterday...its great chart of the short-term dollar

Please see his blog: here

and here is an updated view version from today

Interestingly, in my brief look at the dollar today, since it is the main symbol I watch these days, looks like it could have a continued near-term bounce...but it still looks like it has work to do on the downside to create an emotional bottom...this is also reinforced because Gold, Silver, Oil, DBA and some other commodities look like they still have an up move left. Gold targets 1085 to 1090, DBA 27.8 to 28 and Oil 87 to 90. Perhaps we get a gap down in the equity markets and a rise in the dollar on Monday am...followed by a chaotic few days of trading with big reversals. I do think that a new low in the dollar will not result in a new high for most of the equity markets...but commodities look like they will be more sensitive to the move...and could produce nice parabolic type tops.

If there ever were contrarian indicators, they are popping up all over the place, Saudi Arabia, Faber, Weiss to name a few recent ones. Now, Lazard, ostensibly for marketing purposes, is changing currency denomination for their World Trust Fund to Pound Sterling. Anytime the basis for a decision is mass market perception - you can count on one thing. Its popular and wrong.

Change of share trading currency and proposed sub-division

In response to comments from a number of shareholders and potential investors in the Fund about the liquidity of the Fund’s shares, the Board, having consulted with the Fund’s brokers, Arbuthnot Securities, believes that having a larger number of shares in issue with a lower share price than at present and changing the currency in which the shares are traded from US dollars to Sterling, should assist in improving the marketability and liquidity of the Fund’s shares and support the attraction and retention of a diverse shareholder base.

Change of share trading currency – the London Stock Exchange has confirmed that the currency in which the Fund’s shares are traded will change from US dollars to Sterling with effect from 8.00 am on Friday 30 October 2009.

Market Observations - Unfinished Business

As I repeated over and over...the dollar is the arbiter of the markets. The market is trading off the fumes of the burning dollar. If the dollar weakens, the markets rise or bias to the upside. What I have noticed of late, especially with the more speculative indexes such as the Russell, NDX, Nasdaq and Mid Caps, is that they have become less sensitive to the selling machinations of the dollar with the exception of when it strengthens. This is a sign that the rally for equities is fading and the failure of the dollar is also losing momentum.

Today was all about the dollar and until we see the dollar index capitulate, most probably to the 74.5 to 74.3 area...the market will not break down for anything more than a correction. It is absolutely stunning that a 4 day outside down day key reversal can be reversed by relative value dollar movements so easily.

I will post charts later. Needless to say, I am getting very bullish on the dollar here. I am not currently long the Dollar contracts but will go long once something concrete happens.

Market Observations - Not Pretty - Warning Shots

Apparently, JP Morgan and Goldman Sachs need to sell some of the assets that they acquired using those hundreds of billions of dollars of crony capitalism supplied dollars they obtained through the manipulative tactics of their friends at the Fed and Treasury. Not satisfied that that money was enough, they leveraged up even further - so they could invest even more in risky assets and further the confidence game. Duping american investors and public out of more of they're money is a favorite past time for these guys.

Are assets really risky if you and your friends own most of them? Certainly JPM and Goldman prove the axiom that if you own the market, which these participants alone most likely owned, at the very least. a significant percentage of...you can squeeze prices up and then you can tear them apart when you are good an ready. Mind you I am not here to spout conspiracy theories...these guys are so flagrant do they even count as conspiracies? So, back to the mundane, while Goldman MAY actually survive the upcoming catastrophe, JPM will most likely not. Regardless, remnants of most of the financial firms will certainly exist, but the firms will be shells of their former selves and the economy will likely be significantly damaged by their demise and misdeeds.

Fittingly, financials topped in ironic fashion earlier in October...with an island top. Financials are indeed in need of an island, Rikers Island would be appropriate for the gamesmanship they have demonstrated this year. All the earnings reports from the largest banks inspire distrust and are absent integrity...we will have to see how that flies. In any case, I am happy to report that JPM has more than enough money to lend to the FDIC to bail itself and most of the other banks that will fail out.

Back to the markets, today may not be classified as a confirmed failure for the transports...but a break of 3890 will do so. the SPX closed beneath a recent sell level at 1083.5...it would not be surprising to see some sort of a test slightly above those areas...but I certainly am under the impression that the buy side is extremely dangerous at this point. My diatribe above was important in understanding the motivations of the sellers at this point. The sellers are the largest banks. They MUST sell...given the profits they have made selling will not be ruled by trying to eek out little profits...they already have big ones...they do not have to be choosey about prices. When you are liquidating trillions of dollars of leverages purchases, it takes time and the average prices are more important than any single price. Though there may be attempts to retain prices supports to allow higher priced distribution, there is a dramatic need for these institutions, who misused the benefits of America's money, to get out stage left. The specter of this dynamic means that we have to on guard for waves of downside pressure - probably much more persistent than in last years bear market moves.

Another interesting leading indicator for the markets is the Canadian Dollar which has failed its breakout...something to keep a close eye on.

There is unfinished business - potentailly a remaining pop to the upside for commodities. Gold needs to reach its target of 1080 to 1085, Oil should still make an upside push to the 85 to 87 area, Silver looks primed for a little up move. The dollar looks complete, but also looks like it needs to get that emotional drop below 75 convincingly. As seen today, a dramatic drop in the dollar is no longer fuel for rising equity prices.

So, what I am looking out for are small upside tests for equity markets followed by larger downside swings. There could be some unfinished business with regard to the markets...as per my usual comments - the dollar rules this game. I suggest having extremely disciplined rules for selling resistance and only buying support when its absolutely clear. It is important to recognize, that this type of market has the possibility to not let you in. Everyone is waiting for perfect backtests, retracements and kisses as in the LQD chart above. There is no guarantee that equity market need to give that courtesy. LQD has been breaking down for a month now, unconfirmed by equities. It may be time for some acceleration. Perhaps, some convenient excuses will come out this week - like MSFT earnings on friday.

Personally, I will be extensively using trade automation to trade the upcoming turbulence. Today, in fact, I released a price quantization system with extensive risk controls that absolutely killed it on the CL contract - up $3000 on a single contract today alone.  I think mechanical templates can be a tremendous support for managing emotions during extreme and persistent repricing episodes...especially if you are lucky enough to be able to build some good ones...or get your had on some.

Some interesting charts

thanks to matt fraily, breakpointtrades.com

Market Observations - Shake Out?

The minimum requirement for the dollar pullback has been met...it made a new low...I would prefer to see a more capitulatory low...but I have NEVER seen so much bearish talk about the dollar...so a low is very close and in fact may be in...

As for the markets...I am watching wedge patterns that should end up coinciding with the top of our rally from the march lows.

Transports are not confirming DJ, SPX or COMP. The Transports and Nasdaq Composite are producing a perfect backtest of the rising wedge. With indexes very near their highs, the VIX is not near the lows that it was when markets were here before. Financials are showing loss of momentum and NO volume. There is also a black candle for today's close. Oil made nice moves today....but still has not broken out of its pattern...it seems like that will not happen.

One more spike is all this market has left in it...Gold and Silver and the Dollar all seem to have a little left to go...possibly satisfied by a single gap or move up tomorrow or monday...and just while everyone is looking........up!

I was going to post a chart of the dollar...but Kenny did an excellent one...I included it below...but please check out his blog at here

Another one -" The demise of the dollar"

"In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.

Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.

The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years."

What I find interesting about this is that it will make all the inflationists to happy. However, as we have seen with this market NO trade is allowed to be easy. On that basis alone, inflationists should be careful about counting chickens. But clearly the dollar move as I indicated in my "Market Observations" post last night is not complete. I think my alternate scenario that I have been discussing has gained stature. I expected the dollar to rise to the upper boundary of its diagonal. It has not even done that before breaking decisively below it once more. Today's market is very important. If we can get selling into this gap - that what I want to see...that's the only thing that will keep the current market structure pointing immediately down.

When all the rappers decided to get paid in euros rather than dollar's that was the top in the euro...I guess when the manipulators and government officials decide to do so also...they will be equally well or better timed. 


see article here

Dollar and Stock Fantasies

Please have this guy read my dollar posts...clearly he does not understand that the Fed does not create the money - the banks do. If they don't lend money is not being created. If they call in loans then money is contracting...but this guy's a rocket scientist - he says "...its SDR's stupid?"



"Every day is christmas...don't worry everything will be fine over time if you buy quality..."
click to hear the audio

Clearly there is a tremendous misunderestimating of the misunderstanding of how the economy functions and how the money system works...and these guys are on TV? wow.