One of the most valuable tactics I’ve learned in my career is the ability to capture a strong trend as it’s trending.
I’m not talking about FOMO buying or blindly chasing breakouts.
In my experience, buying strong trends requires patience and discipline.
Today, exercising these two key traits is especially necessary if you're trading the explosive US dollar.
Navigating the latter stages of the dollar rally presents challenges, particularly in dealing with heightened volatility. However, it doesn’t mean we can’t join in on this trend responsibly as it barrels down the tracks... or, in this case, up them.
If you can pry your eyes from the UK gilt and Credit Suisse articles, you’ll find it’s not all doom and gloom across the bond market – especially high-yield debt in the US.
A quick warning before we continue: You probably won’t see a similar message on the financial news. It’s just too optimistic for the current environment. It wouldn't get enough clicks.
But facts are facts. And right now, high-yield bonds are hooking higher, while stocks are also rising.
Check out the dual-pane chart of the Fallen Angel High-Yield Bond ETF $ANGL and the S&P 500 $SPX:
ANGL tends to bottom with the S&P 500 at significant turning points. That’s because high-yield bonds are risk assets more akin to small-caps than investment-grade debt or Treasury bonds.
A sustained breakdown in ANGL implies growing risk aversion among investors. But that’s not what we’re witnessing...
The US dollar has been under pressure for the past five days, and investors are dancing in the streets.
I get it. A weaker dollar sits at the top of every stock market bull’s wish list. When the dollar goes down, stocks tend to go up. But don’t forget – betting against the dollar has only brought pain this year.
So, instead of joining the celebrations, I nailed down a clear-cut strategy for selling dollar weakness.
Spoiler Alert: Early sell signals are already starting to fire!
After months of selling pressure, the most widely followed commodity contracts are testing critical potential support levels.
More importantly, these support levels are the prior-cycle highs marked by the 2018 peaks. If there was ever a place where the bulls needed to step in and repair the damage this is it!
First, we have our commodity index that equal-weights the top 33 contracts in our universe:
Earlier this week, the index completed an 18-month top and broke to its lowest level since April 2021. This highlights the broad selling pressure across the commodity space and the need for a...
High-yield debt hasn’t blown out relative to Treasuries. Regardless, the largest markets in the world are buckling under pressure.
You have to look outside the US and beyond high-yield corporate bonds to see the stress. Here are three cautionary data points to consider: European sovereign spreads, US bond market volatility, and the steep decline in investment-grade bonds.
When you weigh the evidence, it’s clear risks are rising for US markets.
Let’s look at the charts!
First, here's a look at European sovereign spreads:
At first glance, these spreads look similar to high-yield spreads. They’re chopping sideways at or near their peaks from the 2020 crash. Nothing alarming or unusual from the countries at the highest risk of default – Spain, Italy, or Portugal.
It’s a different story when it comes to the UK, as the spread between the UK-...
The calls for a dollar top are growing louder as analysts claim the advance is overextended.
They’re right. But pushing further into overbought territory is exactly what parabolic rallies do. And many of the technical tools supporting the thesis that the dollar is topping do not apply.
In practice, mean reversion tools such as oversold/overbought conditions, price exceeding the upper bounds of a Bollinger Band, or the percentage gain above the moving average du jour are best used in trendless markets.
I know the market’s ugly right now. Risk assets are getting crushed across the board.
But, believe it or not, greener pastures do exist in this market.
And, on days like these, I choose to focus on areas that aren’t free-falling into the fiery depths of hell.
Last week, I discussed the relative strength of the less economically sensitive grain complex. These contracts are more defensive in nature and are currently escaping the broad selling pressure.
That’s a relief!
When it comes to today’s trade ideas, I’m sticking to the individual contracts with the highest volume heading into the fall. Those are the charts and levels of the most importance.
Do the levels on the continuation charts come into consideration?
Absolutely!
Premium members can reference our Commodity Chartbook below for our structural outlook and reach out at info@allstarcharts.com with further questions.
On Wednesday afternoon, the Federal Reserve announced another 75-basis-point rate hike following its September policy meeting.
Yields across the curve ripped, and Treasury bonds dipped.
What else is new?
An aggressive hiking regime has been the Fed’s modus operandi since March. And it's made clear its intent to stay the course.
But what does the rest of the market think about the rise in rates?
Let’s look at our intermarket ratios to gain some insight.
First, we have a triple-pane chart of regional banks versus REITs, the copper/gold ratio, and the US 10-year yield:
These key intermarket ratios tend to peak and trough with interest rates. Notice all three peaked in 2018.
As rates roll over and growth slows, investors reach for the safety of gold and REITS versus the more economically sensitive copper and regional banks.
The US Dollar Index $DXY is on cruise control with nothing ahead but an open road.
The few obstacles that stood in its way are falling to the wayside. That’s right – the handful of commodity currencies that have refused to roll over during the past six months are beginning to slip.
Before we get to these fresh breakdowns, let’s set the scene with two currencies that have been anything but resilient – the euro and the British pound.
Spoiler alert: a fresh leg lower from gold doesn’t bode well for raw materials or the prospects of sustained inflation.
Nevertheless, inflation hasn’t gone anywhere, at least not yet.
As long as that’s the case, we expect commodities to see further upside, albeit not in unison. The broad rally witnessed at the end of 2020 into 2021 is unlikely to be repeated in the near future.
Regardless, stellar buying opportunities will present themselves.
We aren't going to let the bifurcated nature of commodity markets stop us from catching the next explosive rally.
In other words, the supply and demand dynamics for copper don't affect our decision to trade soybeans or wheat.
Instead, let's trade what is in front of us – even as...