Here is the video in full:
Tags: $CRB $DX_F $SPY $SPX $UUP $GC_F $GLD $TLT $TNX $ZB_F
Here is the video in full:
Tags: $CRB $DX_F $SPY $SPX $UUP $GC_F $GLD $TLT $TNX $ZB_F
To quote the legendary Staten Island based philosophers, “Dolla Dolla Bill Y’all” indeed. This statement could not be more relevant than right now. Want to know where commodities are headed, and therefore emerging markets, and probably stocks as an asset class? Look no further than the US Dollar bill.
Here’s what I see. Commodities and US Dollars have some of the most consistent and reliable negative correlations in the intermarket world. The chart below shows how strong this trend has been for a while, during both bull and bear markets for stocks. The correlations between the US Dollar Index and CRB Index have been extremely negative, there’s no denying it:
So where are commodities headed? Well if August marked the bottom for dollars, I would say commodities are heading much lower. And if that’s the case, I would imagine that Emerging markets follow. Go run the numbers and you’ll find very high positive correlations between both assets. And if EM continues to get crushed, will US stocks be able to ignore that? Doubt it.
I think Dollars are the key here guys. This is a weekly chart of the US Dollar Index going back a few years. We’re right back down to this key uptrend line. I would say that a break below that trendline support (80.60-ish) and all bets are off on this dollar. That change of events would be bullish for commodities and emerging markets. And I have to believe US Stocks would benefit from that.
But the trend right now is pointing towards higher US Dollar prices. So that’s the direction in which we’re leaning.
Tags: $DX_F $UUP $USDX $CRB $DJP
Nowhere to hide this week as all of the above are getting sold relentlessly. The selling in stocks all over the world continues and has now finally hit the states. Uptrend lines are broken across the board. Bonds continue to get smoked as 10-yr yields are back to levels not seen since 2011. And metals keep getting destroyed as they lead the commodities sell-off.
So where is this money going? Not the yen like I had guessed they would. Nope – the good old US Dollar is the only bright spot around the globe. Check out this monster since Uncle Ben started his moonwalk on Wednesday:
There aren’t many places to hide in these intermarkets. They haven’t bought the Yen and Treasury bonds like they did during the 2008 crash. They’re only buying US Dollars.
It will be interesting to see who among the 3 bounces first, and how long that bounce lasts. My guess is they buy bonds before the other two, but that’s just my
educated guess, we don’t have a position on. We’re continuing to stay as market neutral as possible. Low/zero correlation pairs are still what’s working best for us. If it ain’t broke don’t fix it right? So we’re going to stick with that theme for now. I like this Long Discretionary / Short Staples spread ($XLY $XLP) as it closes at multi-year highs. As long as these fresh highs hold, it seems like they want to take them higher. I was impressed today seeing the relative strength in this particular pair in the face of a global meltdown.
So overall I think this market selling off is a good thing. I’m happy to see it. Too many people have been making too much money far too easily. Reminds me a lot of the conversations that I would have with $AAPL shareholders before last September. The lazy shareholders that never sold and didn’t use stops got destroyed. And it may sound like I’m being mean, but they deserved every penny the lost. Same goes with market participants who aren’t disciplined these days in taking losses when their wrong. The gold bugs are a great recent example of that. And we’ll have more of these examples in the future, I can promise you that…
Discipline. I think that’s what important. It’s not always easy, but it’s necessary.
Tags: $SPY $UUP $DJP $CRB $TLT $TNX $DX_F $GLD $GDX
This is something we’re noticing that isn’t getting talked about much. Why are so many speculators piling on to the long US Dollars trade? And why is this breakout in the Euro happening so quietly? Last week we saw the highest levels in $EURUSD since February. I bet if it was the other way around and Euro was hitting 4-month lows we would certainly be hearing about it. But it’s the US Dollar hitting fresh lows. And this is all while small speculators have their largest net long positions in a decade.
Here is the US Dollar running into resistance last month up near last year’s highs. We’re noticing similar characteristics in both dollars and euro that we saw last summer (see here and here). As the dollar index made new highs in May, momentum was already rolling over and making lower highs:
And this is all coming while the commitment of traders report is showing that speculators have big bullish expectations. Not a good combination if you ask me. Let’s see what happens.
Tags: $EURUSD $FXE $UUP $DX_F
Before this goes any further, let me just reiterate that I am not calling for the end of Quantitative Easing, I am not fighting the Fed, and I don’t care what Ben Bernanke says or doesn’t say. I’m only looking at price. That’s the only thing that matters to me.
Now, with that said, I think this is one of the more fascinating developments happening in this market. Let me explain.
All in theory, the end of QE is positive for yields right? Because if the Fed stops trying to lower rates, it is step 1 to higher rates – which is therefore bearish for US Government Bonds. This would also then be positive for US Dollars. Meanwhile, if rates are heading higher there is less of a rush towards dividend paying stocks. Bond investors can go back to buying bonds again. Wouldn’t that be something?
So here is what’s happening right now:
And the biggest question this whole time has been how stocks would react to this “end of QE”. I see two schools of thought: 1) no more QE is bad for stocks because the juice is gone and supposedly the only reason stocks are up is because of the easy money. 2) The end of QE could only come if the economy is so good and stocks are stable enough to handle that, which in theory is good for stocks isn’t it?
Regardless of all the reasoning, the question still stands – is the end of QE good or bad for stocks? Well I’m not sure if this is the end of QE or not. I’m just calling it like I see it and the above mentioned assets are trading as if it is, which to me is the only thing that matters. And the market has spoken, or is speaking. Although we’ve seen some added volatility over the past week, you still need to give stocks a pat on the back. The S&P500 is sitting half a percent from all-time closing highs.
I’m not saying there is a trade to be had here. But I think it’s worth pointing out how this market is behaving and what it could possibly be trying to price in. I’m probably most surprised by how well stocks have held up in this environment. Let’s see if this continues. Interesting no?
What do you guys think?
Tags: $SPY $UUP
A couple of weeks ago I first brought up this chart of the British Pound vs US Dollar. To me things don’t get cleaner. When something, I don’t care what it is, keeps hitting support this many times, eventually it’s going to break. We find this phenomenon constantly in asset classes all over the world. Bullish too, like in the Nikkei last Fall. But in the case of $GBPUSD, February’s test of support was #6. That’s too many for me…
Eventually I felt it would break. I didn’t necessarily expect it to happen right away, but hey we’ll take it. At this point I think enough time has passed that rallies can be sold and we’ll eventually get down towards those May 2010 lows in the 142’s
It looks like test #6 was the magic number on this one. It looks terrible, there’s no other way to put it. If this turns out to be a false breakdown and it just rips in our faces, then hey I was proven wrong and back to the drawing board. But I’ll be bearish on this chart 100 times out of 100.
Tags: $GBPUSD $FXB $UUP $DX_F
The Dollar is flirting with some dangerous levels here. This support right around 79 represents the potential neckline for a head & shoulders pattern that would confirm a continuation of the downtrend.
After rallying into last summer, the US Dollar got hit hard into September. Since then, it has been building this interesting, yet bearish, pattern that looks to be resolving to the downside.
Here is the chart of the US Dollar Index Futures:
The 2.5 point height of the pattern would give us a measured move down to about 76.5 upon completion. The Euro strength lately cannot be denied, and looking at this chart above it’s easy to see why.
We’ll certainly be watching this chart closely as US Equity markets tend to correlate negatively to the US Dollar. The 1 yr correlation is about -0.70 with the S&P500 and -0.70 for the quarter as well.
Tags: $UUP $DX_F $SPY $SPX $EURUSD $FXE
Richard Russell began publishing his Dow Theory Letters in 1958 and has been writing them ever since. His letters are published every three weeks and legend has it that the he’s never once skipped a letter. The 89-year Russell is probably known best these days for his bearish opinions on everything other than precious metals. But I think he may have set a new high in this respect with his most recent comments.
In the first letter of 2013 Russell gets right to the point:
Bull market or bear market? Below we see a listing of the year-end cost of gold denominated in Federal Reserve Notes (these notes are now commonly called “dollars”). From a market standpoint, we’re looking at one of the greatest bull markets in history. But ironically, referring to “dollars alone,” this is one of the worst bear markets I’ve ever seen.”
“Bear market? Sure, back in the year 2000, for only 273 dollars you could buy one ounce of gold. But by 2012, you needed over 1600 dollars to buy the same one ounce of gold. The eternal value of gold doesn’t change. It’s the purchasing power of the Federal reserve note that has changed.
The price of gold in terms of “dollars” has now risen thirteen years in succession. But what is even more remarkable is the fact that most Americans have totally ignored (even despised) this remarkable bull market. Let a stock rise seven or eight years in a row, and it will be the talk of Wall Street and the talk of every social gathering in the nation.
Yet this amazing bull market in gold stands alone, sneered at and almost hated. I’ve been in this business for over 60 years, and I’ve never seen anything quite like it. However, I do think I know something about human nature. What I’ve learned about human nature is that it doesn’t change. For instance, if a stock creeps up year after year, sooner or later the crowd will discover it — and then they’ll pounce on it, ultimately sending that undiscovered stock far above its reasonable price.
My belief is that somewhere ahead, the crowd will latch on to gold. Then, as disinterested in gold as they are now, the crowd will pile into gold with the same frenzy that overtook the storied “49ers” when they packed their bags, kissed their wives and kids good bye, and headed West in search of gold.
Gold is the only item that elicits both greed and fear. The greed factor is so well known that I don’t have to explain it here. But the fear factor only arises when men (and women) see the “value” of their money disappearing. Nothing concentrates the mind as dramatically as seeing the purchasing power of one’s hard-earned income and savings being ruthlessly destroyed.
To me this is fascinating. I specifically enjoy the sentiment and psychological aspects of this discussion. Go check out the entire interview with Richard Russell on King World News
Tags: $GLD $GC_F $UUP $DX_F