Currencies & Foreign Banks
Dollar Forecast Update
Our dollar report from August 30th, was a little premature as it lacked one thing: Press coverage.
Well, now we can check that item off the list. As is typical of the financial news, they are reporting on what’s already happened. They ‘deepen’ their analysis as events (no matter up or down) come to a climax.
When they happen, these press releases can be fantastic contrary indicators such as the following:
The press is just following right along with the crowd and they give the crowd what they want. After all, panic and euphoria sells … truth does not.
That truth as seen from the tape, is the dollar has continued its support penetration right into our forecast area.
This is the danger point. The dollar could continue lower (and collapse), or it could reverse with a vengeance.
9/10/17: Dollar continues further into forecast zone
8/30/17: As forecast: Dollar penetrates and reverses from support
8/19/17: Dollar To Penetrate Support?
Several years ago in one of his daily updates, David Weis made the following comment (paraphrasing):
‘I don’t know how many times I’ve seen a spring go straight into an up‑thrust’
Taking his statement as fact (which we should) as he has been active in the markets for about a half‑century, we can posit the opposite might be true as well.
Could we have an up‑thrust go straight into a spring? We may be about to find out.
Strategically, the downward penetration of dollar support may take place at the same time that gold is moving into an up‑thrust condition.
Pundits would be screaming on both sides of the move:
“This is it!”
The whole thing might even make it to the cover of TIME (an excellent indicator of mass mentality). Of course, just about that time we’ll be looking for a post from someone that actually knows what’s going on: Someone like Andrew Waldock.
Maybe he’ll feel inclined to tell us the real situation and let us know his assessment of what the professionals are doing. It’s likely they’ll be on the other side of each event: Going long the dollar and short gold.
12/24/16: Dollar Commodity Blow-Off
Price action in the dollar is bullish but not a healthy bullish. It looks eerily similar to other recent advances in commodities; specifically the blow-off in silver during the early part of 2011.
Look where silver is now; down nearly 70% … with 'investors' still waiting for the bull market that’s just around the corner.
The currency markets dwarf all others. If the dollar gets itself into a blow-off as it looks to be, the exact top is difficult to predict.
There's a possibility that gold and silver bullion will flood the markets (temporarily) as the current holders, sovereign nations and investors alike, sell anything that's not nailed down to pay off debt, buy back dollar shorts, or just survive.
12/15/16: The Dollar, Months Later
Remember this report? The link was password protected then, but sufficient time has passed, we can bring it out and use it as an example.
If you're a hedge fund moving a few hundred‑million around, it takes time. You’re looking for a high probability event that has sustainability.
In the dollar case, the event was the potential for a massive short‑covering squeeze.
Working in the markets in this way gives one context. You divorce yourself from the hapless “connect-the-dots” crowd (that never ever seems to learn, or change behavior) and get down to real analysis and strategic thinking.
Obviously, there are times where the strategy does not work out. We’re in probability events, not certainties.
Now, months later we see the dollar in a powerful move, interest rates are rising, gold is collapsing, the S&P stretched to obscene levels and real estate sales are reaching the bottom of previous bear market lows.
Oil has topped out as well.
Bear market (high potential for an ‘event’) in nearly everything except the dollar.
10/12/16: Dollar Collapse? No, Just The Opposite
The dollar was supposed to collapse by now, right?
First, it was May 31st. When that didn’t work out, it was September 27th. When that didn’t work out, it was September 30th.
Well, that has not worked out either.
Instead, what we have is the dollar going vertical. The media as usual is scrambling to connect-the-dots. They tell us the dollar is rising because there may be an interest rate increase in December. Lions and tigers and bears ... oh my!
There appears to be no indication (unless we missed it) from those same pundits the dollar may be about to rise to incredible levels. There’s no warning that such a move would cause huge distress to any nation that’s short the dollar. They would have to scramble to buy more to cover their short position at higher and higher prices.
What do we think that type of event would do to international tensions which are already sky-high?
We can't say this scenario is a given. However, for the past year, we have pointed out (scroll down through the updates) there are huge distortions in the currency market that have been brought about by artificially low interest rates.
There is nothing we personally can do about the dollar (except to accumulate physical cash). However, we can position ourselves in the market to take full advantage of what might be a catastrophic event.
Thus far, that position is to be short biotech as seen here.
Today’s trading may be important. We’ll see if the S&P follows-through to the downside or if there’s yet another manipulation attempt to save the market.
In addition, yesterday’s break lower was discussed at this link one trading day before it occurred.
10/7/16: Dollar Squeeze
The dollar (UUP proxy) has broken long term resistance, tested, and is now moving aggressively higher. If the parabolic trend is maintained, then we could get a short-covering squeeze quickly.
This scenario has been anticipated and researched for nearly a year. The huge worldwide distortions in the dollar market (nearly every country in the world is short the dollar) and what looks like attempts to manipulate the currency lower. Attempts that obviously (at this point), have failed.
Just how high the dollar can go will not be fully known until it happens. However, our approach has been to monitor price action for continued confirmation, anticipate an aggressive dollar rise and position accordingly.
That positioning was a toss‑up between Basic Materials and Biotech.
Ultimately, we selected biotech. Both sectors are moving lower at this point. However, unlike basic materials where there will always be a market for products, biotech has sector components (approx: 2/3rds as reported by David Stockman) that have no earnings at all. They just burn cash. Biotech short position is detailed here.
p.s. Now would be a good time to have an 'emergency' meeting over the long weekend to see how to manipulate the dollar lower (again). ... and here it is.
Chart by StockCharts
Throughout the entire topping process in the S&P and the overall market, our objective has not necessarily been to ‘make some coin’, although that is a nice side benefit. No, the objective has been to identify which sector will be hit the hardest, move the fastest, farthest, with the least impediment in a dramatic gap-down, air-pocket bear market.
The fear of any professional trader or serious investor is not the fear of loss. It’s well documented in trading psychological studies; the main fear is the fear of ‘missing out’; missing the big move.
My firm (Three Ten) is not immune to that fear; although we don’t consider it a fear per se. A better way to look at the approach is that we’re in competition: Competing to identify the area that will provide the largest and swiftest gain.
Such philosophy is in keeping with the goal to limit time in the market. From research (going back to 1899), it seems that Gerald M. Loeb, the late Vice Chairman of E.F. Hutton was the first to propose this idea. It goes without saying that limiting time in the market is the exact opposite of that proposed by the mainstream.
For the mainstream, it’s to their benefit that clients under management do not become educated. That ‘market fog’ is perpetuated by keeping clients focused on such things as earnings reports, seasonal biases, PE ratios and the like. If one is focused on the wrong question (fundamentals), then one is focused on the wrong answer as well: Mission accomplished
Minimizing time in the market and searching for out-sized gains is not suitable to the average investor. During a meeting with a manager that had $600-million in assets, he stated that his clientele would not be able to handle the volatility.
Although that very method has the potential to provide many hundreds of percent gain and do it quickly (vs. the typical 4% - 8%), the draw-downs would be too severe for the average to stomach.
Clients would most likely pull their accounts after a draw-down just at the moment a big gain was imminent. Then after the word got out, they would likely come back just in time to repeat the whole process.
All of this brings us to the current stance: Short biotech
As reported by David Stockman, biotech is mostly vapor with just a few at the top making any money at all. Our chart analysis of IBB shows the party may be over. While the S&P labors to move higher, it looks like money is already flowing out of biotech … and has been for some time.
Will our short position have to be modified at the open on Monday, October 3rd? Well, it might. That is the nature of the approach. However, what if we get a gap-down open?
Moving on to the overall market, we see the Deutsche Bank chart indicates desperation. DB had the highest weekly volume in its history. Is this a buying opportunity?
Looking at the chart on a weekly close basis, it barely budged. On the above chart, look at the volume! Wyckoff called volume studies an exercise in ‘effort vs. reward’. So, where's the reward for throwing historic volume at DB and only getting a 2.67% gain over the prior week’s close?
Monday morning could be interesting indeed. Our expectations for price action in IBB (and BIS) are here.
As one of my engineering managers liked to say “Let’s see what happens next”.
9/21/16: Dollar Action Tightens Up
It might seem like the dollar is taking its time … however, once a currency market gets trending, it’s difficult to stop.
We can see the repeated attempts to push the dollar lower (including today’s) are not working. In fact, unless there is a technical breakdown, dollar price action is getting tighter.
Of course, all of this bullish action is in complete opposition to the “collapse” hype making the rounds on the internet and mainstream media. Thus far, the chart says there is no collapse in sight.
Dollar Set To Advance: 9/2/16
Attempts to manipulate the dollar lower continue to fail.
Or, to look at it another way, the world-wide dollar short positions are so immense, the currency can not be pushed lower as those shorts ultimately need to be covered.
If the dollar gets out of control to the upside, nearly every country in the world will be affected as they attempt to cover their shorts (buy the dollars back) in an ever tightening market.
Such a covering move may wind up to be the biggest short-squeeze ever recorded. Note the near perfect Fibonacci contact points on the chart. When contact points line up precisely as now, it provides additional validity to the projection(s).
The dollar, the market, interest rates and gold are all linked ... although possibly not exactly in the way one would expect.
For example, at the Fed speech on Friday, 8/26/16, the response was for the dollar to rise, gold to fall, the market (S&P) to fall .. but wait, bonds fell as well. Aren't bonds supposed to rise when the overall market goes down?
What we may see during the next market downturn (or should at least be on the lookout) is that gold, bonds and the market all move lower at the same time while the dollar moves significantly higher.
Market Commentary: 8/20/16
The market (S&P) continues to look as if it's stretched; just waiting for the last buy order to be executed.
As shown on our danger point companion website, at least three markets are at inflection points.
One other market not discussed on that site was the dollar. This past week saw yet one more attempt to drive the dollar lower.
The dollar, S&P, bonds and gold are all at potential reversals.
Is the market really going to wait until next Friday for “the speech”, before it makes its next move?
Well, it could. However, we continue to position our own account in the sector that looks like it could be hit the worst no matter what.
As David Stockman wrote nearly a year ago, a significant part of the Biotech sector’s sole purpose in life seems to be destroying capital funding … to just burn cash.
Looks like an opportunity to go short via BIS. See Matrix on the danger point.
Of course, as always, anything can happen and the position could be stopped out at the very next session. If it is, then so what? The loss would be small and it would allow the opportunity to wait on the sidelines and re-evaluate.
7/30/16: Deutsche Bank Dead?
Greg Hunter provides a little detail (time stamp 18:40) to support the chart analysis.
Everyone seems to be looking for the 'catalyst'. Will it be interest rates, Japan, Greece, Britain, Italy, Brazil, Venezuela and on.
How about a bank failure (much larger than Lehman Bros.) right in the heart of potentially the strongest country in the EU.
Lehman had approx: 25,000 employees. Deutsche Bank has around 100,000 on the rolls.
7/27/16: Deutsche Bank Accelerating ... Lower
As Greg Hunter indicated in this video, once events begin to come to inflection, the speed (of collapse) could be stunning.
Deutsche Bank appears to be in a near-vertical descent.
7/28/16: Dollar Confirms Trading Channel
Price action over the past two sessions has negated the previous analysis and confirmed another.
Unless the trend is decisively penetrated, the dollar continues to move aggressively higher.
Yesterday and today's attempts to keep the dollar down (along with the others ... see 7/12 update) have failed ... again.
7/27/16: Dollar Accelerating ... Higher
In what appears to be a pivot point, the dollar is accelerating higher.
7/22/16: Dollar Pushes Higher
The financial press seems to be quiet on the dollar ... too quiet.
Update: 6:58 p.m. EST ... as if on cue ... the media
The dollar is pressing higher unabated. As mentioned in a previous post (7/12), attempts to push the dollar lower after the Brexit vote have failed.
Typically, the more important data of the market is not what's taking place, but rather what is not taking place.
The currency markets dwarf any other. Whatever happens to the dollar will potentially be the lever on other markets.
The Dollar bull market looks ready to continue.
An impulsive move followed by corrective action and then resumption of an impulse; Indicate that the bull market is set to continue to (possibly much) higher levels.