Tuesday, October 27, 2009

It's all about the dollar

OK, I'll chime with other traders who are harping about the latest market moves being inversely correlated to the US dollar. The longer term move from March lows, however, did not start out nearly as correlated to the dollar decline.

As the first chart shows, the SPY (red line) has risen 55% while the US dollar has declined 15% (the blue line is the UDN, the inverse dollar ETF)... correlation in direction, but not in the degree of movement.

The next chart shows the market for the last nine weeks, with the dollar and SPY showing near perfect inverse correlation in direction and magnitude. If the dollar shows regression to the mean over the next few weeks, or a short squeeze in the shorter term time frame, this should bring the SPY back to end of August levels of 104 or below.

Ambrose Evan Pritchard has an excellent commentary on dollar sentiment and economics, the news of its certain demise may be a bit premature.

Tuesday, October 20, 2009

BAC: breaking down

BAC is falling below weekly lows and a significant support trend here. With technicals in broader indices looking weak, this is a decent short set-up with a buy-stop at $17.25 and a target at $16-ish. This stock can be considered a bellwether for other consumer-oriented banks.

SPY: short with stops set

Alright, I'm officially short this beast that won't die. Granted this is a high risk set-up, but I'm in. Buy-stop is $109.70 which voids the head and shoulders top. Some financials are ripe for a fall, too. (See the next blog post.)

Now the meme will be when the Fed is going to raise the rates. Whether the spigot is actually turned off is immaterial, it's the fear of tightening that can fracture this pattern here. At some point the dollar will need to be defended and it is showing a somewhat reliable bottoming pattern with some decent sentiment indicators as well.

Sure, AAPL and TXN blow the doors off their quarters and we have a little "profit-taking." This can definitely continue to climb from here, but I think the risk/reward here warrants going short with a buy-stop.

One caveat: while I think the market is a bit vulnerable here, I still don't see a wholesale sale of the market here. There are enough support levels and sideline money for some buyers to come in along a subtle downward trajectory.

UUP: entry here?

Everyone is looking at the dollar and when this bottoms most of the other asset classes should be toppped. We have a pattern that could be a head and shoulders bottom...IF it breaks above $22.53.

Teresa Lo has pointed out the Cramer segment today where he is exchanging his dollars for Iraqi dinars. Now all we need is a Newsweek cover to ring the bell any louder.

Thursday, October 1, 2009

LQD: Canary in the coal mine?

LQD went ex-dividend for 49 cents today, but it is still down $1.28 and has broken below the long term trend from March. Unlike SPY and stock indices, LQD has shown a much more smooth trajectory and is an easier read as far as a trend.

This may represent a premonitory indicator of a "renewed belief in the negatives" as investors eschew corporate debt. I guess I'm not calling for a "crash" since support levels are plentiful in LQD as well as other indices, but rather a more sober view of the capital markets and time to take some off the table.