Markets – Macro – Technicals

Dollar Monster

Dollar MonsterNot sure what the central bank geniuses are envisioning, but so far Super Mario’s QE announcement has succeeded in crushing the Euro, tanking all commodities in the process and pushing the dollar to overbought levels not seen in many years. European equites? Not so much. Did anyone get hired as a result of this? Can’t tell, but it’s been a heck of a nice trading environment. What it will do however is hurt corporate earnings and start impacting US exports. Ah the joys of currency wars.

In any event reading the tea leaves is not easy in this choppy environment and one must be able to mentally adjust. Yesterday we closed remaining shorts and flipped long for a trade as the $TRIN showed a double top:

TRIN

One can speculate of course about the why and how, but that’s not the job of a trader, in this case it was a trading call pure and simple.

On the surface indeed all remains the same: The $SPX will not break its trend line. It gets saved, saved, and saved once again amid garbage internals:

SPX weekly

Looking at that chart one may be inclined to think all is calm. But the dollar says otherwise:

USD

That’s a heck of a move and given the concurrent crushing of metals one has to assume whoever buys the dollar here at a monthly RSI of 84 is literally forced to. Liquidations, stop runs, all of the above? Can’t tell, but to think a currency move of this magnitude has no impact on equity valuations is wishful thinking. There’s more going on under the surface.

For now we can observe that the Euro as shown here with the $FXE is at its most oversold ever with an RSI at below 16. Ever. That’s a long time:

FXE weekly

As the $SPX chart earlier shows markets are very close to a trend line break. The rescue team always shows up in time it seems. What happens if they don’t?

For more information about our trade philosophy please visit the About and Trading Process pages.

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