Tuesday, October 19, 2010

Dollar Index Finally Breaks Over 5 Day Moving Average

I bemoaned last Thursday that the US Dollar was so weak it could not even break over the 5 day moving average.  I also pointed out, the percent of bulls in surveys was roughly 3%, just about the same % who were bullish on euros in the spring.  When everyone is on the same side of the boat (i.e. "I can't lose! QE2 is here!") the boat tends to tip over.   It is just a matter of when, not if.  Yesterday was one dirty tease for (the few) dollar bulls as the dollar jumped well over the 5 day moving average, only to be kicked in the teeth in the closing portion of the day...

(this chart is one day delayed)

But today, we have a print approaching $78 on the dollar index, taking it not only well over the 5 day but close to the 20 day moving average... barring some massive tomfoolery in the next 6 hours this might be the inception of the change we are looking for.  A close over $78.25 would be very encouraging and the potential would be in place for a stampede through a very narrow door of ill positioned speculators.  Keep an eye on this - it's important.  Also important (if this trend CAN continue) is the effect on the equity markets - can the market rally with a strong dollar?  (this was the trade in parts of 09, whereas lately its been the inverse) Especially the soft and hard commodity complex which is massively overbought in many sectors?

I am posting a chart of UUP since it is real time (and what I am long) - after restarting this position just over a week ago, this is currently the largest equity/ETF position we have as I've been a contrarian.

Long Powershares DB US Dollar Bullish in fund; no personal position

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