chevy56 thank you, The fiat$ Rally That Was No More; the US Dollar Gets Crushed - 6/5/2016 0 Comments
This is a bit of a follow up post to my May 27 entry titled USD at a Critical Juncture; What it Means for Gold. My basic argument was that the USD and gold have been perfectly inversely correlated for the last couple of years so whatever direction the dollar decided to go, gold would do the exact opposite. After weeks of strong rallies, the USD was running headlong into massive overhead supply on the chart. Would the dollar continue its rally and power through? Or was the recent move just a relief rally in a larger downtrend? Well, we got our answer on Friday.
Here's a daily chart of UUP, the USD ETF. I'm using an ETF to show Friday's damage to the chart because it shows volume. First and foremost, that neat little uptrending channel for the month of May has been completely demolished. We got a couple clues that not all was right when UUP slipped below lower support on Wednesday and Thursday last week. That trendline break was more than confirmed Friday when the atrocious jobs report was released. In an instant, all chances of a June rate hike were erased and the dollar got crushed. Folks, this is a massive daily move for the world's reserve currency. Not only did it emphatically break below its recent uptrend, it also lost its 50 dma on significant volume. The RSI dropped decisively below its midline and the MACD just posted a bearish cross. Tying this all together, the short term trend just changed from bullish to bearish in a single day.
Looking at the weekly chart of the USD, you can see that it's been behaving in a very predictable manner since late 2015 when the downtrend started. Last week's reversal was precisely at the upper channel line. And what happened the last two times the dollar touched the upper channel line? The next move was to the lower channel line. Will the pattern repeat? If it does, then we're going to see some fireworks later this summer, and here's why. If the dollar continues to move towards the lower bound, then it's going to encounter major support at 92 along the way. The lower bound, however, will likely be below 92 by the time it gets there. So if 92 doesn't hold, and we get a weekly close below that lower blue line, things are going to get ugly for the USD. There is literally no support on the chart from 92 all the way down to 82, or an 11% air pocket. Remember what I said above, that a 1.6% drop for the world's reserve currency is a massive move? Well how about an 11% drop? Talk about chaos in the currency markets. And then of course I would expect an equal-but-opposite move in gold and silver - which is exactly what we saw on Friday....
Just to throw one caveat in, I would not be surprised to see the dollar rally in the very short term to try and close that gap from Friday. Look at the UUP chart above and you will see several large gap downs followed immediately by a brief rally. In every case, however, the rally fizzles and the dollar makes new lows. I think that's a real possibility here before a bigger move lower occurs.
Either way, Friday confirmed that the dollar is still firmly in a downtrend which should be friendly for gold, silver, and the miners.
0 Comments Beware the VIX 6/2/2016 2 Comments
A few observations today on the weekly chart of the VIX: For the past 4.5 years, the VIX has been carving out a very tidy rounded bottom formation. Lower lows from 2012-2014 have been replaced by higher highs from 2014-present. This tells me the momentum has changed with regards to investors' risk preference. Said differently, investors have moved from net bullish to net bearish. Remember, elevated VIX readings are associated with drops in the market.
Every single time the VIX has touched the rounded bottom in the past 4.5 years it subsequently spiked higher while equity markets dropped (significantly so in certain instances). In some cases, the spike in the VIX happened immediately after it touched the rounded bottom and in some cases it took 6-8 weeks, but it always happened. Never has it touched the bottom and then fallen below that point. Why should this time be any different?
The VIX today is the most oversold it's been on a weekly basis since 2012. Experience tells me that the odds now favor a reversion to the zero line (ie. a rising VIX and a falling stock market Perhaps the June FOMC meeting will be the catalyst?
chevy56 thank you, that's right - the economy is very fragile - ex. two large banks -
1. Deutsche Bank and Credit Suisse Will Soon be a Problem -
2. Credit Suisse and walk through my thought process and because it's so similar to DB -
I'm not an expert on these banks and I have not combed through their financials. Everything I've written above is based purely on technical analysis so take it for what it's worth. Regardless, their charts are scary and are telling us something is not right under the surface.
My basic argument was that the USD and gold have been perfectly inversely correlated for the last couple of years so whatever direction the dollar decided to go, gold would do the exact opposite. After weeks of strong rallies, the USD was running headlong into massive overhead supply on the chart. Would the dollar continue its rally and power through? Or was the recent move just a relief rally in a larger downtrend? Well, we got our answer on last Friday..?..
Gold & Silver is the only REAL Legal Tender - by The Founding Fathers for your - Rights, Liberty and Freedom - NO banksters fiat fraud poncy scheme - thee belong in jail -
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