The Dollar Dog Didn't Bark: We Are Now On Sea Change Watch

The Dollar Dump did not come last night, and the Monday Stock Surge evaporated as well. We are seeing the footsteps of a sea change in markets, but it won't be sudden or straightforward. 

Case in point: Gold has dropped very sharply, enough that Neely seems prepared to call the top in, although shortly after his morning newsletters Bernanke tried to diss expectations of a pending rate increase, and gold promptly shot back up (see chart), but is still down for the session. Equities fell sharply after digesting Ben's statements, then have recovered a bit. 

The Japanese Prime Minister's speech was a non event - he hasn't figured out what to do yet. 

More interesting is that the Euro has been trading below a key level of $1.4872 (and below its 50DMA). This can raise predictions of a drop towards $1.44, but Mother Market likes to fool, and Neely's wave count allows one more jink back up. Again, this revolution won't be televised, but will sneak up in a few false breaks before it hits. We seem to be close. 

The currency duo to watch is the AUD/USD. The AUD is a big beneficiary of the USD carry trade, and its fall (when it occurs) is a great signal of the sea change in positions globally. I will post later on a possible cause of its demise coming from the Prime Minister's policies at the Copenhagen conference. Simply put, they embody economic suicide for Australia. Likely the markets do not believe they will ever be put in place, but we shall see if something happens this week. If the AUD breaks below 90c (specifically 89.50), the next level down is around 83c. 

Comments

[Virginia Jim]

Caveat emptor, I’m not a Gann person. But I watched in real time Syed post his analysis of Gann price and time squaring on GLD last Wednesday saying squaring on an intermediate term would be complete in the next 2 days. Well, GLD dropped smartly Friday and today. And I decided I’d better know something about Gann squaring. After a weekend of square of 9 applied by Carl Futia’s formula, I come up with primary indices’ tracking stocks (QQQQs, DIA and SPY) having squared time and price of their uptrend from their November 2, 2009 lows between Friday and today. In addition, I have QQQQs squaring time and price from the 52 week low of November 17, 2008 on a weekly basis as of last week. Here are the computations:

http://www.screencast.com/users/Virginia_Jim/folders/Jing/media/604c049f-7f3f-464a-bfcc-7251fc77c003

Futia’s formula for Gann degrees and his application for squaring has been criticized for being inaccurate in specific situations by Daniel Ferrera. I’ve had only time to work out Futia’s formula but here’s an explanation of both renditions:

http://technical-analysis-addins.com/how-to-square-of-9.php

Assuming Syed’s squaring of GLD on an intermediate basis is correct and the indices are positively correlated with gold (and both are inversely correlated with the dollar) it would make sense that squaring is complete and both the uptrend from November 2, 2009 and the bear market rally have ended. And there weren’t any new recovery highs today. EW looks like it really wants a final new high but this stuff implies to me the new highs are over.

Syed’s gold call Gann chart has been reproduced on his blog at:

http://technical-analysis-addins.com/how-to-square-of-9.php

Please, if you have any corrections in my application, please let me know.

Jim

[Diamond Jim]

What I found really interesting today is the way the dollar recovered after Bernanke's very negative remarks. This suggests there is some real heft to this move up. If the dollar bounce was just an emotional bounce due to Friday's data, I don't think it would have come back so quickly. Big money is streaming back into the dollar and out of commodities. Is this just related to Dubai, unlikely. Something is moving the markets and it seems to be fear. What the reason is to be afraid, we will soon find out.

[Michael]

I'd give the Dollar another day or two here to prove that it is indeed for REAL.

[da bear]

dollar bouncing off the bottom with gold bouncing off the top with the stock market buying time before the next crash down sounds about right to me...

if anyone is interested here is my gold count: Wave 1 of C of Cycle II of Supercycle V is in force or about over. followed by a wave 2 rise (probably started at Gold $1,135) to just under $1,200. then the biggie Cycle Wave III up can begin. that would correspond to Biggie Wave III down in stocks which would fool just about everybody...

da bear

[twitter.com/DrBubb]

A weak Euro, would lend strength to the Dollar.

So I am monitoring stock markets in: Athens, Sofia, and in the Baltic Countries

/see: http://www.greenenergyinvestors.com/index.php?showtopic=8309

[FishinAg]

How many times is Neely going to call the top? I signed up for his service a few months ago and got tired of seeing his wildly divergent wave counts within a brief time period.

[DG]

FishinAg,

The past few months have been bad for Neely, no doubt. But, I was just running some numbers on his ES trades over the past 14 months and he's been pretty good about keeping losses to a minimum, even though he's been wrong basically half of that time. Depending on what timeframe (Hourly, Daily or Weekly) you're talking, he's down between 5 and 7% since the March lows, despite expecting the market to turn back down pretty much the whole time. That doesn't make up for the fact that he's missed a good run, no question about that, but it puts his method in perspective, in terms of how he chooses his trades and manages risk.

[yelnick]

Dr Bubb, Greece has been or is about to be downgraded. The Euro may come under pressure.

[graspthemarket]

Yelnick,

If you have time, I'm just looking for an opinion...what, do you think, cuased the markets to push up at the end of the day? I'm not looking for any hard facts, I'm just looking for your opinion. Of course, if you have a logical connection (or other technicals), I would like to hear it. Basically I'm asking because I didn't see any reason for things to take a quick turn to the positive direction. Thanks ahead of time for any efforts spent on my question.

Jason

[yelnick]

Jason, wow, an open ended speculative answer is always fun. I would not try to draw much of a conclusion from the end of trading today. The key today is that the Dollar Dump/Equities Pump did not happen. So something has changed from the past month.

My take is we have sideways to down over the next week to ten days, then the Santa Rally. Interesting is that this timing coincides with both the end of the Copenhagen conference and the next FOMC pronouncement. Given Bernanke's remarks today, likely the FOMC signals no change, and some sort of worthless but celebrated 'whatever' comes out of Copenhagen. Good news that gives a justification for what would likely happen anyway - the Santa Rally as people shut down for year end, and light happy trading drives the market.

You can fit this scenario into a wave form - an expanding triangle B wave followed by a final C. (This has become the prime EWI count; Neely is not sure as this has two evenly split ways to go in his methodology.) The key remains the USD, and it appears a sea change occurred Friday and today, albeit Bernanke's remarks confused matters. Hence I think the USD/Euro dance is not done, meaning a final spike up in the Euro before the sea change in the USD is recognized. That may occur somewhat the same time as the Santa Rally. The Euro, AUD and gold have all dropped in 5 waves, confirming a change of trend, but a wave 2 bounce is due - the final jink.

[graspthemarket]

Yelnick,

Thanks for your insite. I've been reading your blog for a while, but I've only recently started to add to conversations. I value what you have to say, so thanks again. I agree with your assessment of the dollar. Interesting connection to the Copen and FOMC meeting. I will be sure to keep an eye on those. Thanks.

I just have this "feeling" that the market is going to catch us all by surprise whehter it is to the upside or downside. I don't trade on a "feeling" but I'm just saying...

Wow, EWI has a final push up. I don't have a subscription, but I can see their perspective. Side note, I like when Hochberg goes on cncb.com and gets blasted by all those bulls. They don't even really give him a chance to talk...they're like oh cheer cheer bull bull. I'm not a permabear, but I also see the bigger picture as to where we are right now--just trying to protect myself, etc.

I also confirm your counts in euro, aud, and gold...and add silver and crude to the list. One by one the markets seems to be falling apart. What's left standing right now: stocks? And stocks are, afterall, just pieces of paper--unlike the commodities listed above. Thanks again for challenging my thinking on this site.

Jason

[twitter.com/DrBubb]

"My take is we have sideways to down over the next week to ten days, then the Santa Rally."

Dont we need a good selloff to see a decent "Santa Rally"?
We never got the usual Sept.-Oct drop this year, and so not much of a Santa is coming IMHO

[William]

Yelnick: The currency duo to watch is the AUD/USD. The AUD is a big beneficiary of the USD carry trade, and its fall when it occurs) is a great signal of the sea change in positions globally. If the AUD breaks below 90c specifically 89.50), the next level down is around 83c.

"Great signal of sea change" - Could you explain please?
I am assuming that if the AUD falls, demand for USD declines, and it falls?
Thanks for your newsletter!

[yelnick]

William, the USD carry trade is borrowing USD and buying some other currency. The AUD is a big beneficiary of this. If the carry trade unwinds, the AUD will drop - that is the signal. The biggest beneficiary is the canary on the coal mine so to speak. 

The USD then goes up not down. Borrowing in USD is like shorting USD; to pay back the debt or unwind the short you need to get your hands on USDs, so a fall in the carry trade signals requires a rise in demand for USD. This can be done as currency swaps, so the swaps unwind, but the unwinding drives demand for Dollars. To put it the other way, the carry trade decreases demand for Dollars and increases demand for other currencies, so its unwinding is a sea change back. 

I hope that is clear. Remember debits and credits back in accounting class? This is the forex equivalent! 

[yelnick]

Dr Bubb, we need a modest sell off, something like today, which almost dropped enough at the opening, but not quite! If we are in an expanding triangle wave 4 as EWI believes, the Dow should get down to below 10.23K. This is one of several counts. If we have a much deeper slide that breaks the Nov2 lows (Dow9679/Sp1029), the top may be in. The high would be Dec4 at Dow0517. It was not much of a wave 5, however. Hence the odds say instead of a wave 5 top that counts better as leg D of the expanding triangle.

[joe]

Hence the odds say instead of a wave 5 top that counts better as leg D of the expanding triangle.

I agree with your overall assessment. But the more I look at this chart the more convinced I am that this market has to drop below 10,000 now. The bottom of the upward channel it has been trading in since July is about 9920. It is about mid way through the top and bottom of the range now and looks like it should head lower. It makes sense to me that this drop would set up a decent rally later in the month to marginally take out the 12/4 high.

Joe