Dollar May Have Bottomed - Let the Melt-up Begin!

Breaking above $1.50 to the Euro was huge - today the Euro fell hard below that level. See chart. Dollar down means almost all other currencies up - and lots of nations have been trying to stop that appreciation by intervening in forex markets to drive their currencies down. China changed policy a year ago July of letting the Yuan have a controlled float, sparking the commodities sell-off last year, and since then has taken advantage of the dropping USD by dropping with it, to the consternation of the surrounding Asian Tigers. It made their currencies relatively uncompetitive with China. They have been active intervenors to support he USD but to minor effect. Intervention to get the Euro down below $1.50 is quite a different matter of scale and impact. 

The sharpness of the Dollar rise in the Dollar Index (DX) and fall against the Euro signals a likely change of trend to up. In a few trading days the DX has gone from 74.9 to over 76 - a huge move.  It is very close to breaking a recent wedge trendline, which would confirm a bifurcation has occurred. See chart courtesy tonight's STU. The STU is watching a break of DX77.5 to confirm the this change of trend os over a major degree. If it occurs, it signals a strong rise in the Dollar to above DX90. A reversal back to DX75.20 means this is a false break, not the bottom yet.

I have been writing that the markets are running inverse to the Dollar. This not at all surprising or profound to the ewave universe, but is against conventional wisdom which still surfs along the surface of things to make market calls. What it means is crystal clear:

    A bottom in the Dollar signals a top in everything else

Major bottoms or tops are often not coincident but sloppy, so it does not necessitate all markets turning together. Indeed, that would be unusual; but we are in unusual times, once-in-a-lifetime times of the deflationary depression that follows a huge credit bubble. We had them in 1929, 1873 and 1837, and although many have read about the Great Crash in 1929, few remain who really experienced it. The rules-of-thimb in the investing world have really grown out of the experiences post WWII, indeed post the 1949 end to the trading range of the Great Depression and the beginnings of great bull runs of 1950-66 and 1982-00 that mark the American Century. 

We have been in a rare Currency Market since 2002, a market driven primarily by the Greenspan Indian Summer of reflation to stave off the deflation of Kondratieff WInter (which he explicitly acknowledged in a paean to Kondratieff). The reflation policy of the Greenspan Put has been continued by "Helicopter" Ben Bernanke. Hence, we should see almost all markets turn on the Dollar. 

This means lighten up on gold, get out of oil (quickly, it is a volatile market), back off those Carry Trade perennials like the AUD and Loonie, and get out of equities. Bonds may be on a spike to higher rates, which is bearish; more on that as it unfolds. If we are truly in a return of risk aversion, after the spike Treasuries should rise (and rates fall) as money rushes there in the vacuum of a fall in everything else. 

A Dollar Bottom also signifies an over-turning of the assumptions that have fueled the Obama Hope Rally, and a return to risk aversion after a summer of hope. Watch the DX closely. Until it bifurcates above the wedge trendline, it could be a false break. The sharpness of today's move suggests a short squeeze is on, against those who have been betting on the Dollar going excessively lower. 

In equities watch for a break of the trendline from Mar9 through Jul8, the 0-B line. A break of that confirms the bifurcation of equities. Right now it is running between Sp1050-55, and Dow9500-9550.  

Comments

[jwalker46]

Nice post, Yelnick; thank you.

[jwalker46]

Yelnick,

If we have reached the turning point (SPX, $), would you please revisit your long-term outlook (as I recall, a triangle flat which would end somewhere around 2014)?

In particular, how would an SPX top here (or by Jan.) fit into the election cycle you have often discussed?

[yelnick]

jwalker - it certainly is still viable. A was 2002, B was 2007. If a triangle, it means the C wave down off Oct07 will break as a 3 not a 5 (as EWI and the P3 crowd believe). C could break as a 3 or as a more complex structure (which is likely in a triangle). It will be bigger than A so would be an expanding triangle. Normal journey is 1.618x A or around Dow6K. This means it shouldn't go much lower than last March. Time should be less than B or fewer than 5 years, so it should end by 2012. Put these two together and it targets a bottom in 2011 around Dow6K.

Shape would likely require an X wave between the current fall and the subsequent fall. That X may be the current so-called wave 2, which fits the rules (Neely's rules):
- has broken as a simple zigzag (despite all the internal machinations), which is no more complex than prior drop
- has done so in a shorter time that is about 1/3 the time of the first part of C down, and
- has corrected less than 61.8% of the pripor move down

What then should follow is another "3" pattern, which could be a sloppy drop to test the March lows, a slowish rise into summer 2010, and then a sharp drop into the 2011 bottom (ie a flat).

Under the Big Triangle count, we then get a leg D up that is shorter in time but might be pretty long in distance (again, an expanding triangle) into the 2012 election, and then a final drop to what could be lower lows in leg e. Since leg C has dropped more than leg A, this does not fit a contracting triangle/

[Kallidromos]

Dear Yelnick,

I understand that you are using the late Zoran's terminology which is not exactly obvious to everybody because Zoran's writings are not avilable in their entirety. I have seen a few blog posts but not much else.

How is a bifurcation to be understood here?

Do you mean that there are two possibilities available:
1. Dollar up to 7500, then continuation of the down trend and
2. Dollar up to 7500, small oscillation (corrective) and then up it goes?
or do you have something entirely different in mind?

Is there a chaos theoretical tool available , to quantity the approach to a bifurcation point in state space?

Sincerely,

Kallidromos

[yelnick]

Kalidromos, this is what I am exploring with the Zoran Project. The DX has not yet bifurcated, meaning a break beyond the channels of the falling wedge that happens at a steeper angle than the prior fall. EWI looks at a break of a prior wave level, but Neely found that a break of the prior trendline was sufficient. Zoran took Neely a step further with his simplification. I will soon add a Pages section to this blog and compile the basic Zoran materials into one link for easy review. His body of work is in the safehaven.com archives and you can see how his method is elegant in both its simplicity vs prior ewave approaches and its uncanny ability to predict future bifurcation levels and timing.

[Hank Wernicki]

Gap Up on the Open, great short opportunity

9/25 60 m bottom child

tomorrow is the parent

[fcel]

Hank,
What is 9/25 60 m bottom child?

fcel

[Hank Wernicki]

the fractal bottom that developed on 9/25 60 minute chart = today + 3 - 4 days