Once a trend makes it to a major newsweekly, it is usually over. By the time the mainstream media spots a trend, it has already been fully baked into the market and is about to reverse. Historically the newsweekly is Time, although it is hardily the trendsetter it used to be. This week's issue of The Economist has Currency Wars on the cover. Does this signal the end of the free-fall in the Dollar?
I have been noting that 76 in the Dollar Index is a key level, representing the confluence of two trendlines: the down-sloping trendline of the dramatic fall this past two months, and the up-sloping trendline off the prior two bottoms.
The Dollar Index (DX) fell to 76.14 on Friday, and then bounced to 77.13, a large move. This Sunday evening it has gone above 77.20, then stepped back a bit. When the machines come on in Europe, we may find out where the Dollar is really headed, but this sort of V-shaped bounce is what we should expect at the bottom after such a sharp fall.
If the Dollar does bottom, it could be expected to run up towards DX100 by 2012, a strong move that would reflect expectations of deflation coming from debt destruction. Possibly the foreclosuregate scandal will lead to mortgage write-downs that spawn the debt-deflation spiral we have so far avoided. Consensus expectations remain that the Fed can prevent deflation, especially with the injection of QE. In the short run, expectations of QE may be so baked in that any slippage of resolve may by itself reverse the Buck. In the longer run, however, it cannot be presumed that QE will prevent deflation. Massive injections of liquidity since 2000 have failed to reflate, as measured by CPI or the GDP deflator. Velocity of money continues to decline.
The argument that the Fed cannot prevent deflation is one of Prechter's core assertions going back over 10 years. I first blogged about it in 2003. You can read his argument in this excerpt from his book, Conquer the Crash. He has been way ahead of the curve on this issue. His short term update service (STU) has been focusing more on the Dollar lately than stocks, with this observation Friday:
The U.S. Dollar rally appears to be starting. The stock rally is overbought and overbelieved. The conditions are in place that makes a stock market decline a high probability.
In the larger picture, however, the Dollar may still be doomed, which means it has farther to fall in the Dollar Index. Joe Russo provides a Big Picture view of the Dollar, using the next chart as a backdrop to several scenarios going forward.
The chart shows the bottom (listed as green C) at the end of the Carter years, followed by the Volcker Rally into 1985 (green D), when the Plaza Accord coordinated a rapid 50% drop in the Dollar. Under Robert Rubin during the Clinton years (blue A), the Dollar strengthened until the dot-com bubble top (blue B). Since then the massive injection of liquidity by Greenspan and Bernanke has driven the Dollar down to historically low levels (red A).
Russo views this falling wedge pattern as "no better pattern from which our financial masters of illusion could better engineer the most orderly and flexible destruction of currency." He proposes three scenarios:
- bounce off 76, continuing a cyclical bull into 2012 (red B in the chart)
- continued slide to 70.70, testing the recent low (red A), before the rally
- "total destruction" of the Dollar by 2017 if we break 70.70
Whew! We found a technician more bearish than Prechter! I think what Russo is overlooking is that the US is not acting in a vacuum, and has much less leverage now then it had in 1986 (Plaza Accord) or 1971 (going off gold), let alone after the wreckage of WWII (Bretton Woods). Already economic indications are showing an effect of the possibility of QE2 driving the rapid drop in the Dollar: the Eurozone is slowing, and Japan is on the verge of recession. The developed countries therefore have an incentive to stop the Dollar slide. In effect, the US needs to coordinate debasing the buck along with the Euro, the Pound and the Yen; by debasing them together the emerging market currencies (particularly the Chinese) will be forced to rise.
We shall see how this plays out in fairly short order, as G20 is soon to meet. My bet is the Dollar rises into those meetings and continues up into the next election.
Perhaps the dollar has finished 'a' of A down and is headed for the greatest suckers rally (wave B) in the history of Fiat Currencies. Wave B would go above 90 (like Prechter thinks) then Big C down would take the dollar to basically zero.
On the flipside I think that gold has put in a wave v of 'b' of 4 top and is headed in the final wave 'c' of 4 low. Similar to the low in the Seventies that took gold from $178 to $103 which lead to the final wave 5 blow off into January 1980. Indeed I think that the Seventies gold bull was a Super Cycle 3 (with Super Cycle 1 occurring when FDR revalued gold to $35). So at the next major gold low the yellow metal can start Cycle 'V' of Super Cycle 5, also similar to the post 1987 crash in US stocks.
da bear
Posted by: da bear | Sunday, October 17, 2010 at 09:08 PM
Yelnick:
Interesting take from Mauldin this week. Defines the foreclosuregate issue really well and I'd throw in clamidia and a full blown yeast infection to more fully describe our banks. That banks are still around throwing the big fluck into average Americans (with full gubmint and Fed blessings) speaks volumes about where the dollar is ultimately headed. Bounce for 2 or 3 year, sure. 10 years? Avoid like tramp snot on a barbed wire fence:
http://www.safehaven.com/article/18580/the-subprime-debacle-act-2
Hock
Posted by: Hockthefarm | Sunday, October 17, 2010 at 09:29 PM
Well if you had your money with this guy, you would have done pretty well:
http://caldaro.wordpress.com/
It appears Dent's miss by 3 converted touchdowns and a field goal is to be attributed to a market on steroids! Right.
I'm off to Turkey for a week of business and then on to Ephesus for a week of exploring. Toying with that 17 mile ferry ride to Rhodes. But I've had enough of beggars that think a loan is really a gift. Greeks remind me of PJ O'Rourke's haunting lines about hay and a barn for human cattle:
"Freedom is not empowerment.......Anybody can grab a gun and be empowered. It's not entitlement. An entitlement is what people on welfare get, and how free are they? It's not an endlessly expanding list of rights-the "right" to education, the "right" to food and housing. That's not freedom, that's dependency. Those aren't rights, those are the rations of slavery-hay and a barn for human cattle."
Oh well,
Hock
Posted by: Hockthefarm | Sunday, October 17, 2010 at 09:54 PM
Hock, thanks for the Mauldin reference. I read it before doing my Dollar Bottom post. It is very unclear that the banksters can escape the day of reckoning this time. The midnight bill from the Senate may have been their last ditched effort to prevent what is soon to occur: a large scale inability to foreclose, and the need to recognize a huge series of losses when the other side of the trade (the buyer of the MBS) sues.
Posted by: yelnick | Sunday, October 17, 2010 at 10:22 PM
Yes the dollar has bottomed. The release of the Chilean miners was the sign that the commodity top/dollar bottom was in and Friday's market action performed beautifully as Apple, Google, and the qqqqs gapped above their upper BBs (last done by Apple at its April high) while the rest of the stock market performed poorly and euro, gold, crude oil and other commodities tanked. McClellan Oscillator dropped below the O line on this day of euphoria. Gold is hovering around those infamous of numbers 1369 and 1370. And Cramer said there would be pain on the 18th and judging by futures action in the euro and US stock indices it looks like he will be right.
Posted by: Jacque De Molay | Sunday, October 17, 2010 at 11:04 PM
Neely does counts on the EURO and has it in a terminal impulsive C wave, so eventually it goes sub 90, if the count is right (to the beginning of the C wave or below it, and that may spell the death of the EURO). The EURO dominates the USD index and the inverse count would be the dollar count, so the USD presumably goes back to 120. That's very bullish, so I think the US uses its gold reserves to go back on a gold standard of some kind. Dollar continues to live (perhaps its the Fed that dies!). Now exactly where are we in this EURO terminal C wave? In four as Neely thinks (four as a triangle with e to go) or did we make 4 and the triangle is 5 as a failure? If the latter, then the EURO is already done. Terminals are tricky and wave 2 and 4 can show extreme alternation. Anyway, need to figure what gold is up to, too (my thinking is wave 1 of a terminal 5th is completing). Meanwhile I'm short the gold stocks looking for c of E of LT wave 4.
Posted by: Dsquare | Monday, October 18, 2010 at 01:10 AM
S&P 500 Before opening bell
Posted by: Account Deleted | Monday, October 18, 2010 at 06:05 AM
GOING SHORT YOU BUNCH OF LOSERS? THANK U FOR YOUR MONEY
Posted by: M | Monday, October 18, 2010 at 08:06 AM
Here it is, NOT much ado about something important!!
"the bearish have one problem. it's the NDX. it's at the 88% retrace while most other indices are at the 62 or 75.
if NDX blows through the 88, the rest will quickly follow higher. but if NDX moves down from here, the bearish won't be able to figure out whether it's a real swing down or a little correction from the spike today ,,,, and it could turn around just like it did today. scary stuff with or without a wave count for bearishly inclined. ,,,,,
wave rust
Posted by: Wave Rust | Tuesday, October 05, 2010 at 07:00 PM"
Posted by: Wave Rust | Monday, October 18, 2010 at 10:56 AM
Last week, everyone was saying that the stock market would go up as long as the USD stayed down. Well. Today, USD is up but the market is still up.
Those top-callers that are looking for 1130 soon or those that have sold recently are missing another day of rally.
Posted by: Whitebear | Monday, October 18, 2010 at 12:20 PM
buy buy buy buy
Posted by: r | Monday, October 18, 2010 at 12:35 PM
Dollar weak again ...
Posted by: JT | Monday, October 18, 2010 at 12:40 PM
young bull markets are like watching paint dry on a rainy day
wave rust
Posted by: Wave Rust | Monday, October 18, 2010 at 01:06 PM
nu su,
where's that 140 point crash? does it start tomorrow?
didn't you say that today was the last up day for your cycle work? if the markets head south from here, that will be a good call eh.
wave rust
Posted by: Wave Rust | Monday, October 18, 2010 at 01:10 PM
IPAD and IPOD came in "light" compared to the Mac and IPhone which were rock solid.
Margins were lower. Not sure why.
Look for Apple to give "conservative" guidance once again so that it can CRUSH it next quarter.
Underpromise.
Overdeliver.
:)
Posted by: JT | Monday, October 18, 2010 at 01:38 PM
aapl off 5%+ in after market trades.
gross margin sucked at 38% ! LOL
wave rust
Posted by: Wave Rust | Monday, October 18, 2010 at 02:02 PM
GOING SHORT YOU BUNCH OF LOSERS? THANK U FOR YOUR MONEY
Posted by: M | Monday, October 18, 2010 at 08:06 AM
buy buy buy buy
Posted by: r | Monday, October 18, 2010 at 12:35 PM
yup this is the type of commentary you get at intermediate term tops.
All I am saying...
Is give 1150 a chance
Posted by: OracleLurker | Monday, October 18, 2010 at 02:03 PM
whoops
margin at 36 but expected at 38
aapl crashes the market
run for the air raid shelters.
"drop, stop and roll"
cry for mama
wave rust
Posted by: Wave Rust | Monday, October 18, 2010 at 02:05 PM
oracle
this could be the big one.
wave rust
:)
Posted by: Wave Rust | Monday, October 18, 2010 at 02:07 PM
Wave,
You are such a DRAMA QUEEN.
Apple is off $10.50 after being UP TEN DAYS IN A ROW.
Posted by: JT | Monday, October 18, 2010 at 02:12 PM
If Roger posts even one chart tonight I'm covering.
Posted by: OracleLurker | Monday, October 18, 2010 at 02:23 PM
Do not worry I paid Roger 1000$ to keep quiet
Posted by: POZI | Monday, October 18, 2010 at 02:28 PM
IBM is down 3% after hours also. Trading systems are going haywire flashing false prints down to 106.(46) Spy level. SPXU (2xinverse SP) etf finished up 2+% with the SP UP!!! SPXU had a massive up bar in its last 15 minute bar.
Stock averages dropped from April high to July low in 47 trading days. Last Friday, there had been 74 trading days from July low and 407 trading days from 3-6-9 low, 84 weeks from March 2009 low, 66 weeks from July 2009 low, 24 weeks from April high and 157 weeks from October 2010. 58 is my new favorite #. 58 years separated 1929 and 1987 crashes. And this week: 85 weeks from 2009 lows and 158 weeks from October 2007 high. 406===58x7 464==58x8 46,58 prominent Cramer/ Social Network/ Wall street 2 Code numbers.
Posted by: Jacques DeMolay | Monday, October 18, 2010 at 02:51 PM
jit
drama? not to me
it was just a fact and it filled a gap
which was dramatic to the guy who bot aapl at 3:59.
the folly of buying on fundamentals and expectations of some anal ist at jp smorgasbord and sons.
wave rust
Posted by: Wave Rust | Monday, October 18, 2010 at 06:32 PM
jit
it was down $15 when I saw the quote
wave rust
Posted by: Wave Rust | Monday, October 18, 2010 at 06:35 PM
$USD attempting continuation of rally off 76.14 low. Chance of another leg up IF trade held above 76.71. If successful, equities correct in kind.
Posted by: Joe Russo | Monday, October 18, 2010 at 06:40 PM
jit
you must have had delayed quotes.
http://money.cnn.com/data/afterhours/
AAPL Apple Inc 318.00 299.41 -5.85%
as of 7:30 pm
wave rust
Posted by: Wave Rust | Monday, October 18, 2010 at 06:41 PM
Y : You must have noticed.. Benoit Mandelbrot passed away..RIP..
[http://www.theregister.co.uk/2010/10/18/mandelbrot_obituary/]
Posted by: KRG | Monday, October 18, 2010 at 09:52 PM
The USD index is NOT some surrogate for US stocks. It is such a myth.
The correlation for USD is very close to gold's movement, in recent years, if you are looking for direction. Certainly amplitude differs between the two most of the time.
fwiw, the USD does not bottom with current action. it is much more likely to repeat the sideways from mid to late June, for a 'd of c, then the d, then the e. All in about 15 trading days, at the longest.
the gold will act like it's lost and can't get out of its own way, from one day to the next. I think gold is a working short, as has been the 30 year T bond.
when do stock indices become a sell? the day after the election ,,,, sell the smell of victory. simple right? then maybe we get a new channel down to christmas/new years.
the problem won't be for the bulls, it will be with the bears. No big selloff, just a nasty 4th wave sideways. the rocket after new years will be another bear killer.
wave rust
Posted by: Wave Rust | Monday, October 18, 2010 at 10:48 PM
Remember this is still the beginning of the bull market. my forward look is something like this:
April was the 1 of 1, the 2 of 1 was either the July or August low (i think it counts better with July 2nd). the election turn will be spx is finishing the 3 of 3 of 1.
Spring of 2011 should complete 5 of 3, then 4 of 1 will probably do a very long sideways into sometime before the 2012 election. 5 of 1 will begin when it is a given that oblahblah isn't going to be pres. any more.
caveat- if oblahblah has a chance and/or is re-elected, I'll be looking for the repeat of the 1938 type 50% retracement of the whole move from march '09. that would be similar to what was seen in the next 4 years, 1938 to april 1942, well after pearl harbor.
does it get simpler? no, not for me.
variations will and do occur, but Dow 14,000 in this coming spring is good target.
i'll be out campaigning during the day for the next few weeks.
wave rust
Posted by: Wave Rust | Monday, October 18, 2010 at 11:01 PM
KRG, yes, saw the great man had passed. Thanks for mentioning it.
Posted by: yelnick | Monday, October 18, 2010 at 11:03 PM
S&P 500 Futures before opening bell: CLICK HERE
Posted by: Account Deleted | Tuesday, October 19, 2010 at 05:47 AM
>Remember this is still the beginning of the bull market. my forward look is something like this:<
Now we have a horse race! I've been thinking just the opposite. Problem is, my indicators are not confirming my thoughts. But, they can change dramatically in one week.
Bottom line: if my suspicions are correct, this rally is toast before mid November.
Neo-Mamma
Posted by: Mamma Boom Boom | Tuesday, October 19, 2010 at 06:21 AM
Diamond Top in the Dow and SPX...
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=55650657
Hurst 10 week lows are right on schedule
Posted by: Neo Tzu | Tuesday, October 19, 2010 at 07:21 AM
Hurst 10 week low should coincide near the November 1 Gann vibration...
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=55646190
Posted by: Neo Tzu | Tuesday, October 19, 2010 at 07:25 AM
Pitchfork resistance...time to close ALL THOSE PESKY GAPS...
Posted by: Neo Tzu | Tuesday, October 19, 2010 at 07:35 AM
SPY golden cross..Buy on Dips being rewarded. That is all you need to know. Forget about the silly wave counts.
Posted by: Edwin | Tuesday, October 19, 2010 at 09:01 AM
I believe it is not D and E for dollar, but 4 (D) and an ending diagonal 5, which will near term go up to about 95, probably to the end of January 2011. The gov. is trying to inflate, but will fail when several hundred trillion usd in IOUs will cave in. After this 4th wave up is completed, there will be a fifth down somewhere mid 2012 towards 64 on index before usd will take off towards 164 on the index. QE2 will probably happen during the 5th wave down as a last resort before the dollar becomes super strong. The actual bills in your hand is going to be what counts.
Posted by: usdollar | Tuesday, October 19, 2010 at 10:02 AM
1300 , 1300
Posted by: Sobranie | Tuesday, October 19, 2010 at 10:15 AM
"If Roger posts even one chart tonight I'm covering."
I saw that last night and laughed. I was going to post some charts that were extremely bearish,but why bother.
Jamie Dimon,BAC,and all the rest,good luck on sweetening this pile of dung.
Roger D.
Posted by: Roger D. | Tuesday, October 19, 2010 at 11:31 AM
Buying MEE here.
Company is seeking strategic alternatives and/or sale. Easily worth $60 in my opinion.
Posted by: Michael | Tuesday, October 19, 2010 at 12:13 PM
SPY golden cross
Golden cross is 50 day MA crossing 200 day MA. SPX and SPY never crossed only the narrow Dow. There is no buy on the SPX or SPY here.
Forecasters will be hoist by their pantaloons
Not me, I'm gonna brag a little for calling this top. I used the Hurst 10 week cycle and a 9 wave Neowave diametric to nail this top while everyone else was bullish.
Documented here....
http://investorshub.advfn.com/boards/board.aspx?board_id=17221
More downside to come.
Posted by: Neo Tzu | Tuesday, October 19, 2010 at 12:20 PM
SPX 50 MA at $111.66; SPX 200 MA at $111.35...and that is not a Golden Cross? OMG.
Posted by: Edwin | Tuesday, October 19, 2010 at 12:35 PM
THIS IS THE CRASH! YOU HAVE BEEN WARNED ABOUT THIS FOR DECADES BY ROBERT PRECHTER, THE MASTER MARKETICIAN. HE TOLD YOU TO GET OUT IN 1987 BUT YOU DIDN'T LISTEN. HE TOLD YOU TO GET OUT MANY, MANY TIMES IN THE FOLLOWING TWENTY THREE YEARS, BUT YOU DIDN'T LISTEN! YOU HAVE BEEN WARNED OVER AND OVER AND OVER AGAIN.
WILL YOU LISTEN?!
OR WILL YOU BE A SHEEP TO THE SLAUGHTER?!
GOD HAVE MERCY ON YOU.
Posted by: "CAPITAL" LETTERS | Tuesday, October 19, 2010 at 12:35 PM
"1300 1300"
NO,
It's 1307 1307
Posted by: Jacques DeMolay | Tuesday, October 19, 2010 at 01:02 PM
I'm not fully convinced the top is in, but there's a good chance that it is. this could be just a 4th wave and with one more thrust up. The Euro looks to have topped and if it continues to drop like a rock,you can kiss big wave 3 hello. This subprime mess has legs,but the Fed has QE lite in progress. I would lighten up here on any rally. BTW I recall I said that we would see wave 1 down before the election and then have wave 2 up into the election,then all hell breaks lose after the election.
Roger D.
Posted by: Roger D. | Tuesday, October 19, 2010 at 01:04 PM
KISS WAVE 3 HELLO LIKE ROGER SAYS.
KISS IT HELLO.
SAY HELLO WITH A KISS TO NUMBER 3.
WAVE 3: HELLO! NOW HERE'S A BIG, WET, JUICY KISS
KISS, KISS.
NOW PRAY. AND MAY GOD HAVE MERCY. PRECHTER WARNED YOU. IT WAS SUPPOSED TO HAPPEN IN 1987 BUT IT IS HAPPENING NOW.
MERCY!
Posted by: "CAPITAL" IDEAS | Tuesday, October 19, 2010 at 01:17 PM
Here's the DAX, is the top in? Maybe but if we get a rally in the Euro,another thrust up would paint a finished count IMHO.
Roger D.
Anyway let the foreplay begin.
http://www.screencast.com/users/parisgnome/folders/Default/media/f05f92eb-8629-4ae2-a5eb-46733d10e883
Posted by: Roger D. | Tuesday, October 19, 2010 at 01:25 PM
Today is the 23rd anniversary of 1987 crash. I was trying to find an esoteric cycle for that one but maybe it's a tribute to the fact that I was the 23rd grandmaster. Remember April 23 was the closing high and original release date for Wall Street 2.
Posted by: Jacques DeMolay | Tuesday, October 19, 2010 at 01:27 PM
yelnick and others,
I think a few months back I posted an alternate wave 2 where wave e up would be followed by wave 'f' down then wave 'g' up? Did that happen? or did I post it on my message board? Or am I smoking something?
da bear
Posted by: da bear | Tuesday, October 19, 2010 at 01:29 PM