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Thursday, March 12, 2015

Daily update 3/12 More on dollar rally problem

I guess the 100 DMA pattern kicked in right on schedule.

SPX closed back above the 50 SMA, but right at the 3/6 low.  That low might present significant resistance.  SPX bounced one day after that low then gapped down through it trapping fresh longs.  Some of those folks may want to get out in the morning.  If not there is still more room to bounce up to fill the 3/10 gap.  New highs picked up to 113 which outpaced new lows at 50.  The breadth was +69%.  There was some real buying interest at least for today.  Hard to say if they will be as willing to buy now that we have gotten up into the big gap down. 

The futures stopped at the 18 SMA.  The very high ADX at the low indicates there are high odds of a retest of the low before a true trend change.  Just keep in mind the lower odds scenario of continuing up can happen.  When it does V from high ADX it can spike up strongly as shorts run for cover.  Will the 18 SMA provide enough resistance to stop the move up?  The 100 is just above.  It could be even stronger.

The odds favor a retest of the low, but the market might want to completely fill the gap down first.  That could easily happen tomorrow as it is only another 14 points to go.  Tough call since those trapped longs might start selling right out of the gate.  It just depends on whether there is a real urgency to get out or not.  How much is the dollar rally bothering money managers?  They have had a short attention span for negatives the last few years.  Will that be the case again or are there more lasting concerns?

I ran across a BIS report on the dollar denominated debt.  Global dollar credit: links to US monetary policy and leverage  This chart showing the debt at about $9 trillion was in there.

Doing the math the 20% increase in the dollar means the borrowers will have to repay an additional $1.8 trillion.  That is a lot of cash and could still end up getting worse if the dollar keeps rising.  The exports are starting to be affected also.  Check out this chart.

This is by far the biggest negative YoY change during this recovery.  That has to hurt the profit picture at least some.  On the bright side, if you have had a desire to go to Europe this year would be a great time to do so.


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