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Friday, March 18, 2016

Daily update 3/18 Axel Merk on possible dollar top

The buying continues, but we have reached day 25.

Here we are.  Overbought and in the middle of resistance on day 25.  I wonder how this is going to work out.  The volume was big, but it was option expiration and there was some kind of re-balance going on today.  There are quite a few short term tops on option expiration Friday.  I once started out to develop a trading system to short when SPX closed opt. exp. Friday at the high of the week.  However, the sell off the next isn't always significant enough to take on the risk.  However, it tanks just often enough to make you think it would be.  It might prove to be a good strategy in a bear market though.  Never thought of that before.  The breadth was +58%.  At 10:15 it was +72% so there was some significant selling into strength today.  Just not enough to send the market down for the day.  I believe that is indicating profit taking has started.  New highs were good once again at 150.  New lows dropped back to 9.  It is amazing how similar the rally looks to last Oct. isn't it.  Buyer beware.  The futures are not adding any information and neither is the green count as they are still in overbought territory.

This looks like a logical place and time for at least a short term top if not the high point of this rally.   Due to the strength of the move I expect dip buyers to show up on the first pullback similar to last fall.  Shorting a pullback should only be done if one can be nimble.  Lets see if the profit takers show up in force next week.

Well known and successful investor Axel Merk came up with this post on the dollar.  Dollar Outlook: Peak Dollar?  It is a good read and there are some interesting points.  Here is a long term chart from the article.

Take a look at the price action with the standard deviation lines.  Notice anything.  Here is another version with my markings on it.

In 50 years of data this is only the third time the dollar index has crossed above the +1 STD line (blue circles).  The other two times it was the beginning of a multi year bull market that went much higher.  Long time readers know I commented many times on the strength of the dollar rally and how it stayed above its 50 DMA for so long.  I said I just did not believe that kind of strength was going to turn out to be nothing but a short term move.  I have been expecting the current trading range to be resolved on the upside.  So far it has refused to do that.  A top and pullback here is a possibility, but far from a certainty.  However, longer term I think any pullback would be just that.  I fully expect the dollar to rally to new highs and beyond.  It is just the shorter term timing that is uncertain.  While the dollar has not broken out it also has done nothing wrong.  It will need to break the low from last Aug.  to indicate a more serious pullback is underway.  I am not at all sure that will happen.

The market and sector status pages have been updated.  Have a great weekend.


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The information in this blog is provided for educational purposes only and is not to be construed as investment advice.