Over the weekend I had an interesting conversation with a local
trader. We typically meet a few times a year to share our market
outlooks, new trading tools and techniques, and usually finish our
session off in a debate about the US market manipulation and how to
trade around it.
Talking about market manipulation always opens up a can of worms and
sparks some interesting theories… And while everyone has their own views
and opinion on this subject I thought I would briefly share the main
points I pulled from our conversation.
I did talk about the dollar index last week, but the recent price
action unfolding today is important so I’m going to recap on it again.
My Weekend Conversation Key Thoughts:
Point form thoughts supporting Lower Equity prices and a Higher Dollar:
- Dollar index looks ready for a major rally (high dollar means lower stocks)
- SP500 may have just formed a double top
- SP500 closed strongly below the 20 day moving average
- First week of May for the past two years have been intermediate market tops
Points supporting Higher Equity prices and a Lower Dollar:
- Countries around the globe are trying to keep their currency value low including the United States.
- Presidential cycle strongly favors higher stocks prices which means the dollar should not rally until Nov.
What do all these points mean? Let’s take a look at the dollar charts below…
4 Hour Dollar Index Chart:
This chart time frame allows us to see all intraday price action
while being able to zoom out several months for patterns along with key
support and resistance levels.
As you can see over the past few months the dollar has been
consolidating sideways. Within this consolidation it has formed two
bullish falling wedges with the most recent one breakout last week right
on queue.
Using this 24 hour futures dollar index chart we can see where things
are trading through the weekend. On Friday the dollar index closed
around the 79.50 level. As you can see the dollar has surged Sunday
night by more than half a penny breaking through its down trend line.
The next few weeks will continue to be exciting ones as strong moves
in the dollar will create wild movements in stocks and commodities.
Long Term Weekly Dollar Index Chart:
If you zoom WAY OUT using the weekly chart this shows you the two
major areas where the dollar index is likely to reach come November.
Also with these levels are my SP500 price points which are simply
numbers I pulled from the charts using basic analysis. I say this
because I’m not into
long term forecasting but rather shorter term price movements. A lot can change between now and then.
So, if the dollar index rallies to the 86 – 88 level then I would
expect the SP500 to be trading back down at the 1000 level. If this
takes place, the Fed will likely issue QE3 to jam the dollar back down
and boost equities.
The flip side of the coin is that the dollar rolls over here and gets
pulled down. This will boost stock prices in favor for the president’s
election. After that the dollar would likely rally which in turn would
put a major top in the stock market, kick starting a bear market.
The big question…
Do you short the market in anticipation of rising dollar and falling
stock prices? OR do you buck the trend and stick with the theory of a
lower dollar value and presidential cycle?
The charts above clearly show how we are entering a major tipping
point for the market and the next couple months are likely going to
provide some big price swings for stocks, commodities and currencies.
Chris Vermeulen
Pierre
Lassonde: Chairman of Franco-Nevada – He is one of the living legends
in the mining and resource world with over 35 years of experience.
Pierre is the current Chairman of Franco-Nevada and Co-Founded
Franco-Nevada Mining Corporation with Seymour Schulich in 1982 and over a
20 year period, provided shareholders with a 36% annualized rate of
return. He was able to build up and successfully merge Franco Nevada
into Newmont Mining in what was essentially a depression in the mining
sector. It was the worst of times, but somehow in the midst of those
horrific industry conditions Pierre and everyone associated with him
thrived. Pierre then became President of Newmont Mining Corporation
from 2002 to 2006.
