Tuesday, September 21, 2010

9/21 8:45pm

Shorted 1% DJ futures 10,721.


  1. Steve. I realize you don't like to trade currencies and suggested at one point that you were looking for the dollar to strengthen sometime in Nov per your system. I also seem to remember your suggesting getting long the dollar recently, although I am not sure at what level but certainly at levels higher than here. I am wondering, given the critical levels DXY is approaching (79.70), if we break through here and start trading 77-78 heading to 70-75, do we get an inflationary scare to continue lifting stocks? I can't believe bonds continue to rally like they are but that is just one conundrum we are facing. I am not sure I am hoping you are right but suspect you are. My only point is the dollar may get in your way. Rarely can a country defend its currency from imploding but they seem pretty deft at destroying it if they put their mind to it. Maybe Prechter's credit deflation supports the dollar here but we are getting precariously close to big support. Just a thought.

  2. I posted thoughts on the dollar August 6.
    It it I stated that the stock market decline would feed into a dollar rally.
    The dollar index has it's own life apart from the stock market. I have worked out a sentiment index for it that correlates rather well. It's indication is for a decline into November. This is contrary to what I would expect, in that the dollar should rally in the presence of a severe stock market decline. Bottom line: Currencies are not something that I want to trade during the upcoming stock market decline. The sentiment forward gauge (for the dollar) is surprisingly negative.
    So, the dollar will rally with the stock market decline, when it occurs, apart from the dollar's own sentiment gauge.

  3. So you are not concerned about the continuing fall of the dollar, postponing a stock mkt selloff? I suppose this is a bit of a chicken and egg question. I tend to agree that the dollar should rally into a stock mkt selloff, but it is getting close to falling out of bed. Then again, I suppose it could fall out of bed and take stocks with it.

  4. The dollar and gold are effects, not causes. The cause is the willingness to take on risk assets. That is something that lives in mass psychology, in the subconscious.