Is Argentina a Canary in the Dollar Mine?

Once again, the Argentine economy is on the skids and the exchange rate on the peso keeps plunging from a relatively stable 10 to the US dollar five years ago to the current low of 86.  That has placed Argentine corporates in a tough bind – they have issued debt denominated in US dollars and find they are increasingly unable to cover the interest payments as the exchange rate worsens.

So what to do?  Of course, we are familiar with Argentine bonds going bust – and the government reneging on their obligations. The creditors are mainly US banks who have a remarkable facility for losing shareholders’ money on Argentine bond investments over the years.

So is this a ‘Canary in the Dollar mine’ moment approaching?  If so,  expect the word to get around the world’s Emerging Economies – and then on to the Developed Economies.

This is an extremely bullish prospect for the US Dollar as debtors increasingly scramble to get their hands on the greenback – despite herculean efforts by the Fed to swamp the world with them..  I have been warning all who would listen that a reversal in the dollar’s slide would start soon.  Once word gets around that there are dollar shortages popping up, we shall see a tsunami of short covering.

This is the chart I showed last week showing my roadmap

We are already seeing that in that other Emerging Economy (!) – China.  I recently forecast and pinpointed a reversal in the exchange rate of the yuan as I saw the Chinese authorities were reportedly getting anxious it was getting too strong and making their products un-competitive on price.  The yuan had been advancing from its May low of 7.2 to the recent low of 6.4 – a gain of 10% as the Chinese economy was recovering from the pandemic much better that the US.

This is the chart I showed last week showing my roadmap:

We are seeing a slow shift in the mood back towards the dollar, which has been relentlessly negative for most of last year.  Over the New Year, the traditional punditry that emerges at every start to a new year was universally negative as all they saw was the tsunami of dollars the Fed were about to unleash – the latest being the recent $2 Trillion Biden Bung scheme (that may or may not pass Congress unscathed – dollar bears beware!).  

With bullish dollar sentiment practically non -existent, the way is clear for a ‘surprise’ recovery.  After all, currency crosses are beauty contests and today, it is the least worse currency that is looking best (I am looking at you euro!).  As the late great trader Joe Granville said: “When everyone believes something is obvious, it is obviously wrong“.

I have long believed that when the dollar does finally reverse trend strongly, commodities and shares would do likewise.

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Is Amazon really unstoppable?

I had been tracking the large correction off the September high at $356 as it digested the stunning gains off the March Corona Crash low at $162 – a jaw-dropping gain of 120% in just six months. For a 1 Trillion company, that is impressive.  Even with the pandemic bias towards internet shopping over the high street, surely that was jumping the gun a tad in terms of the fundamentals (P/E).

With a huge following for the shares, the corrective pattern traced out a textbook example of a triangle:

And when it hit the lower support line at $310, I pounced for  PRO SHARES members.  I had a low risk entry as any decline below the lower flag line would likely cancel out my flag notion.  Remember, flags are almost always continuation patterns.

And from there, the shares zoomed up (pun intended) to the upper flag line at $330 area and that is where I advised members to take some profit.  With the latest quarterly earnings to be reported on 2 February, it is prudent to grab some profit just in case the upper flag line of resistance proves its worth!

I am confident most analysts have penciled in a huge increase in earnings, but have the shares discounted that already? To cover any possible disappointment, we have taken some profit and hold a partial position that would benefit from lack of disappointment.  This is all part of my Split Bet Strategy.

Commodities have been flying – but what now?

Members of my VIP TRADERS CLUB have been in and out long Soybeans and Corn from August last year – long before they hit the headlines last week after release of the “bullish” USDA Crop Report that downgraded estimated global output of these staples.

For example, Soybeans were trading under $9 when I first advised members to take long positions.  From there, it rocketed up to the recent $14.35 high where I advised taking profits.  Why?  Because it had hit a major Fibonacci target I had set beforehand as a major brick wall.

That was some move!  But yesterday, it crashed off my target and verified my Fib target was highly accurate as a warning to take profits.  Naturally, this six month rocket attracted hordes of hedge fund bulls (they are trend followers) and latest COT data shows they are now 6/1 long/short – an extreme.

That is why I expect a substantial correction off my Fib target.  Corn is in a similar position as hedge funds are an even more extreme 8/1 long/short.  These extremes will be evened out over the next few days/weeks.

One of the supporting factors for US Grains has been the dollar weakness, but with the dollar reversing, that should turn into a headwind now.

Yesterday’s sharp decline has proved the validity once again of the old “Buy the Rumour, Sell the News” theme.  I am very happy with this campaign.