Which way the dollar?
You may be pleased to read that I have little or nothing to say about Trump, Biden, Covid, the Election, or even Brexit (remember that?). Financial markets obey laws unto themselves and the latest ‘news’ may away them in the short term, market prices move according to changes in sentiment which are patterned by the Elliott wave principle.
I am in the business of forecasting market moves using these principles and because forecasting is an inherently uncertain occupation, I get some right and some wrong. I make no excuses for the ‘wrong’ ones nor do I take too much credit for the ‘right’ ones.
One excellent trader once told me he loses on about 80% of his trades, breaks even on 15% – and make his huge profits on about 5%. And these are the ‘whale’ trades that generate huge rewards. Sadly, he told me there was no way he could accurately predict which of his trades would turn out to be the whales. You just have to do them all.
I am operating the BASIC £5k Account for VIP Traders Club that practically forces you to take all the trades – and the spectacular results to date – profits of fives times starting account – prove how it can be done in the simplest of ways.
But the key to success is always the age-old rule of cutting losses short and letting profits run. Of course, this is easier said than done because our emotions often get in the way (the BASIC Account gets around this).
That is why every morning – and especially at weekends – I go over the charts again and again to see if I can interpret them differently and come up with a different likely roadmap. Then I pick the one that appears most likely. I sometimes change my stance – a rarity among most analysts.
A major complication is which time frame to study? Of course,when spread betting on high margin, protective stops must be tight with little room for error. Precise timing is essential especially on the daily time frame. This leads to the high loss (or break-even) rate. But if each loss can be kept at less than 3% of your account, you can live and fight another day. Taking a 30% or more hit can take you out of the game – with a demoralising effect on you.
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I started the BASIC £5k Account programme in December. Currently the account stands at £18,370) plus profits on open positions of about £9k making a valuation of £27,370.
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The dollar is at a crossroads
Sentiment towards the dollar has become super-bearish. Many are saying with the Fed pumping so many dollars into ‘supporting’ the pandemic-ravaged real economy, the death of the dollar is assured. And the fiat system of currency we have lived with since Bretton Woods and the death of the gold standard is likewise on the verge of collapse. Gold is the only ‘safe’ hedge – or so they say.
And the Fed and the ECB are reported to be considering issuing e-currency in the manner of the cryptos.
But what many fail to remember is that currency values are always marked against another currency (unless the gold standard can be revived, which is highly unlikely). It is really a beauty contest with the dollar pitted against the euro as its main counterpart.
I identified a low in the dollar recently and it has been moving up since then. But the bounce does not appear to be impulsive (in the same direction of the trend) which would confirm the trend change much more confidently
On the plus side, it has met the nine-year major trendline and is bouncing up off it. Also, I have a strong momentum divergence at the low that suggests a selling climax there. Thirdly, the minor trendline has been broken. Finally, speculators are betting heavily against the dollar (COT data) and short squeezes are thus highly likely.
On the minus side, the rally is in a three so far – and threes are always counter-trend. There is no hint of a strong upward surge that confirms an impulse. At genuine trend changes that occur after a very long bear trend, we usually see major upward surges early on. None so far.
My strategy? I went long near the low anticipating the start of a lengthy bull phase. I figured that a bounce was very likely and if so, I could swiftly move my protective stop to break-even in case the rally broke down.
But if this is the start of a bull phase, I will be on board at a great entry safe in the knowledge that my worst case scenario is being taken out at zero loss. This is a trader’s dream position. If most of your trades can be protected by a zero-loss strategy, that strategy must be worth its weight.
And that is what members of the VIP Traders Club have at their disposal.
Of course, if we have a long dollar position, we want to see it advance. But my strategy takes the emotion out of it. If the trade fails, I will suffer no loss and be ready to look for another entry with my account intact. But when the rally phase does get under way, I will be ready. And if the downtrend resumes, I will be on the sidelines with account intact.
Crude oil remains in bear trend
The world seems hell-bent on promoting electric (and now hydrogen) vehicles an the expense of fossil fuels. Leaving aside their utterly false ‘green’ claims, most people love their new electric vehicles as a driving experience and will likely not go back to the infernal combustion engine!
If only for that reason, I believe the Western world plus advanced Asia will veer away from fossil fuels. But not so the less developed world.
But the main factor driving the oil price is the current deflationary scenario that is sweeping the world. Consumer and producer price indexes are falling. Europe is leading the way here with latest German PPI weak.
From the 2008 peak at $150, we have a series of large waves all pointing down. Just last month, the rally off the March Corona Crash low – which accompanied shares – touched the pink resistance bar which happened to lie on a lovely Fibonacci 50% retrace at the $44 area. That was a low risk short entry.
And last week, it rallied to another important resistance area. In fact, it rallied to kiss a minor trendline. That was a low risk short entry where I expected a Scalded Cat Bounce (see my text pp 83 – 84, 143)
So how did I asses this trade?
On the positive side, I have a downtrend with the five down/three up so I knew to trade short. Then, I had a lovely minor blue trendline which was broken on 29 September and a pull-back to approach the trendline.
That’s where I was waiting for it to plant a kiss in the 40.50 area. Odds were high it would resolve in a Scalded Cat Bounce (SCB) lower. If not, I could place a close stop.
And last week, I got my SCB lower. Nice trade.
Sadly, not every setup is as clear cut as this and I must use more ambiguous information. The Dow certainly fitted into that category last week! But less so the Nasdaq….
The big tech issues are suffering
While the Dow has not fallen hard, as I expected, the Nasdaq has been much weaker
Last week, it rallied right back to the solid pink resistance on the Fib 50% retrace – and moved lower as if it touched a hot plate.
Since the September tramline break, it has been trying hard ot get back to kiss it and succeeded once. But with last week’s attempt missing by a mile, odds favour a resumption of the decline and only a strong surge above the pink resistance would amend my stance.
