Stymieing Re-flation: The US Dollar...

Notwithstanding this powerful move higher in Gold today, the US Dollar continues to be a meaningful headwind for both global equity and commodity markets alike.

Looking at the chart below I have painted the bullish/bearish lines of support/resistance for the US$ Index. Up At the 86.61 line, the US$ is overbought, and I suspect that it will signal an immediate term trading bottom in the SP500 as it tests that level. Until then, this newfound US$ strength will remain a major headwind for the stock market. Significant support has built itself up to the 83.78 line. With the SP500 down almost -10% for the year to date, this recent strengthening of the greenback makes sense – after all, during a Crisis of Credibility, cash remains king.

Re-flating gold is what FDR did, and that’s what you are seeing happen globally in the face of the Crisis of Credibility that remains in both the global banking system and the foreign currencies that trade within it. Gold may very well be signaling that we are setting up for another big “re-flation” rally in everything from oil to equities, but the questions of timing and price remains. I think we need to stress test that SP500 line of 800 before I start getting invested again.

Keith R. McCullough
CEO & Chief Investment Officer