I’m a Bloomberg guy, so I must admit that I did not truly appreciate how consensus our long standing Burning The Buck call has become. A few days on the road, from Denver to Pittsburgh, being force fed CNBC in my hotel rooms changed that. When Melissa Lee thinks she is a US Dollar correlation expert, a bottoming process for the buck is likely in motion.
This inverse correlation can make you laugh. It can also make you cry. If you are short REFLATION stocks on Dollar Down days, you get the crying part. Last week, the US Dollar was up on the week, for the 2nd consecutive week, and the SP500 corrected, as a result. In the last 2 days, the US Dollar has burned to a higher-low, stoking returns for anyone who was braver than I to stay with this dominant global macro TREND until the bitter end.
For now, my initial thoughts on a Bombed Out Buck are immediate, not intermediate, term. At the US Dollar Index price of $78.61 (chart below), you can see the dominating intermediate term TREND line of a Burning Buck. That TREND not setting up to change any time soon.
What could change, and quickly, is the immediate term duration (3 weeks or less), and if I see that resistance line of $77.07 overcome, it will immediately become support. The point here is that there is no line of resistance between that TRADE ($77.07) and TREND ($78.61) line. A bubbling up of the buck to the tune of a +2% move (from $77.07 to $78.61) will definitely wreak havoc on the REFLATION trade. That I know. That’s why I am raising my position in US Cash.
This morning’s earlier lows in the US Dollar (and highs for the US Equity Futures) came with a US Dollar Index hitting higher-lows (versus the YTD low of $75.80). Higher-lows help us understand that bottoms are processes, not points.
Keith R. McCullough
Chief Executive Officer