It doesn’t take a whole heck of a lot to get REFLATION traders nervous about their positions does it?
If you didn’t know that the inverse correlation between US dollars and mostly everything priced in those dollars is the most relevant barometer for daily risk management right now – well… now you know.
The US Dollar is up for the 3rd day in a row, and the SP500 is down for the 3rd day in a row. So was that the cycle low for the US Dollar? Is the Buck Bombed Out? That’s one of our 3 Macro Themes here at Research Edge for Q4 of 2009. Currently we are not short the USD. Bottoms are processes, not points.
Currently, the US Dollar is trading up +0.52% to $75.68. Ordinarily, this would be just one more of those opportunities to load the long side of the boat with anything priced in bucks – but swimming along what we call The Shark Line, is far from ordinary.
For those of you who recall our Q2 MEGA Squeeze call for the US stock market, you’ll remember our salty water friend, Squeezy The Shark. He’s making a comeback here today. Matt Hedrick is smiling right now.
If the US Dollar Index is able to hold its gains here and close above it’s immediate term TRADE line, the probability for an immediate term short squeeze in the Bombed Out Buck goes up. That TRADE line is outlined in the chart below at $75.58.
Some people say they don’t care about TRADE lines. I say they should. All TRADEs in my macro model have an opportunity to become TRENDs. The intermediate term TREND line for the USD is now $76.98.
I do not think the bearish TREND in the Burning Buck will be violated to the upside, but I do think that an immediate term TRADE squeeze could test that thesis.
From here, that would put an almost +2% up move for the USD in play. The de-leveraging effect of USD up moves can be as high as 4-5:1, so please manage the risk associated with your long exposure accordingly. I moved to a 67% position in Cash in the Asset Allocation model earlier this week. That’s too high, so I want to be buying things on weakness, but I don’t want to be too early.
If the US Dollar fails to hold today’s strength and rolls over again. Squeezy can go back to sleep.
Keith R. McCullough
Chief Executive Officer