Rumors of dollar’s death greatly exaggerated

Sentiment is still very anti-dollar (though not as extreme as last February-April), but the index is no lower than a few months ago, nor even a few years ago. Despite all of the dollar-crash and hyperinflation hysteria in recent years, early 2008 still marks the bottom.

MACD and RSI also seem to back up the case that the next big move is more likely up than down:

3 year daily chart:

stockcharts.com

5-year weekly chart:

bigcharts.com

10-year monthly:

futures.tradingcharts.com

The 10-year chart says it all: the dollar has already crashed, and as is typical in the financial markets, few noticed or attempted to take action until the move was already over.

Swiss franc and euro look long-term weak, but extremely oversold.

Note the lack of divergence in RSI this time around, compared to late ’08 to early ’09 when CHF and EUR were preparing to rally¬†(see my red arrows on the bottom of this chart).

This suggests that any rally that develops here (and I suspect that one will soon, since they are very oversold on several weeks of dismal trader sentiment) will not be as strong as what we saw in 2009, and that King Dollar is going to reign for a long time yet. Click the chart to enlarge:

TD Ameritrade

Short-term trades: Don’t buy gold. Prepare to go long stocks.

When everyone has run to one side of the boat, stroll over to the other.

GLD in blue, S&P 500 in green, Nikkei red. 2-year chart:

Source: Yahoo! Finance. Click image for sharper view.

I’m not calling a bottom in stocks (I think the Dow is going below 3500), but nothing moves in a straight line, and it looks like the market is setting up for a bit of a clearing rally, although it might take a plunge below 9000 to really capitulate first. It actually feels relatively calm to me today, despite the panic conditions, so another deep plunge to finish things off wouldn’t surprise me from here.

Along the same vein, look above at the inverse correlation that gold has had with stocks during this bear market. Markets are all about mood, and lately when fear is high, stocks are down and gold is up. We are nearing the point at which everyone is already on board the panic express. From there, you can expect temporary relief. When the relief comes, gold will resume its own unfinished business of working off the manic top from 2005-2008:

Note: I’m not going long stocks. I’m still massively short with long-term puts, so short-term rally or not, it doesn’t matter to me. I’m also long gold, but holding a few puts on GLD right now.