@DXY, stock market -- trotsky, 10:59:16 05/03/07 Thu
watch the dollar - it appears less and less likely that the support at 80 (DXY) will break, with commercial hedgers holding a record large net long position in DXY futures, and a record large net short position in Euro futures, just as DXY hovers over this multi-decade support.
it seems much more likely that a short covering rally will begin in order to relieve the above positioning situation.
the metals won't like that, although due to the lead-lag short term relationship between gold and the dollar, gold will probably turn back up well before the expected dollar rally peters out.
in the meantime, danger signs are beginning to proliferate in the stock market. the 'smart money' OEX put/call ratio indicator has given its second sell signal of the year (you can guess when it gave the first one), breadth has been deteriorating markedly in the recent rally, tech is underperforming (a sign of growing risk aversion), and various emerging market bubbles continue to look extremely stretched.
this is not even considering the steady deterioration in US economic fundamentals (which is likely to continue in view of the accelerating implosion of the mortgage credit bubble and an increasingly tapped out consumer).
on the other hand, as long as the stock market continues to march on, the recent strong correlation between all financial asset classes will continue to float our boat as well. i just mention it because one must have a plan for things going wrong before they do.
tops can never be pinpointed with precision since by definition, they can occur only once (let's leave lucky guesses aside), and manic blow-offs usually tend to defy even the best reasoned analysis. per experience though, the best time to prepare for the end of the party is while the party still appears to be in full swing, not when everybody realizes it's over. the time window between blow-off tops and subsequent crashes has imo become much shorter these days than it used to be (probably due to instant communication) - to wit, look at the Nasdaq implosion in April of 2000: there was a single warning shot on Aril 4 when the index declined by over 600 points, only to recover the entire loss on the same day - that was on a Wednesday. Thursday and Friday it rose a bit, but fell short of the previous high, and the following week it crashed (down 34% in one week). |
