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The Dollar Rally Ends

by: Richard Gorton August 14, 2008 | about stocks: DBV / DGP / EEB / EWZ / FXE / FXP / FXY / GDX / GLD / IWM / IYT / KBE / KCE / OIH / SKF / SLX / USO / UUP / VTI / XLI / XME    

Richard Gorton

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Introduction

US stocks, VTI, turned lower Tuesday August, 12, 2008 on financial sector concerns and both a falling USD/JPY and EUR/JPY.

A strong downturn is ahead as the author in Calendar Yen Trading Patterns provides historical record that EUR/JPY and USD/JPY are both frequently down in the month of August.

Wealth will now be preserved by investing in gold and a limited amount of short selling.

Dollar Falls Lower

Confirmation that Peak Dollar occurred Tuesday comes from the US Dollar falling from Tuesday's 76.25 to Wednesday at 75.85 ($USD).

The ongoing two year Yahoo Finance chart of UUP shows yesterday's action to be a pop that cannot be sustained; and the Stockcharts.com chart of UUP, suggests that UUP will likely turn out to be an abandoned baby candlestick (UUP ...UUP).

Yahoo Finance reports that the USD/JPY fell lower yesterday, on tumbling investment banks, KCE, and banks, KBE, as Goldman Sachs gets downgraded; and as Wachovia's loss drags the financial sector lower, Joyce Koh of MarketWatch reports (USD/JPY).

Rising risk aversion to level two assets and level three assets, and poor earnings is causing yen carry traders to disinvest from recent interest rate differential stock and currency investments in the US.

The ongoing five day yahoo Finance chart of the transports, IYT, shows that they failed today -- they fell lower on a lower price of oil (IYT:USO).

An abbreviated version of the Dow Theory relates that market turns are discerned by the transports, IYT, and the industrials, XLI, turning together. Both turned lower today meaning that the bear market is getting underway again (IYT and XLI).

The Dollar Rally that began July 14, 2008 is now over.

Here is a sample of many recent headlines encouraging investment in consumer stocks and value stocks Recently well performing ETFs will now be falling:

ETFs In Greatest Demand dated August 6, 2008. The fall of IAI, exemplifies the downturn which affected almost all all the ETFs mentioned in the article -- UYG, RKH, TKF, PJB, IXJ, XLF, URE, BBH, IIF, PBE, XHB, ICF, IHF, PXN, RWN, IFN, SMN.

The Pendulum Will Swing Back to Value Stocks dated August 12, 2008. I documented the exact opposite on August 11, 2008, in the above referenced article Peak Dollar. An abbreviated explanation is that the doji in the Russell 2000 value shares compared to the growth shares, IWN:IWO, serves as a dark cloud covering candlestick ending the recent surge of value investing strength (IWN:IWO).

Richard, the Resourceful Bear says: "There is no value to investing in value stocks".

I never cease to be amazed that bullish investment articles multiply at the end of a rally.

Frugal Millionaire Has It Right

Immediately before the Dollar Rally, the Frugal Millionaire related well in a Seeking Alpha article that Fannie and Freddie: When the GSEs Go, So Goes the Dollar.

Fannie (FNM) and Freddie (FRE) have slipped both last week and this, so the dollar is definitely going down.

Market Sector Commentary

The Russell 2000 (IWM) has been up 12% since 7/13/2008 compared to 6% for the Nasdaq, and 4% for the S&P, and Dow as it is comprised of small US companies highly influenced by the finanical sector which rose on July 14, 2008 as the yen carry traders sold oil and bought the banks. The yen carry traders will be selling the financial sector to take profit and the Russell 2000 shares will fall very rapidly.

World stocks fall lower again as well

Yahoo Finance reports the EUR/JPY fell lower yesterday. Further unwinding of the yen carry trade continued to wring speculation out of base metals, JJM, the BRICS, EEB, and gold, GLD. The truth about the BRICS, EEB, is that the wringing will continue for a long, long, time as there is a tremendous amount of Bank of Japan 0.5% money invested in these once glory kings of investment ... EUR/JPY

An Elliott Wave 3 Down in the EUR/JPY, FXE:FXY, has destroyed basic material investing in the BRICS, EEB, especially Brazil, EWZ, with steel, SLX, metal manufacturing, XME, literally decimated. Natural resource investing opportunities in gold mining shares, GDX, energy production, XLE, and energy service, OIH, are history (FXE:FXY).

Investment Application

MSN Money charting service reports that both the US Stocks, VTI, and the world stocks, VEU, turned lower together yesterday (VTI and VEU).

Having passed through Peak Currencies and through Peak Dollar, wealth will now be preserved by investing in gold, $GOLD, and a limited amount of short selling. Despite the recent fall of gold, the chart of gold relative to stocks, GLD:VTI, shows that gold is still valued more than fiat wealthveu  (GLD:VTI).

Gold, $GOLD, closed at $813, having touched $800, on an intraday basis; it is likely to be range bound between $800 and $870 before it breaks out again ($GOLD).

Now with the dollar surge ending, and all currencies having sunk, an epic investment sea change is about to occur, gold is going to arise as the defacto international currency.

A rising ratio of gold relative to the international currencies, GLD:DBV, from the range of 2.8 to 3.1 will be clear cogent and convincing evidence that the neoliberal, floating currency exchange policies of Milton Friedman G-7 group, have failed (GLD:DBV).

I suggest that one be diversified with gold at BullionVault.com and GoldMoney.com and that one have a trust account with investment in these three following ETFs and ETNs (DGP, SKF, FXP).

200% gold (DGP) -- it's oversold.

200% inverse of the financial sector  (SKF) -- it's on its way up again.

200% inverse of the China (FXP) -- it has left the launch pad.

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This article has 5 comments:

  •  
    Aug 14 10:18 AM
    I disagree with you but thats what makes a market. The dollar is over bought and the commodities are over sold. However I expect the gold and commodity rallies to be weak. People never believe a turn in the market is real. After 8 years the gold, commodities and the dollar have turned and a lot of money will be lost by the deniers.
    Reply
  •  
    Aug 15 12:24 PM
    Does CLH stand for 'Curmudgeon & Lunatic Here'?
    Reply
  •  
    Aug 15 12:40 PM
    How can you possibly argue with the authority so evident in the precision of the data and cogent analysis of this article? It's scarcely necessary to check the market.
    Reply
  •  
    Aug 15 01:18 PM
    If you hold a candle behind your computer monitor, you will see "...NOT!" appear after the headline.
    Reply
  •  
    Aug 15 04:41 PM
    There was bound to be a correction after 10 days of consistent uptrend but I feel it will rise soon as the fundamentals are strongly in favor.
    Reply
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