Sunday, May 19, 2013

CRI's WCTS Spotlight Blog for May 17th, 2013

Hello and welcome back to CRI's WCTS Spotlight Blog,

05/17/13: The recent bullish reversal in the US Dollar index continued this past week and has now confirmed (in my mind) the bullish scenario laid out in previous blog posts. With both ECB & BOJ on aggressive easing programs, the North American economy looks to be relatively attractive and indeed money is pouring into US dollar denominated assets. Of particular note, the Aussie dollar is now racing lower in a bid to play catch-up to the Yen. Additionally, from a macro perspective, things are taking a hawkish turn in Syria suggesting a global war premium is being built back into the market, something we haven't seen for some time. 



Since the US Dollar Index put in such a dramatic bullish reversal over the past two weeks I thought it only prudent to take a good look at the weekly and monthly charts to see if this recent price action is trying to tell us something. Oh boy, it seems to be! 

Regular readers will recall my WCTS spotlight blog from March 15th (link) in which I painted two potential scenarios for the US Dollar Index. After what looked like a nice double top it appeared just two weeks ago as though the bearish scenario was going to play out. Then out of nowhere a monster rally both broke the existing double top and forged through the significant highs from last summer. This bull trap caught many off guard (and in my mind) has laid out the true path going forward. As the charts above illustrate, two very well defined bull ab=cd patterns are currently at work. While it may take weeks, months and maybe even a quarter or two to get to the upside objectives, I feel confident of direction.

Since the US Dollar Index is our 'financial asset' proxy this generational cycle it is important to understand where it is headed and some of the broader implication of the trend. The trend in my opinion remains up for the US Dollar index. Regardless of fundamental reasons, I shall be looking for a stronger dollar index going forward, not a weaker one. And, until a top comes in or upside objectives (outlined on the two charts above) are hit, pull-backs represent buying opportunities while rallies represent profit taking windows. Additionally, conventional wisdom suggests US Dollar strength would imply US Dollar denominated commodity price weakness. Given this historical norm, I shall too be looking for a general malaise within the commodity space. Given my various bearish posts within the space of late (gold, feeder cattle, copper, et all) that supposition seems to be indeed correct.

That's all for this issue of the WCTS Spotlight,

Brian Beamish FCSI

The Canadian Rational Investor
the_rational_investor@yahoo.com

http://www.therationalinvestor.ca/RI_Tradents.php#wctsspotlight