Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Micro Strategy Bubble Mania - 10th May 24
Biden's Bureau of Labor Statistics is Cooking Jobs Reports - 10th May 24
Bitcoin Price Swings Analysis - 9th May 24
Could Chinese Gold Be the Straw That Breaks the Dollar's Back? - 9th May 24
The Federal Reserve Is Broke! - 9th May 24
The Elliott Wave Crash Course - 9th May 24
Psychologically Prepared for Bitcoin Bull Market Bubble MANIA Rug Pull Corrections 2024 - 8th May 24
Why You Should Pay Attention to This Time-Tested Stock Market Indicator Now - 8th May 24
Copper: The India Factor - 8th May 24
Gold 2008 and 2022 All Over Again? Stocks, USDX - 8th May 24
Holocaust Survivor States Israel is Like Nazi Germany, The Fourth Reich - 8th May 24
Fourth Reich Invades Rafah Concentration Camp To Kill Palestinian Children - 8th May 24
Banxe Reviews: Revolutionising Financial Transactions with Innovative Solutions - 3rd May 24
MRNA - The beginning of the end of cancer? - 3rd May 24
The Future of Gaming: What's Coming Next? - 3rd May 24
What is A Split Capital Investment Trust? - 3rd May 24
AI Tech Stocks Earnings Season Stock Market Correction Opportunities - 29th Apr 24
The Federal Reserve's $34.5 Trillion Problem - 29th Apr 24
Inflation Still Runs Hot, Gold and Silver Prices Stabilize - 29th Apr 24
GOLD, OIL and WHEAT STOCKS - 29th Apr 24
Is Bitcoin Still an Asymmetric Opportunity? - 29th Apr 24
AI Tech Stocks Earnings Season Opportunities - 28th Apr 24
S&P Stock Market Detailed Trend Forecast Into End 2024 - 25th Apr 24
US Presidential Election Year Equity Performance in the Presence of an Inverted Yield Curve- 25th Apr 24
Stock Market "Bullish Buzz" Reaches Highest Level in 53 Years - 25th Apr 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

U.S. Dollar Index, The Trend Is Your Friend

Currencies / US Dollar Sep 18, 2009 - 11:38 AM GMT

By: Guy_Lerner


In identifying the Dollar Index (symbol: $DXY) as the key asset class to watch, I relied upon two strategies for guidance to make the call on June 19, 2009 that that this was a "Very Dangerous Time For The Dollar Index". So far, things are working out as expected.

The first strategy sold the Dollar Index short on any close below 3 pivot low points. Positions were covered on a close above 3 pivot lows or a close greater than the 40 week moving average. The second strategy sold the Dollar Index short on any close below a positive divergence bar. Positions were covered on a close above a positive divergence bar or a close above the 40 week moving average. In both strategies, weekly data were utilized.

Both strategies identified price patterns that suggested the Dollar Index would fall and there would be a high likelihood that that fall would be significant. In the first strategy, the average trade lasted 23 weeks, and in the second strategy the average trade lasted 14 weeks. The discrepancy in the average trade length was due to the fact that prices really accelerated lower on closes below positive divergence bars as traders looking for a bottom throw in the towel to cover losing positions. This trade or the second strategy made its gains, which were almost equal to strategy 1, over a much shorter time frame.

With regards to the first strategy (i.e., close below 3 pivots), the sell signal has been in effect for 8 weeks. For the second strategy (i.e., close below positive divergence) the sell signal has been in effect for 4 weeks. So what is my point? This weak dollar trade has yet to reach an average duration in time. In the Dollar Index, the trend is still your friend until it ends.

Reinforcing this notion that this trend in the Dollar Index could persist for longer than most expect comes an editorial from Bloomberg entitled, "Hedge Funds' ATM Moves From Tokyo to Washington: William Pesek". The writer basically argues why the Dollar Index will remain lower than many of us think. Essentially, a higher Dollar risks another episode of deleveraging. As Pesek points out:

"Think about the turbulence that would be unleashed by the dollar suddenly shooting 5 percent or 10 percent higher with untold numbers of traders around the globe on the losing side of that trade. It could make the “Lehman shock” look manageable."

In essence, the Federal Reserve and Treasury have a lot at stake and will likely continue the policy of devaluing the Dollar.

I want to thank Trader Mark at FundMyMutualFund for bringing this article to my attention.

    By Guy Lerner

    Guy M. Lerner, MD is the founder of ARL Advisers, LLC and managing partner of ARL Investment Partners, L.P. Dr. Lerner utilizes a research driven approach to determine those factors which lead to sustainable moves in the markets. He has developed many proprietary tools and trading models in his quest to outperform. Over the past four years, Lerner has shared his innovative approach with the readers of and as a featured columnist. He has been a regular guest on the Money Man Radio Show, DEX-TV, routinely published in the some of the most widely-read financial publications and has been a marquee speaker at financial seminars around the world.

    © 2009 Copyright Guy Lerner - All Rights Reserved
    Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

    Guy Lerner Archive

© 2005-2022 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in