Dollar Bottom Has Not Been Confirmed

The US Treasury sells $118 billion in new 2-Year, 5-Year and 7-Year Notes this week.

On Monday $44 billion of 2-Year notes are auctioned with a weekly pivot at 0.74%. On Tuesday $42 billion of 5-Year notes are auctioned with a weekly pivot at 2.20%. On Wednesday $32 billion of 7-Year notes are auctioned with a weekly pivot at 2.93%.

The daily chart for the 10-Year note shows the yield between its 50-day and 21-day simple moving averages at 3.39 and 3.44, and the 200-day at 3.29. This seems like the balance between risk aversion and supply concerns.

This yield has been above the 200-day since mid-May, as a sign that supply concerns has been winning the tug of war versus risk aversion. Charts courtesy of Thomson / Reuters

Gold is trading as currency of last resort and as a risk aversion asset.

The weekly chart shows gold beginning its parabolic bubble phase thanks to Fed policy. Gold set another all time high this morning at $1,167.1 approaching weekly resistance at $1,170.

Investors turn to gold because of their concerns about the weak dollar. Gold can be considered a risk aversion hedge against inflation or deflation, as both have become global concerns.

Copper reached a new high for the move at 317.90 this morning and is above its 200-week simple moving average at 295.46. If this week’s pivot at 315.94 fails to hold, the global growth story weakens.

Crude oil ended last week above its 200-week simple moving average at $75.59, but not the negative divergence in MOJO, as oil remains below its October high of $82.

In mid-2008 the theme was – we need more refinery capacity. Today refineries are being closed. The weakening economy has reduced demand for gasoline, as commodity speculation keeps oil too high.

The dollar index did not end last week with a Weekly Key Reversal.

The dollar index remains above the trend line going back to April / July 2008 with this support at $74.59 this week. The dollar remains extremely oversold, and a close this week above the five-week modified moving average at $76.03 shifts the weekly chart profile to positive at the end of Thanksgiving week.

The euro is overbought on its weekly chart but with a negative divergence in MOJO. Note that the euro has not been above to sustain gains above 1.50 over the past five weeks. A close this week below the five-week modified moving average at 1.4773 shifts the weekly chart for the euro to negative.

The Philadelphia Semiconductor Index (SOX) has been the topping out leading indicator for stocks.

The weekly chart for the SOX is negative with declining MOJO. The double-top is at 337 set in September and October. This was a test of my semiannual resistance. The weekly chart stays negative on a close this week below the five-week modified moving average at 310.34.

Moving up the ladder of less-bad topping out patterns are the Russell 2000, Transports, NASDAQ and the S&P 500. The Dow remains positive but overbought as the top relative performer.

The weekly chart for the Dow stays positive but overbought on a close this week above its five-week modified moving average at 9,956. Ascending wedge resistance is 10,520 with the down trend at 10,612.

Disclosure: I Hold No Positions in the Stocks I Cover.

Comments

[thiazole]

The market action today reminds me of this article that you wrote and the comment I made at the end: seekingalpha.com/artic...

2009 Nov 23 10:38 AM

[Dollarhane]

Have a look at the bid to cover ratio's. They are all very strong and showing huge demand and more importantly demand which is matching the supply. Look for the time when we see the yields rise on the treasuries and this will lay the backbone for the USD to carry forth sustain a further drop.

Gold is really being controlled because people think it is going to go up and perhaps in a premature bubble. They are using the dollar falling and many other variables as excuses to drive the price higher.

2009 Nov 23 03:08 PM