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Gregory Mannarino's  Instablog

Gregory Mannarino
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I started my financial career working for the securities and trading arm of the now defunct Bear Stearns before thedot-com bubble. I am an active trader of the capital markets. I have published several books pertaining to finance, global economics, and equity trading; My most recent book is... More
My company:
TradersChoice.net
My blog:
MarketReport
My book:
Ultimate Guide To Money And The Markets..
  • The US Dollar May Be About To Go "Supernova." A Black Swan?

    Gregory Mannarino TradersChoice.net

    While it is certainly no secret that the US dollar has gained significant strength as of late, what most people do not realize is more gains may be coming. (A possible very bad omen).

    Some of this "phenomenon" regarding US dollar strength may lie in the usual knee jerk "flight to safety" reaction being fueled by a plethora of geopolitical events which are all occurring at the same time. It is also being fostered by the fact that world central banks are all engaged in weakening their currencies, bond buying programs, interest rate suppression, and other "stimulus" programs.

    The fallout of this new found dollar strength is hitting Wall Street hard as multinational companies struggle to compete with currency exchange rates. Further, the dollar strength is putting the Federal Reserve in a very precarious position as well. The US central bank is attempting to fight this deflationary environment at this time by printing epic sums of cash out of thin air at a blinding pace. However, despite this action by the central bank the Labor Department just reported that in January US consumer prices posted their biggest drop since 2008! This puts the Federal Reserve again in a bit of a quagmire as any talk of a "normalization" of interest rates seems all but impossible.

    If as I believe is possible the US dollar may not only gain further strength moving forward, but much more, this will present an enormous problem for multinational companies, Wall Street as a whole, and the Federal Reserve.

    Moreover, the Federal Reserve is already running the risk of creating a major inflationary event moving forward. Eventually all of these newly printed out of thin air bills will make their way over to the consumer side of the monetary base chasing the same amount of goods. The Federal Reserve's current effort to "fight" this new dollar strength can only exacerbate the problem moving forward.

    Much of the reason why we are not seeing the effect of mass "money printing" in the form of inflation right now has to do with the money velocity being near historic lows. Personally I believe that whatever model the Federal Reserve uses to determine the "lag effect" of money printing is grossly off base, and I have no doubt that the Fed. Realizes now that there is a problem. Hence their "putting off" of actually raising interest rates.

    The question is: what event or series of events could cause a mass wave into the "safety" of the US dollar? In truth this remains to be seen however as investors, we need to consider the possibility that this may indeed occur.

    If this "US dollar supernova event" does occur, a possible outcome could be enormous pressure on the stock market which is already by every technical measure and fundamental standard grossly overvalued.

    Further, for those with 401k plans and the like, massive losses in their value could be potentially devastating.

    Feb 28 3:25 PM | Link | 1 Comment
  • Looking Forward: Next Week High Potential For Hard Fall In The Stock Market.

    It is no secret that the month of February has been one of stellar performance in this market, but things may be about to change.

    One week ago I wrote an article in which I explained that I believed the stock market would gain, and it did. Here is a link to that article: Further Pondering Next Week In These Markets.

    Well looking forward to next week things are looking a bit different.

    Have a look at this 4 month chart segment of ticker (NYSEARCA:SPY).

    It appears that the price action of (SPY) has just reversed off resistance and may attempt to make a run towards its 50 day MA. If you notice, the last time we saw a price action reversal off the top Fibonacci retracement we had a sharp drop which went straight through and bounced off its 3rd Fibonacci retracement. I believe that the recent bounce off resistance may possibly push (SPY) back down to its 3rd Fibonacci retracement again.

    In light of what appears as more traders betting that this market will fall, (see this article Despite Record Highs With Stocks, Traders Continue To Bet Market Will Fall.) I believe that the probability is strong that we will end next week with a loss.

    What's your take?

    Happy trading!

    Feb 27 4:57 PM | Link | 3 Comments
  • Despite Record Highs With Stocks, Traders Continue To Bet Market Will Fall.

    Now even the mainstream financial pundits are calling this market "stretched," and most traders agree.

    It is very hard to argue that this market is fairly valued by any measure. Moreover, despite continued round after round of bad economic news (today we got a downward revision of GDP for example), the market continues higher.

    I believe a lot of this has to do with more and more market participants believing that:

    1. The Federal Reserve will not be raising interest rates anytime soon despite the rhetoric, and

    2. Market participants also believe that the Federal Reserve will continue to support this market at all costs.

    Have a look at this options statistics sheet on ticker (NYSEARCA:SPY) as of today.

    (click to enlarge)

    As you can see the call/put ratio is better than 2:1 favoring puts.

    I firmly believe that this market is completely disconnected from the fundamentals supporting it, therefore a big correction is not a matter of if, but when.

    Happy trading!

    Feb 27 3:05 PM | Link | Comment!
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