Test time for US Dollar Rally

Jul. 14, 2011 9:55 AM ETEUO, UUP, UDN, EU, DBA, DBC
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First off, I view the entire monetary and financial system as something of a Ponzi scheme. Starting with currency that is debt, and running straight though a global economic model that is based on a premise of infinite growth in a finite world. This won't end well. I'd go a step further and suggest that our materialistic value and belief system is another way in which we're building castles on sand... but I digress. I view that markets as a casino, and frankly, I like gambling. So I rather enjoy the game, and love reading Seeking Alpha and anything that feeds my appetite for knowledge and insight. I prefer technical analysis to fundamental analysis because I find the "behavioral" side of investing more interesting than longer term projections based on numerical analysis. I believe in micro-caps. I believe the market rewards growth above all else, and growth is easiest and most explosive when a company is young and small. As a company matures, its growth inevitably slows. Microcap stocks tend to be extremely volatile so I believe strongly in taking profits on the way up (or exiting quickly if the entry point proves poor). I attempt to buy stocks that are pulling back in the midst of a longer term uptrend. I hold anywhere from hours to years, but usually in the 3-6 month range. I committed every investing cardinal sin between first entering the markets in 1999 and 2002, losing 90% of my money. Since then, I've found an approach that works reasonably well for me. My average return has been about 25% annually since 2003.

It appears to be test time for the US Dollar, should a turnaround from its 12 month slide be in the cards.  The Dollar broke out bullishly from a flag pattern last week, only to be rejected at the 23% Fibonacci retracement of last June's high.  But has now fallen all the way back to the supporting trendline from its May bottom.

The Euro has rallied back to the bottom of the flag pattern that it bearishly broke under last week.  It bounced hard off trendline support from last year's bottom.  Will the Euro touch resistance and resume its recent downtrend?  Or will the longer term uptrend resume?

The answer, either way, is likely to be telling.  It's worth noting that both agriculture (DBA as a proxy) and broad commodities index (DBC as a proxy) look like they broke to upside of short-term trendline resistance yesterday.  Is that a clue that the Dollar's recent strength was a headfake?

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