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10/29/2010 - $DXY, the only chart that matters this week

Month End:

  • While October was a time of uncertainty and confusion, we managed to do well, with the cumulative return from all trades this month being at+25.59%. The best trades came from the negative side of the market, with VXX rising and COF declining. Some positions (COF, EWG, SH) are still open, but the p/l for them will be reset to 0%, as the returns from them up to 10/31 were recorded for October. 

General:

  • Basic Idea Going Forward: Due to the USD (govt forced) decline, foreign markets have rallied along with their currencies. Currently, foreign markets are very strongly correlated to their currencies and inversely correlated to the USD. Based on how the charts look, I would predict a newer low in USD, USDJPY, and a boost in SPX to around 1200, and that will all be the last up move before a decent correction in markets down and USD up. The USD is too oversold to stay down here, and I don’t think Ben can fit $2T in his helicopter. To play the short rally up in SPX and down in USD, I might use INXX, as it has pulled back to its .38rt and 50dEMA. There are plenty of things to play on the downside if the USD is trend up from here, but the key part of that is if the USD reverses to trend up. The rest all depends on that. 
  • problems for bonds, esp highyields due to increasing value of currency?
  • exiting EWG around 24.6 (resistance), then will enter again at a lower price if  technicals and fundamentals are good
  • long OIL target ~25???
 

Disclosure: long SH, short COF, long EWG