Technical Support Levels Broken & US Dollar Rally
Since my entry on this blog dated October 20th, one that talks about the potential of us testing 7500 on the DOW sometime in the next 12-24 months I’ve been keeping a close eye on the technical underpinnings to see just when this might happen. In that post I talked about the risk/reward scenario from the 11,100 area and that we might have one more push to 11,400-11,700 before the meltdown begins.
Well since that blow off top we now traded down and have recently broke the technical uptrends that momentum players love. Not only has the major indexes lost its upward momo but also the US Dollar has bottomed (see my post of the US Dollar Bottom – Island Reversal).
The dollar is now poised for a hard rally that will cause the equity market to fall – and based upon what I’m seeing this is going to be a very swift downward move as the dollar will move sharply higher – some might use the word “Violent” because the moves we will now see will be “Violent”. Volatility will be back in the market during this move and the traders will be in and out of positions before days end to ensure they have “Cash In Hand”. We will once again here the term “Throw the Baby Out With the Bath Water” on CNBC by all the talking heads.
Cash is now king again IMO and we are going to spend the next 2 years unwinding this latest fed induced credit bubble. During this time we will finally see a bottom in housing – at least another 20% decline and the jobs market will finally gain about 150k each month – the 150k a month number is the new jobs we need to add each month just to keep us at 9.5% unemployment.
As for how far we can drop? – Well that all depends over what time period. I am pretty certain on this first leg down we are looking at a 10% drop from this level with the back drop of trading down a lot further at any point in the next 12-16 months. Just how low? Well about 30% before I would feel safe about the risk/reward scenario being on the long side!
Disclosure: no positions