Dollar Rally
August 16th, 2008WARNING: This is not a recommendation to buy, sell or hold any financial instrument.
On August 8th, with regard to the U.S. Dollar Index and dollar bears, I wrote:
U.S. Dollar Index, Weekly Interval
We need to keep a close eye on this now because it has the potential to turn very ugly. I encourage everyone to draw their own lines in the sand.
Here’s mine:
I’m not staying short the dollar if we get a weekly green candle close above that upper channel line.
Welcome to very ugly.
Why is the dollar gapping up?
Fiat paper confetti wealth is trying to flee from asset to asset, currency to currency, continent to continent as the whole damn show unwinds. We’ve seen recent, post real estate collapse bubbles in the grains, metals, oil, euros and now, as ridiculous as it sounds, the juice appears to be going back into U.S. Dollars.
From a technical perspective, it appears that a watershed event has occurred on the dollar. I’ve never referred to a monthly interval chart before on Cryptogon, but I’m going to here. The chart below shows us over two years of activity on the U.S. Dollar Index, with each candle representing an entire month.
U.S. Dollar Index, monthly interval
While the August candle obviously hasn’t closed yet, there are a number of factors worth mentioning.
The parabolic SAR has been bearish since 2006. It just flipped to bullish on the August candle.
The upper channel line, that has contained all of the action since 2006, has been breached to the upside.
The stochastic, in extreme oversold territory for years, is pulling up and away. Note the trend line over the stochastic.
Not only is the MACD histogram slope positive, there is a cross up for the first time in years.
Finally, RSI has broken up and out.
I told you guys where the edge of my tolerance was for holding out bearish… I executed my stop in a mechanical, dispassionate manner.
I closed my UDN position, ate the loss and took out a hedge (against my NZD and physical gold) with UUP. Since then the move has just kept going. Please, PLEASE understand that UUP is going to pull back as this move consolidates. I went into it as a hedge, so if it pulls back, it means my other positions will increase, and vice versa.
If you’re looking to speculate here, be very careful because you could get whipsawed. I’d wait for the daily stochastic to pull back and buy a cross up anywhere below 60. My goal is to just stay as flat as possible through this period of chaos. As such, I just pulled the trigger fast on the chase.
How much of my gold have I sold throughout this… massacre?
Not one gram. The fact that I’m having to hedge my physical gold position with a bullish dollar vehicle is prima facie evidence that this economic system is capable of fabricating its own absurd reality—a reality that I can’t comprehend in any logical way. At some point, I have no idea when, the grand illusion will unwind. History teaches us that that these Ponzi schemes always do.
The markets (internationally) have become so damn weird and manipulated that I don’t think its possible to trade/invest “normally” anymore (not that it ever was that normal trading the International Casino aka stock markets).
Which brings us to some important questions…where does one store ones wealth as you accumulate it in this mad world?
Gold?
Silver?
ANY paper currencies?
Or just stick to food and essentials?
I just don’t know anymore…
My thinking is that dollar is just like any other stock or bond or financial instrument. And for now I could gives two shits about whether the dollar is “rallying.” Rally round the flag pole, wave your American flags.
I was away from the world of interest when this all occurred, and I’m not surprised that it happened. The dollar is after all, a financial instrument of sorts.
I also learned while away that a former friend from high school, who became a billionare, yes, who used to speak on CNN, and who made their fortune on REIT (Real Estate Investment Trusts) who claimed that they only dealt in jumbo loans to the wealthy is going belly up. Bankrupt.
Shocking really. To actually know who the person is that this is happening to.
But it makes me dig in my heels harder on gold and silver.
The bankruptcy of this company, its all funny money. Paper. Electronic transactions.
The dollar is rallying and gold and silver are “dwindling” in value because this is what they always do in August.
I’m not selling. Come September, we’ll be lucky if the dollar is worth a pot to piss in. Sheesh, if gold is worth 50 cents an ounce, it will still be more worthy than the once all mighty buck!