Thursday December 11, 2008 - 16:44:10 GMT
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Black Swan Capital - www.blackswantrading.com
Turning to the Technicals for Guidance
â€˘ The number of Americans filing first- time claims for unemployment benefits surged more than forecast last week to a 26-year high. (Bloomberg)
â€śIâ€™m not confused, Iâ€™m just well mixed.â€ť
FX Trading â€“ Turning to the Technicals for Guidance
Weâ€™ve told our story as to why the US dollar has possibly entered a multi-year bull market. And depending on where else you dig for investment advice, you may have also heard why the US dollar has not entered such a bull market ... why this is only a correction in the major long-term downtrend.
To us, thatâ€™s the OLD story. And it seems that those sticking to the old story are failing to recognize the importance of some key changes to the global financial system and economy. Iâ€™m not sure exactly why a potential US dollar bull scares some so much. Maybe it has something to do with gold.
Anyway, with the fundamental drivers out on the table itâ€™s only a matter of time till we find out who is right about what direction the dollar will take over the coming months and years. Weâ€™re not 100% confident our story will prove true. And weâ€™re far less confident the old story will prove true.
So as we press on we seek out confirmation as to whether weâ€™re right ... or weâ€™re wrong. Beyond monitoring the latest data on interest rates, GDP, exports, et cetera, itâ€™s in technical analysis of price charts where we search for confirmation.
The extent of technical analysis is mind-boggling. With so many different types of momentum indicators and trend studies itâ€™s easy to get overwhelmed. That said, we try to keep it simple: trendline analysis, basic moving averages, Fibonacci retracement levels ... stuff like that.
About as deep as we get into the realm of technical analysis, so as not to cloud our perspectives, is with Elliot Wave. Elliot Wave theory is very deep, but its basic purpose is to help indentify repetitive, predictive waves. These waves form and repeat themselves as pieces of larger waves, and so on.
From where we stand now, we see this most likely wave scenarios shaping up in the nearer-term ...
Dollar Remains in Wave 4 Corrective Move â€“ More Downside Ahead
As it is now, wave 4 of this move is not set in stone. Elliot defined corrective trends as consisting of three-wave patterns (e.g. a-b-c). So the dollar could continue lower before wave 4 is complete. The following chart shows how this might potentially play out.
(Chart unavailable in text format.)
Thatâ€™s where we are now. Around 8310 on the dollar index is the next chart support (trading at 8411 now). The next key Fib support comes in at 8190 and wave C as an extension of wave A comes in around 8150. So maybe thatâ€™s the first viable target?
What we do find a bit odd is the relative currency move todayâ€”the entire pack is rallying against the buck. Could this be something â€śwholesaleâ€ť?
The correlations we are used to seeing are â€śout of whackâ€ť a bit. E.G. both the yen and euro are sharply higher against Greenieâ€”not a pattern weâ€™ve seen for some time. Stocks are bidding lower and bonds are higherâ€”it ainâ€™t helping the buck, yet this pattern has mostly been supportiveâ€¦hmmm. Some are saying the move higher in gold means concerns are now becoming US specific. Given todayâ€™s dollar action we have to be wide open to that potential.
John Ross Crooks, III, Black Swan Capital LLC
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