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The Most Popular Trade Today Is Ready to Capsize

By Jeff Clark
Tuesday, June 8, 2010

All of a sudden, everyone loves the dollar.
 
It was only a few short months ago when the entire world despised the greenback. The euro was the currency of choice. And the favored trade was to be long the dollar and short the euro.
 
My, how times have changed.
 
The U.S. dollar index (USD) has been rising for six months and is 16% higher than when I first warned of an impending dollar rally back in September. Calling for a rally back then was easy. Sentiment toward the dollar was so bearish, and the anti-dollar trade was so crowded, the market was destined to go the other way.
 
That's how the market works. It coaxes everyone over to one side of the boat and then tips it over.
 
Today, it's the long-dollar trade that looks ready to capsize.
 
No one is bearish on the dollar anymore. Why should they be? After all, Portugal, Italy, Greece, and Spain are teetering on the edge of bankruptcy. Germany is withdrawing its support for IMF and European Union bailouts. And the euro appears ready to implode.
 
The U.S. dollar, in spite of the banana republic hijinks of our Federal Reserve Board, is once again a safe haven for what's left of the world's wealth. The most popular trade today is to be long the dollar and short the euro.
 
But if you're hanging out on that side of the boat, you might want to grab a lifejacket.
 
Take a look at this chart...
 
 
The dollar has rallied all the way back to the high it established during the financial panic in early 2009.
 
In doing so, it has traced out a bearish rising-wedge pattern (in red) – which is the exact opposite of the bullish falling-wedge pattern (in blue) that warned us of the impending rally.
 
Charts usually break out to the upside of falling-wedge patterns. And they break to the downside from rising wedges.
 
This looks bearish to me.
 
If you've profited off the long-dollar trade, congratulations. Now, however, it's probably time to grab something that goes up when the dollar goes down and head over to the other side of the boat.
 
A nice big chunk of gold or maybe a barrel or two of oil sounds good to me.
 
Best regards and good trading,
 
Jeff Clark




In The Daily Crux Recent Articles
Market Notes
Gold stocks take charge... sector gains about 4% as gold prices head back toward $1,250.
 
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Nokia hits fresh 52-week low as Apple unveils newest iPhone.
 
Earnings today... Dollar General (discount stores), Talbot's (women's clothes).
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1062.00 +1.1% +13.1%
Oil 33.19 +1.8% -11.6%
Gold 121.00 -0.4% +29.3%
Silver 17.89 +0.5% +21.2%
US-Dollar 88.11 -0.4% +9.0%
Euro 1.20 +0.5% -13.9%
Volatility 33.70 -7.9% +13.2%
Gold Stocks 462.11 +1.1% +25.9%
10-Year Yield 3.17 -0.3% -18.5%

World ETFs
Symbol Price
Change
52-Wk
USA 106.62 +1.1% +13.2%
Canada 25.91 +1.7% +13.8%
Russia 17.09 +1.0% -28.8%
India 28.62 +1.2% -5.7%
Israel 13.45 +0.4% +20.1%
Japan 9.27 +1.0% -0.6%
Singapore 10.87 +0.9% +17.3%
Taiwan 10.98 +0.9% +5.4%
S. Korea 44.38 +2.0% +25.7%
S. Africa 53.38 +1.8% +13.0%
China 38.82 +2.2% +0.7%
Lat.America 42.52 +2.3% +18.9%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 92.64 +0.1% -13.7%
Big Pharma 58.73 +0.8% +2.6%
Internet 52.65 -1.2% +19.7%
Semis 12.04 -1.0% +11.3%
Utilities 28.66 +1.3% +6.4%
Defense 16.52 +0.7% +9.3%
Nanotech 8.56 -0.2% -3.3%
Alt. Energy 8.13 -0.6% -24.4%
Water 15.31 +0.5% +1.8%
Insurance 14.07 +1.1% +15.2%
Biotech 17.16 -0.5% +27.7%
Retail 16.42 +0.7% +12.1%
Software 20.58 -0.3% +24.6%
Big Tech 44.19 -0.2% +20.5%
Construction 11.46 -1.0% +0.3%
Media 11.71 -0.3% +29.7%
Consumer Svcs 57.30 +0.6% +24.8%
Financials 50.84 +1.7% +14.9%
Health Care 58.70 +0.1% +12.8%
Industrials 52.43 +0.8% +17.5%
Basic Mat 54.95 +2.4% +18.6%
Real Estate 47.80 +1.8% +36.5%
Transportation 74.08 +1.1% +23.6%
Telecom 19.03 +0.6% +7.1%