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Bubble Alert

By Jeff Clark
Tuesday, August 4, 2009

We interrupt today's scheduled Growth Stock Wire to bring you an important update on an impending bursting bubble.
 
I was originally going to write about how to adapt to the influence of high-frequency trading, but that essay is going to have to wait until Thursday. There's a more pressing issue at hand: the effects of a dollar bubble.
 
No, the dollar is not in a bubble. But everything that trades counter to it is.
 
Right now, the dollar is breaking down...
 
 
 
As you can see, the dollar index has broken down below important support at 78.50. The next logical target is down around 76. Below that level, we're looking at something like 73 or so for any price support.
 
The dollar topped out in early March – just about the same time stocks and commodities bottomed. Since then, as the dollar has cascaded lower, stocks and commodities have rallied.
 
So there's clearly an inverse relationship.
 
The problem now is everybody – and I mean EVERYBODY – is bearish on the dollar. It's a doomed currency, and everyone is expecting its eventual demise. Of course, that was the case last December as well, just before the dollar kicked off a three-month rally that boosted the greenback 12% and sent stocks and commodities reeling.
 
From a contrarian point of view, a bottom in the dollar is near. Too many people are betting on its demise. And while they may eventually be proven correct, the market is likely to make them suffer in the short term.
 
We're probably no more than a few days away from an important short-term bottom in the dollar, which means we're probably close to a short-term top in the stock and commodities markets. Given the extent of the selloff in the dollar and the rally in all the other markets, a counter-trend move could be substantial.
 
A snap-back rally in the dollar will catch a lot of market participants leaning in the wrong direction. It could set off a type of "panic" move in the stock and commodities markets. Be ready for it.
 
The odds of it happening are higher than you think.
 
Best regards and good trading,
 
Jeff Clark 




In The Daily Crux
Market Notes
China Southern Airlines jumps 8% to a new high, joining rival China East Air.
 
Health care IT companies Cerner, HLTH, and Allscripts Misys climb to new highs.
 
Truck builder Oshkosh doubles in July after two military contract wins.
 
Earnings today... Archer Daniels Midland, D.R. Horton, CVS, Kraft, Whole Foods.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 37.77 +1.5% -2.8%
Gold 135.20 -0.1% +13.4%
Silver 27.93 +0.4% +47.9%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 19.39 -9.2% -8.2%
Gold Stocks 564.53 +1.3% +10.6%
10-Year Yield 3.00 +1.4% -9.6%

World ETFs
Symbol Price
Change
52-Wk
USA 122.56 +1.3% +10.2%
Canada 30.44 +1.3% +13.8%
Russia 21.63 +2.3% +16.7%
India 37.73 +1.9% +20.0%
Israel 16.47 +0.9% +9.7%
Japan 10.58 +1.0% +7.4%
Singapore 13.88 +1.0% +19.2%
Taiwan 14.72 +1.6% +17.8%
S. Korea 56.56 +1.7% +22.8%
S. Africa 70.85 +3.9% +22.9%
China 45.06 +1.4% +0.1%
Lat.America 52.82 +1.4% +6.7%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 136.18 +1.5% +14.8%
Big Pharma 64.13 +0.6% -3.3%
Internet 72.13 +0.7% +22.3%
Semis 16.03 +2.1% +28.9%
Utilities 31.21 +0.3% +1.6%
Defense 18.51 +1.3% +10.1%
Nanotech 9.99 +1.3% +0.0%
Alt. Energy 9.95 +1.4% -4.4%
Water 18.31 +1.1% +12.2%
Insurance 16.07 +1.2% +18.3%
Biotech 20.58 +1.1% +27.1%
Retail 19.65 +0.1% +28.4%
Software 24.59 +0.9% +24.1%
Big Tech 53.73 +1.0% +21.9%
Construction 12.99 +2.1% +13.3%
Media 13.57 +1.1% +25.0%
Consumer Svcs 67.26 +0.8% +23.3%
Financials 54.87 +2.4% +5.2%
Health Care 64.22 +0.7% +1.3%
Industrials 63.25 +1.6% +19.7%
Basic Mat 73.57 +1.6% +21.6%
Real Estate 55.24 +1.4% +23.8%
Transportation 91.17 +1.4% +25.6%
Telecom 22.48 +1.1% +17.1%