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The Dollar Is Toast

By Jeff Clark
Thursday, October 30, 2008

What goes up must eventually crash and burn. And that's what is in store for the U.S. dollar.
 
For the past several weeks, the dollar has defied the laws of economy. It has rallied despite the never-ending bailout provisions of the U.S. Treasury. In the most amazing twist of irony since Mrs. Connelly, the First Lady of Texas, told President Kennedy, "You can't say Dallas doesn't love you," the dollar started to rally as soon as the Treasury announced plans to print billions and billions more of them.
 
Take a look at this chart...
 
 
This is beyond amazing. After breaking above resistance in early August, the U.S. dollar pushed higher into mid-September and then gave back about half the gains.
 
But the rally from mid-September until yesterday has been nearly straight up. Most currencies don't move 10% in a year. The U.S. dollar, though, rallied 15% in just four weeks.
 
Like I said... it's beyond amazing. It's parabolic. And parabolic trends always end badly.
 
The problem with charts that go straight up is there is no clear support zone on the way back down. If the chart continues higher, then there's no problem. But nothing goes up forever – just ask anyone who owned Internet stocks in 2000.
 
And on the way back down, we have to ask... At what price can buyers comfortably jump in for a low-risk trade?
 
The dollar has modest support around 81, but there's nothing really solid until way down at 76. That sort of a move would erase the entire parabolic gain over the past four weeks.
 
And it should produce a huge move higher for gold and silver.
 
I turned bullish on precious metals and the metal stocks a couple of weeks ago. After all, with the U.S. government and all the governments of the world printing currencies faster than ACORN prints phony voter registrations, precious metals had to rally. Of course, my timing could not have been worse. As soon as I said "buy," the dollar shot higher and the metals fell.
 
But I've stuck with the trade because logic is on my side. And despite all the emotion in the marketplace, logic eventually wins.
 
Yesterday, the currency markets took a giant leap in the direction of rational thought. The U.S. dollar suffered its worse one-day loss in eight years. Gold and silver both rallied.
 
There is no guarantee this one-day downtrend will continue. After all, logic hasn't spent a lot of time hanging around Wall Street lately. But you're more likely to find it there than in Washington D.C.
 
Best regards and good trading,
 
Jeff Clark




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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%