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Your Road Map for Trading the Dollar and Gold This Week

By Brian Hunt, Editor in Chief, Stansberry Research
Monday, November 1, 2010

Trading the dollar is getting easier...
 
About three weeks ago, we started writing about the coming rally in the U.S. dollar. First, Jeff Clark noticed how the dollar had suffered a huge decline... but was in the midst of a bullish chart pattern he likes to trade from the long side.
 
Then, I noted how the trading crowd had pushed speculative "hate the dollar" bets to a multi-year extreme... the kind of extreme that means everyone is on one side of the boat. Since the market always hurts as many people as it can, extremes like this usually result in the crowd getting dumped at sea.
 
Below, you'll find a three-month chart of a popular U.S. dollar fund (UUP). This fund rises and falls along with the dollar. As we expected, the decline in the dollar has stalled, with UUP bumping off $22.20 per share.
 
 
You'll also note that the rally we've been expecting hasn't materialized. Since mid-October, UUP has drifted sideways... and formed a short-term "base" we can monitor.
 
If the dollar is in for a rally, it's going to blast out of this $22.20-$22.60 area and head into the $23-per-share range. While this move doesn't sound like much, it's a big jump for a major currency.
 
Since commodities tend to move in the opposite direction of the dollar right now, a UUP move up to $23 would lead to commodities like gold, copper, and oil suffering corrections. You'd want to be long the dollar, short the euro, and avoiding commodities if this move happens.
 
If all of the problems the dollar faces (the two biggest being government debt and government debt) manage to pull the dollar even lower, UUP will sink past the $22.20 level. This would cause commodities and gold to surge.
 
So make sure to add UUP and the $22 range to your watch list. When assets like the dollar get into extreme situations like we've detailed in the past few weeks, they're often followed by huge moves. We now have a "road map" to trade it either way.
 
Good trading,
 
Brian Hunt




Further Reading:

If you're long commodities right now, you're in the crowded "anti-dollar" trade. You've been right so far... but don't add to your position without a look at Brian's recent essay here: Before You Put a Cent in Commodities, Read This.
 
For the technical side of the "anti-dollar" trade, Jeff Clark assembled a couple of can't miss charts. Find them here: We Could See a Huge Rebound in the Dollar Right Here.

In The Daily Crux
Market Notes
Natural gas jumps 10% last week… breaks out of 4-month downtrend.
 
Ag giant Monsanto up more than 25% in October thanks to ag boom, insider buying.
 
Jewelry giant Tiffany breaks out to 52-week high.
 
Earnings today... Simon Property (big mall REIT), Anadarko (oil and gas exploration).
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1184.38 +0.1% +14.3%
Oil 35.81 +1.8% -8.9%
Gold 131.92 -0.5% +28.7%
Silver 24.07 -0.4% +49.8%
US-Dollar 77.03 -0.3% +0.8%
Euro 1.39 -0.4% -5.6%
Volatility 21.83 +3.0% -28.9%
Gold Stocks 523.07 +0.2% +33.8%
10-Year Yield 2.63 +0.8% -22.4%

World ETFs
Symbol Price
Change
52-Wk
USA 118.53 +0.0% +14.5%
Canada 29.03 +0.4% +21.7%
Russia 20.07 +0.5% +13.5%
India 38.65 +1.2% +37.8%
Israel 16.52 -0.9% +19.7%
Japan 9.92 -1.0% +3.9%
Singapore 13.79 +1.1% +31.6%
Taiwan 14.03 +0.9% +20.8%
S. Korea 55.35 +1.8% +29.1%
S. Africa 68.10 +0.6% +31.4%
China 45.43 +1.0% +8.9%
Lat.America 52.58 +0.9% +22.1%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 119.77 +0.5% +2.3%
Big Pharma 65.55 +0.1% +7.3%
Internet 68.75 -1.5% +28.5%
Semis 14.33 -1.1% +29.5%
Utilities 31.41 -1.0% +10.6%
Defense 18.00 -0.1% +16.6%
Nanotech 9.26 -0.9% -3.3%
Alt. Energy 9.89 -1.1% +2.3%
Water 17.23 -0.8% +9.6%
Insurance 15.84 +0.8% +19.0%
Biotech 19.89 -0.5% +30.0%
Retail 17.67 -1.1% +21.0%
Software 23.76 -0.2% +24.9%
Big Tech 52.22 +0.1% +27.5%
Construction 12.01 -0.5% +7.0%
Media 12.96 -0.5% +25.1%
Consumer Svcs 64.15 -0.1% +25.8%
Financials 52.98 -0.1% +6.3%
Health Care 64.22 -0.1% +11.9%
Industrials 59.69 +0.0% +24.0%
Basic Mat 68.79 +0.2% +30.2%
Real Estate 55.36 +0.7% +36.5%
Transportation 85.78 +0.0% +32.6%
Telecom 22.04 -0.1% +27.1%