Thursday, October 11, 2012
The rally in the U.S. dollar should continue at least a little while longer.
What dollar rally? Why... I'm talking about the one that started one month ago – right after the Federal Open Market Committee (FOMC) announced a third round of quantitative easing (QE3).
So far, it has been a quiet rally. But it may be about to gain some momentum. Take a look at this chart of the U.S. Dollar Index...
When I first showed you this chart last month, the dollar was plummeting toward support near 79. Sure enough, it touched that level and started to bounce higher. So far, the rally has been choppy. But the greenback is tracing out an ascending-triangle pattern (the blue lines on the chart above). If it can break out to the upside of the pattern, the dollar should quickly run up and test resistance above 81.
I know a one-point move on this index doesn't seem like much. And frankly, it's not. But most other financial assets trade opposite of the dollar. They rally when the dollar falls... and they fall when the dollar rallies even a little bit.
Stocks have fallen back to where they were just before the FOMC's "historic" QE3 announcement. Precious metals and oil are down. An extended rally in the dollar will likely keep the pressure on other financial assets for a while longer.
If you're thinking about jumping into stocks or precious metals in anticipation of a year-end rally, be sure to keep an eye on the dollar. The best time to buy will likely coincide with the dollar bumping into resistance just above 81.
Best regards and good trading,
"The S&P 500 is trading at a four-year high, precious metals have exploded higher, commodity prices are off the charts, and nothing looks 'cheap' anymore," Jeff wrote last month. "Maybe it's time to buy the buck." You can get the full story – and learn how Jeff spotted a rally in the dollar – here: The Last "Cheap" Asset to Trade.
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