The Dollar Needs Support
The market declined
yesterday, and it was our leaders that were hurt the most. Technology,
once a proud leader of the bulls crashed 1.4% yesterday. Comparably,
basic materials, our leader of the bears fell by the same amount. When
former leaders turn into top laggards, the indices are in trouble. All
stop losses have been updated to protect our long trades.
Since February 23rd, I have operated under the view that we had just
put in a short term high, but the longer term bullish trend is in tact.
Therefore, until the long term trend changes, we need to continue to add
to longs on dips; but keep stop losses conservative should the bears take
the market lower.
Our numbers to watch are fairly straight forward. On the Nasdaq
2700 is first support and the index will have support at 2665, and 2600
if that fails. The SPX has first support at 1301, then 1280 , which I
expect to be tested, and lastly a must hold support of 1250.
Thus far none of those support zones have failed.
The bears will get some help today, but not from the U.S. news.
According to Fitch, China has a better than 60% chance of having a
banking crisis by 2013. While that may seem unimportant (and it is) long
term investors should use that data to make long term investment
decisions. If Fitch was calling for a recession, it's not news, but a
crisis. That's bold.
But more near term, the bears could gather momentum this week if
the debt auctions of Portugal, Greece and Spain are poorly received.
Already this morning yields in Europe spiked in anticipation of a weak
auction. Not only will this impact European banks (which trickles to the
U.S.) but it impacts the euro, which has gained substantial ground on the
dollar.
As many of the veteran subscribers know, I am long
term bullish on the dollar, but in the near term I have been bearish for
many weeks. My long term bullish outlook was established in December of
2009 when I called for a bottom. At the time I was looking for support at
the 2008 low to hold and rally the currency higher.
After over a year, the folks at RBC, one of the biggest banks,
finally echoed what I have said the whole time. They even adapted my,
"the dollar needs to hold it here line or else it could collapse"
analysis. Here is the chart they unleashed this morning to the
public.
Our analysis is the same, for the most part.
Although they are more concerned with $76.50 where as I have placed $74
as the must hold level. Additionally, they expect a strong shift (in
sentiment) if the dollar breaks through support. Sentiment is another way
to say the dollar would collapse. While it remains to be seen what price
the dollar will charge to, it is great to see that the World's 12th
largest investment bank has the same internal playbook as TradeMaster
subscribers have used for the past year, maybe I should apply at RBC
Capital.
I went over the dollar again in last weekend's video. The weekly
videos are posted to the website. Video one highlights the market
activity, while video two goes over select stock setups. I recommend you
watch both videos this week HERE.
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