It appears a reversal in the dollar may be underway. Stocks are beginning a downtrend after a strong rally, the S&P formed a swing high and closed below the 10 DMA today, and currencies like the euro and Aussie dollar fell today. The dollar has been hitting extreme oversold levels for a few days now, it is just a matter of time.
We got about as close as we could in the Aussie dollar to our price target at 0.783 overnight as price traded up to .78175 at about 3:35 AM ET before dropping sharply until 6:50 AM in the morning. If the dollar is reversing it is doubtful that price will make it to our original target. We suggested our brokerage clients exit today near .774, to lock in as much profit as possible.
If we are in fact having a reversal in the dollar, it will provide many opportunities as the stock market and many of these commodities cool off briefly from this strong rally seen in some markets. Overall commodities are in a bull market, so the trend will continue up, but in the meantime this dollar rally should provide opportunities to cash in on a few shorts and buy in to other commodities at a lower price before the bull market continues. Depending on price action in the dollar we should have many opportunities in the next few weeks.
It could still be weeks before we recommend a gold or silver trade, but the precious metals are beginning to look interesting. Since last summer's high, gold has been in a brutal downward trend which has formed the handle of what appears to be a massive cup and handle pattern. It could also be considered a massive bull flag. Either way, we could be near the low.
Near term, gold has reached a resistance level near the 50 day moving average right as the 5 day RSI is reaching overbought levels. This is not the ideal setup for a trade you want to be buying into now, which is why we are not recommending buying in yet. We are also on day 22 of the daily cycle for gold which means it is about time for a DCL. Once the next DCL is complete that will be the ideal time for entry.
Silver, gold, and other hard assets stand to benefit from the broader rise in inflationary pressures likely to accompany Washington's spending spree. It's all being facilitated by debt issuance and the Federal Reserve's printing press, which it uses to buy the government bonds that no one else will. Given the extreme nature of the inflationary policies now being pursued in Washington, we still believe you shouldn't expect the 2020 highs in gold and silver to be any kind of ceiling.
I know many of you are wondering why we haven't been trading the past few weeks and I have explained to a few of you why but I figure it would be easier to explain on the website. To put it simply, the markets have been too volatile to catch a trending move in either direction.
Stocks - Where to begin, you will seldom catch us recommending to short the stock market indexes. Look at a stock chart going back 20 years and you will notice that it always goes up. To make it easier I posted a weekly chart of the S&P for the past 20 years below. Stocks have volatile events here and there but the cycles always resume and they continue higher It is much easier and less stressful to trade within the prevailing trend than against it. With all the talk about treasury yields and the threat of increasing interest rates, it seems as though stocks are either in a short term downtrend or consolidating in a large trading range, moving up 2% one day and down 2% the next day. Until it becomes clear that the market has picked a direction, catching a trending move will come down to being lucky rather than solid fundamentals. I like to trade when solid fundamentals give the best chance to make money.
Metals - Like stocks, you won't see us recommend a short metals trade unless we are clearly in a clear blood bath phase. Metals have been inconsistent since the beginning of the year. Clearly we have inflation in the commodities market with virtually every commodity overinflated for months. House and car prices have soared over %10 since last February, yet gold and silver which are the safe haven commodities for inflation somehow consolidate or drop? Clearly the metals markets are highly manipulated. Precious metals demand all over the world is increasing for solar panels and micro chips for cars, yet production is limited to the mines we currently have. Gold and silver prices should be well above all time high's. Metals are one of the most manipulated market in the world and have been for decades, but this year gold and silver markets have become virtually untradeable. The one bright side is platinum as it is an industrial metal making it reflect real supply and demand more than bullion bank price manipulation.
Energies - I had higher hopes for the energies market at the beginning of March but prolonged COVID lockdowns in Europe and mixed messaging from oil suppliers like OPEC have really mucked up trading this sector. OPEC met today to discuss how to handle the expected demand increase into summer. Many reports were saying before the meeting today that there would be no production increases until they see a demand increase which would likely push up price. What actually happened was OPEC decided to increase production gradually into July each month. This is neutral for crude and until we here more about Europe lifting COVID restrictions, I am not sure we will get much movement in the energies sector. Just today, France extended their lockdown by 4 more weeks. Oil will likely continue to trade near $60 a barrel.
Grains - Yesterday was an exciting day for grains as the grain stocks planting intentions report were released. Corn and soybean reports were bullish and they took soybean meal along for the ride. The report did not mention soybean meal, yet it sent the meal price soaring. Grains have been untradeable since the beginning of February, they have been consolidating in a short range for such a long period of time unable to gain momentum in either direction. Though grains have received bullish news, they are really to overbought and too highly valued for me to feel comfortable recommending a buy unless something significant happens and market news it to bullish for me to suggest shorting. I think grains may continue to consolidate at the current price level, they traded back down into the consolidation zone by close today following yesterdays positive report news.
Softs - This brings us to softs, really the best thing to trade at this point in time, likely because most aren't domestically grown making it less susceptible to our frustrating market conditions here in the US. COVID lockdowns have had an effect on supply and demand in this market but this market is still getting trending moves making it tradable. At this point in time this is the market I am watching the most for trade opportunities.
We are looking for trading opportunities but not just any trading opportunities. We want to be sure we are trading with solid fundamentals, without that we are better off going to a casino and throwing our money down on the black jack table. Sometimes it is better to sit on your cash and sometimes it is better to trade. Until we spot a good opportunity in this volatile market, this is the time to sit on your cash. Opportunities will present themselves in time, we cannot force them.
Tomorrow the commodities markets will close early for Good Friday Holiday. Most markets will close tonight, all markets will be close by 10:15 AM tomorrow morning for the weekend. I hope everyone has a great Easter weekend.
The Speculation page is used for educational purposes and to talk about our opinion on trades and what is going on in the market. All trade recommendations are made in "The Pit". This is also a blog page where you can ask questions, post your thoughts, or ask for help. Be sure to use an anonymous name. If you have any questions feel free to reach out to us via email.