What the Dollar Rally Means

For most of August and the first half of September, the trades we recommended did not perform well.  Most of these assets needed resolution by the dollar which way it was going to go.  Although we were correct on the direction, it was impossible for us to know the timing.  It is clear now however that the dollar wants to go higher.  When price finally breaks above the intermediate cycle trend line, we will have confirmation that a new intermediate cycle is underway. 

Today marks day 16 of the daily cycle.  By the time the dollar reaches the IC trendline I think it would be reasonable to expect the dollar to take a breather before breaking above and resuming the rally.  At this juncture, it is also reasonable to expect that the metals, grains, etc could catch a small bounce.  If you are shorting at this time that should be fine, but those commodities are not going to go straight down. 

Once the dollar breaks out above the IC Trend line, there is a lot of room to go before the dollar reaches the 200 day moving average.  It is my expectation that this will mark the end of the dollar rally.....somewhere around 97.   I think this rally will coincide with intermediate cycle lows in stocks, energy and the metals.  Buying at the ICL in those assets needs to be our ultimate goal.

As I mentioned, the IC Trendline will probably halt the dollar advance for a day or two.  This will probably line up with when gold reaches the psychological 1800 support level.  I would expect a bounce here but that is all.  Once the dollar resumes it's rally, we will probably see gold break through 1800 which should trigger a lot of stops.  If you are short, this is when the real fun will begin.

If 1800 fails, and I think it will, the triggering of stops will create a blood bath event.  There will be panic selling on behalf of trapped long traders.  These kinds of moves can create incredible gains if you are short.  Selling continues until there are no sellers left.  This is what cleans sentiment and prepares the market for the next move higher.  

Gold, stocks and currencies all have a long way to go yet before things ultimately turn and go the other way, but getting to the point where we can be long again in stocks, metals and energies is our ultimate goal.  The dollar is key to all this.