• 12 hours Low Prices Plague Beleaguered Lithium Miners
  • 1 day Is This The Big Biotech Bust?
  • 1 day Funding Is The Biggest Hurdle For Clean Energy
  • 2 days Walmart Reaches Out To Chilean Government For Protection
  • 2 days The Most Exciting Gold Find Of The Decade
  • 2 days Mining Boom Sparks Deforestation Concerns
  • 3 days The Cannabis Culling Has Wall Street Disappointed
  • 3 days Vigilante Offers $100,000 Bounty To Hack Banks
  • 4 days The Dairy Industry Is Dying
  • 4 days The Most Impressive Electric Vehicle Of The Year
  • 5 days Gold Miners Are Having A Stellar Second Half
  • 6 days How 3D Printing Is Turning Each And Every Industry On Its Head
  • 6 days Is The $3.5 Trillion Healthcare Industry About To Get Much More Transparent?
  • 7 days Gamblers Are Betting Big On Trump’s Impeachment
  • 8 days Even Banks Can't Answer Aramco's Trillion Dollar Question
  • 8 days Will Bezos Buy The Seattle Seahawks?
  • 9 days 6 Tech Trends Transforming The Travel Industry
  • 9 days Ousted Uber CEO Cashes Out $500 Million In Stock
  • 9 days Trump Prepares For Another Key Tariff Decision
  • 10 days The Free Money Bubble Is About To Burst
Is The Bull Market On Its Last Legs?

Is The Bull Market On Its Last Legs?

This aging bull market may…

Another Retail Giant Bites The Dust

Another Retail Giant Bites The Dust

Forever 21 filed for Chapter…

Zombie Foreclosures On The Rise In The U.S.

Zombie Foreclosures On The Rise In The U.S.

During the quarter there were…

  1. Home
  2. Markets
  3. Other

Putting Some Numbers to the Dollar's Decline

Two weeks ago, the bond markets were indicating economic weakness, and rates headed lower. Last week, prior to Friday's jobs report, some new data showed a "stronger" economy, and rates had a bit of a bounce. On Friday, the economic recovery got a dose of reality as the jobs report was rather weak. Rates gapped lower at the market's open, and gold had an excellent day as it makes an assault on the $430 level.

Several weeks ago I suggested that precious metals were a buy because rates were headed lower (see report from mid-September). While I believe that even lower rates will be in our future, I think another dynamic is at work for the precious metals and that is, gold and all other hard assets are headed higher because the dollar is headed lower.

Economic expansion? The data doesn't support it.

Accommodative policy from the Federal Reserve? The bond market seems to suggest it.

Further devaluation of paper money? That's what the markets seem to be saying.

Figure 1/ Dollar Index/ daily

Figure 1 is a daily chart of the Dollar Index. Price is on the verge of definitively breaking through the double bottom support at 87.82. Also note the low volatility squeeze as indicated be the squeeze indicator in the bottom panel. (The squeeze indicator measures the distance between an upper and lower Bollinger Band and then compares that value to other values over the last 2 months; the current value is currently in the lowest 5% of values over the last months.) Low volatility usually begets high volatility and leads to a substantial move. As I have stated above, the dollar appears to be headed lower. Support is 86.29 and, a break below this level would be absolute confirmation that the bear market in the dollar continues.

But let's put some numbers to these observations, and look at a weekly chart of the dollar. See figure 2.

Figure2. Dollar Index/ weekly

As you can see, price has already broken below the up trend line (points AB), and the question I want to ask is: how reliable of a signal for lower prices in the dollar is a break below an up trend line? To answer that question I have constructed a trading system utilizing the Price Structure Analysis™ indicator. The Price Structure Analysis™ indicator allows me to construct trend lines by connecting pivot points, and then I can determine how price behaves above or below this trend line.

The premise of the system is to short the dollar when there is a break below an up trend line formed by two consecutive low pivot points (black dots). This is the situation with the price action in the dollar now. No stops were used, and positions were closed when the 5 bar moving average of price closed above the lower band of the trading/ thrust channel. The results are shown in table 1.

Table 1. Dollar Index Short trading system
Dollar Short System
Index Dollar
Time Period Studied 17.9 years
% of Time in Market 19%
# of Trades 12
% Profitable 58.33%
Annual Rate of Return 69%
Return on Account 468%
Buy and Hold Return -25.5%
Select Profit Factor 4.93
Average Win::Loss 3.52
Rina Index 60
Stop Loss none
Greatest Loss 3.1%
Consecutive Losers 3

Of note, the biggest losing trade was a lost of 3.1%; the other 4 losing trades were closed for losses of less than 2%. The biggest draw down on an individual trade basis was at 7.66%; the remaining 11 trades experienced no greater than a 3% move against one's position.

Summary

Whether there has been an "all clear signal" on the economy continues to be a matter of debate. Rates and the dollar are headed lower, and commodities and hard assets should go higher.

That's The Technical Take!

Thanks for reading and I hope you have found my commentary insightful and profitable.

Back to homepage

Leave a comment

Leave a comment