Opening Whisper

I have to admit it. I am schizophrenic on the dollar's future. On one hand, I understand the forecasts of those economists and financial reporters who certainly know more than I do regarding the US deficits. The extreme deficits are obvious on several household and governmental levels. They seem to know that there is only one way out of our fiscal bondage and that I'm told is repudiation. Let them lend us the expensive dollars so that we can buy their goods and we will pay them back with inflated and undervalued "green(span)backs". What a deal! I hear the prophets of dollar doom, among them, Gates, Buffet and the front cover of Newsweek magazine from March 21 - "The Incredible Shrinking Dollar" telling us for sure that the dollar has room to fall.

As a contrarian however, when I hear all the negative buzz on the USD$ I get a little nervous about my gold investments. And sure enough, just as that cover of Newsweek hit the stands, the dollar index began to rally. Was that the bottom? Maybe. Consider the remote possibility that China and Japan DO NOT repudiate their dollar assets and instead use the US dollar as their "currency of last reserve" NO MATTER WHAT HAPPENS! Might they choose to peg their economic future to the economic future of the United States because they have few others who buy their goods like we do. They might do that if they realized that their economy could worsen more than that of the U.S. if they don't. What if they believed that the near term future of the U.S. was likely to be only a "minor" recession? Might they decide just to grit their teeth and weather the short term impact on their US dollar holdings? If this were true, commodities, oil and gold might blow a gasket until the world economies picked up again in a few years. Inflation would remain muted until demand kicked in for the next economic cycle.

But then I heard John Snow on CNBC this morning and he's telling us how the Treasury Department is working with China on "their forward hedging" of the dollar? Huh? What did he just say? I know that is not news. But he said it on TV! Does that sound like a strong dollar policy or someone who is telling the world to hedge their bets AGAINST the dollar? Not surprisingly, the dollar index fell after the interview.

As always, we will let the charts, and the markets tell us where the dollar is headed.

From last week - After my squawking about the iPod and the personal electronics bubble, Apple Computer was down 19.2% for the week. Sorry Steve.

Our Trading System - What The Numbers Are Telling Us

The Nasdaq 100 got crushed this week, down 5.2% and we made some money in the process. We were tempted to take some money off of the table thinking there might be an oversold bounce next week. I'm glad I didn't. The QQQQ's (proxy for the NDX) were down more in after hours (-0.35%) on Friday. The current slide this week will likely carry over into next week. It was option expiration day on Friday so I also reviewed the QQQQ put/call ratio for May. Guess what. On a day when the QQQQ's got crushed, the put/call volume ratio today (for the May series) was 0.42. That means they were buying call options at 2.5 times the rate of puts. And most of those call options today were at the 37 strike price. There is no fear in these guys! NYSE share volume on this down week was huge adding to the credibility of the downdraft.

On Friday the April Empire State Manufacturing Index fell dramatically to 3.1 from a revised 20.2 in March. Economists were expecting something near 19 or 20. Index numbers above zero imply expansion and below zero imply contraction. This number is rapidly moving toward contraction. This is more evidence that the economy has slowed dramatically since the first of the year. The Empire index is used as a forecast for the Institute of Supply Manufacturing Index (ISM) which will be out on May 2^nd. You can read more about the latest Empire State index release in an article by Greg Robb on Investors.com (http://www.investors.com/breakingnews.asp?journalid=27026897&brk=1).

NDX - 6 month Chart Model - Friday April 15, 2005

What Is The Current Sentiment?

The VIX has risen dramatically this week after falling fast last week indicating that complacency is moving toward fear. (17.74 close, Friday peak of 18.05)  The VIX exceeded our target 16 level where we thought we might get a bounce, but it got there so quickly that we need to wait and see now if it is going to get to the 20 level where it peaked last August and resulted in a bounce.

VIX Volatility Index - 12 months

The CBOE Put/Call ratio (chart below) has rallied this week and the 8 day moving average (1.03) has exceeded the March 18 peak where we got an ever-so-slight bounce. I want to wait for the 8 DMA on $CPC to peak, roll over and cross below the 18 DMA before we start the countdown for a rally. We don't want to be premature in looking for a bounce.  It may be a couple of weeks off yet.

This $CPC chart is very important and along with the above $VIX volatility chart will tell us when we get oversold and are ready for a rally. That bounce might come at Dow 9,999 or the October 2004 lows of 9,708. It doesn't look like we are ready to bounce just yet. We may have some more downside next week, so hold those short positions.

$CPC CBOE Put/Call Ratio - 1 year

The Dow Transports lost ground dramatically this week (symbol $TRAN). They were down 5.94% on the week. Any talk of a Dow Theory "buy" signal is losing its credibility quickly.

Where Do We Go From Here and How To Listen For the Next Signal?

Keep watching the VIX and $CPC (P/C ratio). After they have peaked and pulled back, we may have to reduce our short position.

The Market is SHOUTING now, but may not be finished shouting yet!

Are you listening?

The Market Listener Indicators

¹ This Market Listener signal is our base signal. Daily Money Management signals may move us partially and/or temporarily to cash. You should not base your trading on this or any other single indicator or set of indicators. With Rydex I can trade 10 minutes prior to the close during the trading day/week when I see that one or more of the fast signal indicators have changed signals. This is particularly important if I am going to a CASH position in order to preserve capital. The above table shows the results of the end-of-week, WEEKLY SIGNALS

Listen To What He Says

From Romans 5:6-9 (NASV):

"For while we were still helpless, at the right time Christ died for the ungodly.
For one will hardly die for a righteous man; though perhaps for the good man someonewould dare even to die.
But God demonstrates His own love toward us, in that whilewe were yet sinners, Christ died for us.
Much more then, having now been justifiedby His blood, we shall be saved from the wrath of God through Him."

I am still working on the Art of Listening, and hope that you are also!