US Dollar index chart analysis

Let's examine the weekly chart of the US Dollar index:
1) the USD index is still in a rising wedge technical formation.
2) it tested the lower trendline last week (point n°4) and bounced around the 74.0 price level.
3) if it does not go higher than 74.0 in the short-term, it will likely fail. And if it fails, lots of people will scramble for taking the exit door.

Pay attention to the price of gold: it acts as a leading indicator as to what happens to the US dollar. If gold rises, the USD goes down, and vice versa. And the USD is now inversely correlated to the stock markets: when the USD goes down, the S&P500 goes up and vice versa.

S&P500 chart analysis

The above weekly chart of the S&P500 index shows that we are facing a strong resistance at around 1100 which corresponds to the test of the downward trendline from the October 2007 highs.


Now let's zoom on the daily chart of the S&P500 index.
We can see that:
- we are still making higher highs and higher lows, which is the definition of a bull market.
- the pullback from the highs is each time getting bigger: -3.5%, -4.5%, -5%, -6.5%,...
- each green arrow on the chart shows a bear trap where the market started to rebound
- the RSI (Relative Strength Indicator) is showing a bearish divergence.

However, before calling it a bear market, I would wait for the S&P500 to go below the dotted line and for the 50 day moving average to start trending down.

Some readings this week-end

- China 2009 Gold Demand, Output May Gain to Records: China overtook South Africa to become the world’s largest producer in 2007 and the World Gold Council said in July that the nation may pass India as the biggest consumer.

- Mark Pittman, Reporter Who Foresaw Subprime Crisis, Dies at 52 : The award-winning investigative reporter whose fight to open the Federal Reserve to more scrutiny led Bloomberg News to sue the central bank and win, died Nov. 25 in Yonkers, New York. He was 52. Pittman suffered from heart-related illnesses. The precise cause of his death wasn’t known. Pittman’s fight to make the Fed more accountable resulted in an Aug. 24 victory in Manhattan Federal Court affirming the public’s right to know about the central bank’s more than $2 trillion in loans to financial firms.

- Strauss-Kahn Says Half of Bank Losses Are Undisclosed : Banking systems “remain undercapitalized” in many advanced economies with “far from normal” financial conditions, Strauss-Kahn said in a speech to the conference. The IMF said in September that banks may have $1.5 trillion in toxic debt remaining on their books, which may hurt credit markets and stifle the global economic recovery. “Probably a little more has been disclosed in the U.S. and a little less in Europe, but it’s almost half and half,” Strauss-Kahn said. “So, we still have a long way to go.”

- Mobius Expects 40% BRIC Stocks Gain, Says Buy on Dips : Mark Mobius said stocks in Brazil, Russia, India and China are likely to rise by 30 to 40 percent within three to four years as higher economic growth and lower government debt spurs corporate earnings.
Mobius, chairman of Templeton Asset Management Ltd., said he’s increasing holdings in all emerging markets, with particular focus on the four biggest developing-nation economies collectively known as the BRICs.
Mobius said he’s buying bank stocks in Thailand and technology companies in Taiwan. Among so-called frontier markets, countries including Vietnam, Kenya and Nigeria are “very interesting now,” he said.

Marc Faber sees big financial bust leading to war

Marc Faber, the Swiss fund manager and Gloom Boom & Doom editor, said eventually there will be a big bust and then the whole credit expansion will come to an end. Before that happens, governments will continue printing money which in time will lead to a very high inflation rate, and the economy will not respond to continued stimulus.

In one of his Gloomiest predictions, Faber, referred to as Dr Doom, said "the average family will be hurt by that, and then in order to distract the attention of the people, the governments will go to war".

"At some stage, somewhere in future, we will have a war - that you have to be prepared for. And during war times, commodities go up strongly,” said Faber.

"If you want to hedge against war, you don't want to own derivatives in UBS and AIG, but you have to own them physically, like farmland and agricultural commodities.

In a Bloomberg Television interview in Singapore Wednesday, Faber said "What will continue to happen is that the S&P 500 and the Dow Jones will go down relative to gold.

In a May interview with CNBC, he said central banks will continue to print money at full speed, but long-term this strategy will lead to a fall in purchasing power and living standards, especially in developed countries.

Unless the system is cleaned out of losses, "the way communism collapsed, capitalism will collapse," according to Faber.

"I repeat what I have said in the past," Faber said. “No decent citizen should trust the Federal Reserve for one second. It’s very important that everyone own some gold because the government will make the dollar (in the long term) useless."

--

Source: "In his gloomiest prediction yet, Marc Faber sees big financial bust leading to war" (Business Intelligence Middle East)

Buying today DBA @ $25.99

I refer to my previous post.
Buying the PowerShares DB Agriculture Fund ETF (DBA) at $25.99 (stop loss: $20)
total invested: $10,000

Investing in agriculture

Many reasons point to the agricultural sector as a good long-term investment:
1) worldwide population keeps growing, increasing the demand for food
2) the surface of agricultural lands is the same, keeping the offer at the same level
3) population of developing countries (in Asia, Latin America, and Africa) is increasing its standards of living and wants to eat more diverse and higher quality food, increasing the demand for agricultural products.
4) increasing use of food as an alternative energy resource (bio fuels) also increases demand for agricultural products
5) the quantitative easing policy set up by USA and Europe will lead to inflation, possibly even hyper-inflation. People lose faith in paper money and increasingly turn to hard assets and commodities.
6) human beings will always need to eat! Hence the demand for these products will never disappear.

To take advantage of this expected scenario, I will invest in two ETF's:

- the Market Vectors Agribusiness ETF (ticker: MOO, listed on the New York Stock Exchange) that invests in companies that derive their revenues from the business of agriculture. Its top 10 holdings include: Potash Corp, BRF Brasil Foods, Deere Co, Monsanto, Syngenta, Mosaic Company, Kubota Corp, Archer-Daniels-Midland, Yara International. I will buy MOO for the portfolio for a total of $10,000 at a limit price of $40. Stop loss: $29.
See the weekly chart below: MACD shows strong momentum. The 20 week moving average recently crossed the 50 week moving average to the upside, a bullish sign.


- the PowerShares DB Agriculture Fund ETF (ticker: DBA, listed on the New York Stock Exchange) that invests in futures contracts on some of the most liquid and widely traded agricultural commodities: corn, wheat, soybeans and sugar. I will buy DBA for the portfolio for a total of $10,000 at a limit price of $26.0. My stop loss is at 20$.
See the weekly chart below which shows a bullish divergence between the price and the MACD histogram, which means high probability of upside for the coming weeks/months.


I plan to hold both ETF's for the long term (several years).

Readings today

- Stiglitz Says U.S. Is Paying for Failure to Nationalize Banks (Bloomberg):
Nobel Prize-winning economist Joseph Stiglitz said the world’s biggest economy is suffering because of the U.S. government’s failure to nationalize banks during the financial crisis.
“We have this very strange situation today in America where we have given banks hundreds of billions of dollars and the president has to beg the banks to lend and they refuse,” Stiglitz said. “What we did was the wrong thing. It has weakened the economy and has increased our deficit, making it more difficult for the future.”

- John Paulson Making Big New Bet on Gold (Wall Street Journal): John Paulson, who scored about $20 billion of profits between 2007 and early 2009 wagering against the housing market and financial companies, is launching a hedge fund dedicated to buying up shares of gold miners and other bullion-related investments, according to investors.

- The benefits of quantitative easing have flowed to Wall Street: "The benefit of quantitative easing has essentially flowed into Wall Street, into investment banks, into the banking sector but it hasn't flowed into the typical household in the US. Unemployment is still horrible at the present time with a lot of people being either unemployed or under employed. As a result, we have a very strange economy. We have booming financial markets, but at the same time the average household – the man on the street is basically suffering." (Marc Faber)

Portfolio update and raising stop losses

Raising the stop losses on all my positions:
- BZF: from $25 to $25.6
- FXA: from $85 to $88.5
- GLD: from $99 to $109
- SLV: from $15 to $16.6
- EWZ: from $63 to $66

Changes are highlighted in yellow in the above table.

My readings today

- Gold Price Won’t Drop Below $1,000 an Ounce Again, Faber Says (Bloomberg, Nov 11, 2009)
“We will not see less than the $1,000 level again,” Faber said at a conference today in London. “Central banks are all the same. They are printers. Gold is maybe cheaper today than in 2001, given the interest rates. You have to own physical gold.” China will keep buying resources including gold, he said. “Its demand for commodities will go up and up and up,” he added. “Emerging economies will grow at the fastest pace.”

- John Paulson Buys Huge Stake In Citi, While Dumping Goldman Sachs:
The world's hottest hedge fund manager John Paulson has acquired 3 million shares of Citigroup (C), acquired more shares of JPMorgan (JPM), while completely dumping his holdings in Goldman Sachs (GS) and Bank of America (BAC). As before, Paulson's number one position continues to the be GLD with 31.5 million shares.

US dollar index

Let's examine the chart of the USD index:
1) The USD index managed to come back above the 75.0 important support: it is now at 75.23.
2) The 50 day moving average has been playing the role of a key resistance: the USD index never managed to get above it during the past 6 months. But for how much time still?
3) There is a bullish divergence that has been building over the past months between, on the one hand, the USD index and, on the other hand, the MACD and RSI indicators: the slope of the USD index is going down whereas the slope of the MACD and RSI is going up. This kind of technical divergence can lead to a sudden and powerful rebound of the US dollar at anytime, which would lead to a violent decline of the equity and commodities markets.

Gold chart analysis: update

On a previous post dated October 12 (see related chart above), I was writing the following:
"Gold last week went strongly up, way above the psychological level of $1000. My gut feeling? gold will boost to $1300 in the next few months. US dollar is losing its credibility as worldwide reserve currency. Central banks are divesting their dollars to have more euros and yen. China wants to get rid of its dollars. This will probably further contribute to the rise of the price of gold."


Let's look at today weekly chart below: gold is now priced at $1115, a 10% move up in less than a month. The momentum (see the MACD indicator) is supporting the current uptrend.


From a fundamental point of view: There is huge suspicion about paper money around the world and this suspicion is increasing every day. Furthermore, gold mines have depleting reserves and central banks are increasing their gold reserves: this is supporting the current increase in the price of gold. Additionally if you adjust gold price for inflation, the price should be around $2000 an ounce today.

--

I am currently in Bogota, visiting the "Museo del Oro", the most important collection of gold art works in the world with 35,000 pieces exhibited.

US dollar index ; chart analysis update

Daily chart: The US dollar is still in a bearish trend. The support of 75.0 was broken today.


Weekly chart: Next target for the USD index: 72?

I'm now on Currensee

I have now joined Currensee (www.currensee.com), an online worldwide community of Forex traders. My nickname there is "Trader Blastradius" and I am sharing my "Tarantula" strategy, trading mostly the EUR/USD, AUD/USD, and GBP/USD currency pairs. If you join this community, don't forget to add me to your Virtual Trading Team and tell me that you knew me through my blog.

Currently on holiday in Barranquilla (northern coast of Colombia). 35°C and the sun is shining. See some pictures below.

Portfolio update

This week saw the portfolio recover all the losses of last week.

Hello from Colombia where I am currently spending some holiday ! A picture of Bogota below.

Market Volatility Index (the fear index)

Last week the VIX index surged 24% higher, a huge increase signaling the comeback of fear in the stock markets. I will monitor this week if this index will be able to go and remain above the 200 day moving average (the green line on the above chart). If yes, probabilities would favor a continuation of the downtrend of the equities markets.

S&P500 chart analysis

This week , I will be watching very closely the S&P500 to see if the key support of 1020 will be broken. If yes, the 1000 psychological level remains the target: if violated to the downside, big damage to the stock market would occur.

US dollar index chart: an update

The 20 day moving average has still not crossed the 50 day moving average to the upside, meaning my system is still bearish on the US dollar.

Paul Tudor Jones favors gold, australian dollar and emerging markets, especially Brazil and Taiwan

In his last newsletter, hedge fund manager and legendary trader Paul Tudor Jones has told his clients that it is now time to buy gold because faster inflation and increased purchases through exchange-traded funds and by central banks increase demand amid stagnant mine output.
Tudor's letter is one of those "must read" as his macro sense is phenomenal and he is one of the greatest traders of all time.

While Tudor says he has never been a gold bug, he says all assets have a time and a place. And he now says that it's now gold time. He joins an army of other prominent hedge fund managers who are bullish on the precious metal including David Einhorn of Greenlight Capital and John Paulson of Paulson & Co.

Tudor's econometric model has determined that gold is 20% undervalued over the next 24 months. This takes into consideration real rates on the price of gold, inflation, and M2 growth. Tudor expects the velocity of money to rise over the next two years, enhancing the bullish case for gold.

On the topic of currencies, Tudor shares the views of many other hedge fund managers in that they feel currencies of commodity producing nations should benefit as demand for metals and agricultural goods remains elevated and foreign investors seek higher yields. He adds that the Australian dollar is well-positioned to benefit from China's inventory build, a robust inbound M&A pipeline and portfolio investments from Japanese institutional investors. The central bank of Australia was the first industrialized country to raise policy rates. The Brazilian real will be similarly supported by an equity pipeline that is well subscribed by foreigners.

Tudor also believes that the US dollar will continue its path lower as global flows seek high yielding assets and sovereign reserve managers diversify their growing US dollar-based reserves.

With regard to equities, Tudor favors emerging markets and in particular Brazil and Taiwan.

portfolio management

Bears now seem to take the lead on the markets. Our portfolio return since inception fell sharply last week: from +16.8% to +14.1%.
Let's be cautious and protect our unrealized profits: I am moving the stop losses higher for the following positions in my portfolio:
- BZF: stop moved from $23 to $25
- FXA: stop moved from $81 to $85
- GLD: stop moved from $96.5 to $99

Here enclosed an update of the portfolio.