Buy USD and Sell Stocks – Soon

I expect the USD to turn downward here in the coming week for a final swing  – and then resume its upward direction.

As difficult as it is to understand/accept (as  the USD is still the world’s reserve currency – and commodities are priced in US Dollars) when money flows out of “risk” and into “safety” – the USD generally takes top spot.

This time around should be interesting though, as this will be the first “genuine risk off behavior” we’ll have seen since the currency wars took their toll on several of the majors (obviously the Yen)- so the landscape has changed considerably. It will also be interesting to see if perhaps gold and the precious metals find their legs here as well – again… if only as a flight to safety. On a purely fundamental level it pains me dearly to consider getting long USD – but with emotions and opinions sidelined a trader needs to look at the situation at hand, and trade accordingly.

Timeline wise I had suggested mid March as a time to consider “getting safe” – and it looks like I’ll be close, as this could very well bump around up here for a week or two before any large-scale damage is done. The “blow off top” is most certainly in play here as well – as the last to the party will look at this as a pullback…. and buy.

Stay on your toes everyone – and for the most part, I would look for any and all strength in stocks / equities as a last stop chance to sell.

11 Responses

  1. kreks February 24, 2013 / 1:13 pm

    Not sure I agree with your expectation for a dollar fall this week. There are so many things happening this week that are likely to cause volatility – new BOJ head confirmation, Italian elections, US debt debate debacle, British and French ratings/budget news, and Bernanke testifying over two days. My head hurts already.

    PS. I can see Bernanke trying to counter the hawkish comments recorded in the FOMC minutes when he testifies this week – it’s a good opportunity for him to do so.

    • kreks February 24, 2013 / 1:15 pm

      I should have added a “But” there after the PS – as in, But I can see how the dollar could fall if Bernanke tries to lay down the law of “easing forever” …

    • Pot Stock Watch February 24, 2013 / 2:06 pm

      Read close there Kreks – I don’t expect a “dollar fall” as much as I imagine a small pullback – which in turn will be used as a buying opportunity.

      If we consider USD has put in about 15 days on the upside – it will be seeking a daily low soon. Nothing goes up or down in a straight line, and this will likely be the last “squiggle” before the ol USD takes some serious in flows – as “risk off” takes center stage.

  2. Graham February 24, 2013 / 8:55 pm

    Good evening Kong

    Was doing a little reading tonight and thought to ask if you read this site?

    Whats your take on the commods as the USD moves up here. Will they move in tandem or diverge as usual?

    • Pot Stock Watch February 24, 2013 / 9:09 pm

      Hi Graham. I don’t read it no – but just gave it a quick look.

      I´ve been harping that long USD/JPY will likely be one of the best trades of 2013 – and it appears your report suggests the same.

      Its an interesting junction here with commods and the buck. I half think Pm’s and miners will take inflows here with “risk off” and move up along with the USD – at least for a time. As well consider a time in the not so distant future when both stocks and the USD will also fall together so…how’s that for a mixed bag.

      It’s nuts out there co relation wise…and with different asset classes moving on cycles / time frames of their own (take gold / silver for example) the ol standard “dolla up – commods down” and visa versa just isn’t enough. As it stands I’m trading what I’m seeing – and am rolling with the punches. Again as suggested many times here as of late – this is going to be impossible for the novice, and extremely difficult to navigate.

      • schmederling February 24, 2013 / 9:49 pm

        Hey Kong, That’s kinda of were my mind is leading…. Stock lower, higher dollar & PM’s/Miners to follow… they have been going in vs. direction since Nov…. this happens from time to time until they pair-up again.

        A simple over-lay of the DOW & Silver or Gold will print the Pic….

        Cheers Schmed…

        • Pot Stock Watch February 24, 2013 / 10:02 pm

          Yes that’s where Im leaning here in comming days although (frankly) not to thrilled about it. This is going to be a bugger to trade – and I don’t imagine it will just be as simple as “dollar up / risk off”. I expect some big swings / up days and then down days etc….

          Im going to just go easy with small positions and not let it wear me out. I’m sure there will be a couple nice trending pairs to take advantage of….anw will let you guys know what I’m up to !

  3. schmederling February 24, 2013 / 10:25 pm

    Cool….. I am going to go out on the cliff here…. however my gut is screaming PM’s do very well into the end of May- into week 2 of June….. that’s just me & my odd-ball thinking….

  4. schmederling February 25, 2013 / 2:02 am

    Short – EUR/AUD
    Long – NZD/USD

  5. David February 25, 2013 / 10:35 am

    Hey Kong,
    In reference to you mid-march timeline, don’t you think the dollar might get a big boost at the end of this week and going into next week depending on if the Sequestration goes through? Or are you leaning towards a resolution and a rally (which will see the dollar dip?) If that occurs, I think we’ll get our regular sell in “May and Go away routine”, which would be a good time to be in the dollar.

    Oh, speaking of mid-March, I just want to point out to you and your readers that the British Pound usually stages a really nice recovery during that time…. if you look back at a multi-decade chart, Seasonality has it rallying in Nov-Dec and selling off in Jan to about mid-March, then Rallying in mid-March…. so far, it’s done exactly this routine since last Nov, so that might be something to keep in mind as it’s been so weak against other currencies. I particulary like it long against the EUR and NZD.

    • Pot Stock Watch February 25, 2013 / 10:58 am

      Interesting take on things David – thanks.

      I don’t get too wrapped up in the U.S news and how if might effect macro trends so…..the outcome of this ridiculous “sequester” could just as easily go either way. However – I have the USD pretty overbought in a general sense after some 16 days of upward action – nothing goes in a straight line for too too long so…..a swing in stocks and a pullback in the USD makes sense to me “somewhere in here”….before I see USD taking off / risk coming off.

      Looking at things broadly (perhaps too broadly for some) my “risk o meter” is set to OFF here in coming days one way or another – and will likely remain that way well through May ( as the selling may just excelerate moreso ). I feel that risk has topped out on a much larger scale – and will be adjusting my trading to consider “sideway/grind/chop” as opposed to smooth sailing trends.

      Im not saying things will “crash” as the FED is on the other side of that trade – only that….I for one am not going to get up every morning looking for new highs in stocks / rainbows and roses / – but moreso the meatgrinder.

      Currency wise – we will need to see where the chips fall – but that’s what my short term tech is for. When the “chop” turns to trend – I should be there to jump on it.

      I love your take on GBP and will be watching closely – I too agree it needs a “pop” here at these levels for sure.

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