Dollar Has the Wheel: Postmarket Update 9/21/09

The dollar is in full control of this market if you haven’t noticed, well, maybe not full control, the Goldman Sachs battle bots in the algo machine room at 85 broad are having their say as well.  The bulls are taking a little rest here as the dollar attempts to stave off being sent to Davy Jones’ Locker.  Take a look at the following three charts:

The $SPY opened weak with the dollar gaining strength overnight.  We washed around for a while until gaining some altitude from VWAP and spent the rest of the day chopping around.  Important was the VWAP test at the end of the day as sellers tried to gain some momentum to the downside going into tomorrow.  Don’t underestimate the importance of this hold as there is still no technical reason to be selling the market at this point, save a few overbought indicators.

The $SPY has put in three days of a tight flag pattern correlating with the same three day flag in the $USDX.  Notice the decreasing volume on the $SPY pullback as the profit taking has waned over the past three trading days.  I am still cognizant of the fact that we are extended from the 20 and 50 day exponential moving averages, but see no reason to sell positions or get short until this flag pattern breaks harder to the downside.  Again, there are two ways to consolidate, over price and over time, I feel we are making progress at the ladder.

I am so incredibly ready to go short the British Pound as it tested its first big support level today which sits around 160.80.  The 55 day lower Donchian Channel will hop up to this price in 3 more days, after which I expect it to be punctured getting me short.  This short position will give me a nice hedge on the market, if the dollar regains some strength pushing the market lower, this position will likely show me a nice profit as the cable is the weakest of the USD crosses.

Truth be told I am playing around in my head with the strategy I am running.  I’ve back tested the hold until the stop is taken out or a movement through the 20 day Donchian Channel strategy and traded it for quite some time now successfully.  Although this is true, I would like to get a bit more active in my trading and use more of my skill in reading the tape post entry.  Going forward, I am allowing myself to swap out positions within the same asset class and in the same direction.  The entries and exits will still be the same, but for example, I took a premature profit in $MBT today and added $NFLX to my long book as it hit my buy screen.  My long book is full right now and I feel the opportunity in $NFLX is greater than $MBT going forward.

A lot of interesting news in international politics over the weekend and coming up this week as the U.N. General Assembly meets in New York with the president speaking on many different topics.  I won’t rant here about how useless the U.N. is as a body in terms of making progress on just about anything, that is for another time.  As well, the Israelis are getting itchy to act regarding Iran as they see the American hand become increasingly weak with regard to nuclear negotiations.  Top generals and commanders from Afghanistan continue to consult with the administration in Washington over what to do about either increasing the troop count or coming up with an actual plan as to what we are there doing.  Look for Obama to make a decision on our STRATEGY as opposed to just changing TACTICS.  Don’t discount the missile shield based in Poland being nixed, this may be part of a broader deal with Russia over their support for Syria and Iran.

Third game of my hockey season tonight, we are 1-1 losing last week in a valiant come from behind attempt.  Have a great evening.

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