When In Doubt, Kill the US Dollar: Postmarket Update 8/27/09

3….2….1….Blastoff!!!  What else can you say but WOW!

The market tanked on the open as a roll in crude oil was weighing heavily on everything.  So much of this market is tied to the dollar and commodities right now, there really is no rationale behind equity values.  It seems though that traders are taking EVERY chance they get to buy the dips in this market.  SPY broke support at 102.50 this morning until it based out at 102.  We churned around for a little while, recaptured VWAP, and started to drift upward into the lunch hour.  It seem at this point as if we were going to chop around the rest of the day until 2PM happened.  What happened at 2PM can only be described as the dollar taking a shotgun to the face.

Now I joke around sometimes about GS just seeking their forex traders on the dollar anytime they don’t like the equity or commodity weakness, but this was no joke.  Someone took the opportunity today to shoot the dollar in the face, and they did it without mercy.  I’ve been posting an hourly chart of the USO for a few days with a predicted price pattern.  Just as I predicted we found trend line support just above the 20 day moving average at 36.20 and rocketed skyward from there after the dollar failed.  Here is the chart as it stands after the close.

At 2PM when the dollar was taken to the woodshed, CL_F went straight up.  We went from 70 to 72.50 in the blink of an eye and closed the day at the highs.  I believe we may have seen the final shakeout before the dollar implodes and crude goes to 100.  SPY closed near the highs as well, putting in a nice bull flag which should continue the run into tomorrow’s session.  Besides the energy complex, other commodities sat tight, gold went nowhere again today.  Interesting to note though was the strength in the gold miners ETF GDX, it was the best performer on the day, up 2.2%.  I’m not sure what to make of this.

We were stopped out of the long in COG this morning as crude broke down.  There are downsides to playing with a 2ATR stop, getting whipped out is one of them if volatility increases, but I don’t mind because it keeps me disciplined.  I had a few interesting shorts come across my screens this morning but didn’t take any.  The fact that only 10 or 15 of the nearly 2500 stocks and ETFs in my list are making new 55 day lows should tell you something about how strong the market is right now, even with this morning’s breakdown.

On the short side, NOK continues to run up and smack me in the face.  It did find resistance at the 20 day moving average this morning and backed off, but rallied with everything else through it in the afternoon.  Any more strength and this one is a goner, I won’t be happy about it.  DRI failed this morning but finished close to even.  AMAG was the big winner on the short side today, taking a beating off the open and closing in a nice bear flag.  The setup here still looks great and if it gets through 40.80 there is a lot of downside.

On the long side, LYV and TTWO had great days, these two are in full breakout mode.  My next target for TTWO is 12 and $LYV has room to 7.50.  JBLU had a disappointing day riding its 5 day moving average in a bear flag.  This stock is crazy, but we’re in.  The trend in HUN has been so amazing that I’m worried we could see some volatility sooner than later.

The market continues to make fools out of the bears, and if we break Tuesday’s high you could see some real fireworks.

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