This is a market that in all honesty I have been wrong about recently. If you look at the green arrows on the weekly chart of the Dollar Index, they represent buy signals or buy areas based on fundamentals.
Recently many of these have failed, which could be argued is actually a sell signal. In watching the price action of the markets, I have a completely different view than most people, be it right or wrong. When I watch the intraday ticks, I see the dollar reacting to stock prices, not the other way around. Some experts are claiming the dollar is driving everything, I say stocks are, in other words the opposite of that view.
I was recently in a Heating Oil short that wound up being my best trade of the year, just exited it. During the trade it was evident that every time the stock market rallied 50 points, Heating Oil also rallied. There is absolutely no historical relationship between these two markets. However, recently since the economic downturn, really the only ray of light has been the stock market rally. It has carried many markets with it.
In 23 years of trading I have never seen the almost tick for tick relationship between so many commodity markets, and stock prices. It makes absolutely no sense fundamentally. My theory is that some whiz kids at the funds have zeroed in on this recent phenomenon and created mechanical buy and sell programs for all markets based on this relationship. This is an overly optimized trade, which will eventually result in these funds getting clocked.
I have been guilty of over optimizing trading systems, so I speak from experience here. Getting back to the subject here, if I am right about this stock market top, it is likely the dollar will get a big lift off here as it seems to be trading almost directly opposite tick for tick, the DOW. It also appears that many currencies are topping here, so that makes for more reason to believe we have a dollar low.
However, my favorite reason for this call is that every wize guy in the world thinks the dollar is going to crash, and I love being opposite the herd even if at times I am wrong.
Looking at the arrows you can see the commercials have recently been heavy buyers, and sentiment was recently very low, the small fries with sentiment graph. Also, Valuation vs Gold was very low. These are all reasons to look for a rally not a decline.