A PENNY FOR YOUR THOUGHTS?
I thought the phrase above might be appropriate because it is about what my comments on the dollar have been worth. At times trading can make you feel like the biggest idiot on the block. Nothing can humble you faster than the markets except maybe a golf course.
Once again the dollar is getting clocked again, the short term trend break did not hold. This has happened many times this year, and is typical when you get a trend this strong. It is also why I do not go long until I see something a little bit more compelling. We do potentially have that here. If you look at the chart, we now have a potential trap and reverse scenario. If today were to close down where we are currently trading, at a new low for the year, that is the first step. Then what would need to happen is for Monday to trade above today's high where you would go long.
This is marked on the chart with a green B. Several people have written about variations of these trap patterns. The net of it is, what you are looking for is a move to a significant new high or low that is immediately reversed the following day or the day after that. Once you get beyond 2 days the concept is not really applicable. There is no telling where this dollar move will stop and it may continue to crater. However, as a trader your goal is to probe when an opportunity is there for a big win. I have written in here repeatedly, that the short dollar long other things, is the most crowded trade I think I have ever seen.
As my friend Kevin Haggerty who writes for Trading Markets.com has recently written, "the markets do not accomodate herds for too long." As much as I would love to be long metals and short the dollar, when the dollar short squeeze happens it is not going to be for the faint of heart in either market.
Just for Housekeeping purposes, the long Natural Gas trade I mentioned yesterday did trigger today when we traded above yesterdays high.