Here is the Dollar Index and how it looks coming into today. I have sell orders in just below the trendline on the chart above. As I have stated consistently, I have been expecting a short term decline that would setup another large leg up in this market. I had hoped the bigger trade would be on the long side of this market. So far it has refused to cooperate and has maintained it's upward trend. I view this as meaning this market is even stronger than I thought. Anyone who has read my comments over any extended period of time knows I was bullish in this market before the low was made last November, even in spite of all the poor man's ecnomists who railed on about how it had to crash. They were much like Leslie Nielsen in the movie Airplane. He went into the cockpit after the plane had already landed and wished the pilots good luck on the landing not realizing they had already landed.
People hoping for the dollar crash just failed to look at a chart and realize they were late to the game, it had already happened. The masses are always wrong at the turns in almost any asset class. Anyone remember the top in housing and how bullish everyone was? I sold my Newport Beach McMansion in the fall of 2005 right at the top when the frenzy was going on. This still remains the only trade I ever made where I made over 1 Million dollars in one transaction. Maybe it was not a trade per se, but I viewed it as one. Needless to say to me it could not have been more obvious housing was going to crash, just like it could not have been more obvious the dollar was going to rally, and not just a little. A couple of my friends, one in particular who is one of the most successful commercial real estate brokers in the world, teased me that I missed the top in the market on my sale by 2 hours and that my timing was way off. I had dinner with him the night of my closing and had the check for over a million bucks in my pocket as we toasted the closing. He was also dead convinced this roll over would happen unlike many of his peers.
It does not always pay to be a wise guy and just be opposite everyone because in the middle of powerful trends and bubbles that are always early signs that a large top is forming. It is letting the momentum run it's course that is where the art of trading comes in. I try to make things as mechanical as I can and I am sure readers here see that alot of my trade setups look the same. I just want whatever momentum indicators I use to confirm my trade direction, then I go to bar patterns for my entries. I am not always right, but readers here know that over any extended period of time, a good percentage of my market calls and trades are correct. That is what trading is, playing the odds and having a method that puts those odds in your favor. Once you have that, you just try and get volume in the transactions knowing that over X number of trades you will get net profits.
So it is with the Dollar above. This is a good setup that over time will produce more wins than losses and the wins will be bigger than the losses. This does not mean that this trade will win, and I really don't care. I know if I trade every setup that looks like this, over time I will make money. I really like having obvious trend containment lines being in place where my entries are, but that is not always the case. If I wait for those I can miss trades. You may remember the shorts in Gold and Silver where I caught the exact day of the high. There were no trendlines that had broken at that time, but everything else was in place.
Here we have all the elements of a good short term trade setup for a short, and the orders are in. Let's turn on the machines and see what happens.