US Dollar Index Bottom Reversal

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See the chart above for the notes. It appears the US Dollar has made a significant bottom. The should co-incide with the end to the current bull market in commodities. Stocks should see pressure too, but I'm not confident to what degree.

I am targeting the Nov 2010 lows in cotton and silver as an exit level for those trades assuming the markets continue down. From all precedents I think the decline will be relatively steady and sharp. I don't expect a major secondary rally to a lower top on these.

SLV Update and DBA Entry

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The silver has provided strong confirmation that a significant high is in place. See the notes on the chart above. I would expect this to fall to 26 or maybe further. I would like to see a little rally and a swing high in silver then a break to new lows for the move in order to move the stop down.

The DBA short trade was triggered today as well. Hopefully this will provide quick follow through as well, though with a few days of weakness behind us, that is probably less likely.

Based on the CoT data, I think some of the commodity markets could be in for major declines. While it probably sounds absurd, I think the implied psychology of the data on crude oil would suggest that a move below the 2009 lows is probable in the next bear market in oil. So we may need to look at a short in oil in the future too.

I don't expect the stock market to be quite as weak as commodities, but it should weaken also. Expect a move up in the US Dollar index very soon. It looks like it is consolidating and finding an intermediate bottom at this level.

SLV Short Entry and New DBA Trade Order

The SLV trade was entered short at 43.00 with immediate further follow through to the downside. This is a great start to the trade. We should be able to move the stop down quickly to breakeven.

The grains look like they are also in position to start a large decline. So I will post a trade here to short DBA also. However, if short BAL and SLV then you may want to use a lesser risk amount than those, since they are all the same theme.

New Trade:

Place a GTC sell stop order to short DBA at 33.45. If filled place the buy stop to cover at 34.84.

The reward on the trade should be very good. I would project the decline to go 28.ooish on DBA.

Wide Range Weekly Doji in Silver/SLV

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The chart above shows a classic candlestick reversal pattern after a historically huge run up in silver. Today's gap down is reasonable confirmation to the idea that the doji was a top signal.

I will post a new trade here, short silver via the SLV ETF.

New Trade:

Place a GTC limit order to short SLV at 43.00. Place a stop at 48.50 immediately after entry and for purposes of calculating position size.

The reward potential on this trade is very good. I would typically risk about 2% of account value on a trade if stopped out.

Update

The S&P 500 did erase the prior little wave down in less time than it took to form, confirming that the uptrend is still intact. Sentiment is excessively optimistic, as it has been for some time. So it is hard for me to imagine that this is kicking off a new significant leg up in stocks, but until proven otherwise that is what price is saying. The benchmark for me is the April 18th low. If that gets exceeded on a decline, then I would take that to indicate that price is making a significant top.

It seems as though the current moves up in gold, silver, and oil will have to break before stocks break significantly. The US dollar has broke through a significant old low bringing out some bearish sentiment. A reversal higher from these levels to above the Nov 2009 lows would be a good intermediate to long term bottoming sign. But the next support would be the 2008 lows. I think either of these are likely reversal points. A break of the 2008 lows seems like it would be a MAJOR psychological capitulation point, possibly leading to a large double bottom chart pattern.

The cotton ETF trade, BAL, is off and running now, and it seems very likely that cotton has seen a major high.

I believe that the grain complex is near breaking down as well. I may recommend a short on DBA soon. The sell offs in several commodities should be pretty dramatic after the high is in. It looks most likely that the high is in for DBA already, but I would like to see a few more days before suggesting an entry on it.

For those who follow the metals markets, silver is only pennies away from its all time high in 1980. I expect that high will get exceeded at least slightly before a major high is in. But it could come down dramatically for several months if it fails at that high.

Possible Pattern Completion

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If the market surges up from here and erases wave "e?" in less time than it took to form, that logically confirms a continuation of the bullish trend. If there is a break of yesterday's low then most likely it would lead to further selling.

Expect Some Downside

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The US Dollar took a big hit Friday, but remains above last years low. Sentiment is very negative and could lead to a major reversal. The chart above shows a price oscillator which is nicely bullish divergent and is coiling suggesting a breakout soon. Also, the weekly oscillators are in a nice bullish divergence as well. A move back above the dashed green line would be a reasonable long trade entry signal.

News got around that PIMCO is net short the US treasury bonds now, which suggests an inflationary stance (falling bonds and rising yields). I just think this may be a nice contrarian sign that the dollar may reverse after the news is out.

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The move up in the S&P 500 since mid March has now equaled the time of the correction. Also the S&P did not make a new high, nor did the Nasdaq. So, it is likely that the psychological trend is still in a correction. I expect the market to at least pull back from here toward the 1295 mark, but possibly a lot lower.