Wednesday, September 23, 2009

All Eyes on the Dollar; September 23, 2009

As I've been saying for a couple weeks now, it appears that the stock market is following the dollar (inversely), so when the dollar bottoms then the stock market will top. Seeing as that the EUR/USD is essentially the "anti-dollar", or the opposite of the dollar, it should have a good positive correlation to the stock market. Therefore, it makes sense to watch the EUR/USD for a top and reversal for a signal that the stock market is topping and reversing.

Above is a weekly chart of the EUR/USD and wave count. It too is setting up for a huge decline. The rally is in its finaly stages and is exhausting. Of course, extremes can be held for a long time, so there's no guarantee it will top now or at current levels. But this is no time to be long. The best thing is to wait until the pair is ready to collapse. It will take the stock market and precious metals with it. Speaking of which, gold and especially silver are down quite a bit today even though the dollar is relatively flat. Silver is especially a risk indicator and when it sells off without the dollar moving it, it can warn of something bigger happening because high risk appettites are waning. This can be held true also for the China index which appears to also be at the early stages of a major collapse. When the high risk assets start faltering and giving way, it can signal that the topping process has begun and the raging high risk spirits that have surged this market irrationally higher are now exhausting.

Bottom line: I'm waiting for signs of a top in the EUR/USD to signal that the stock market has probably topped as well.


Gregorios said...

Hi Todd, how do we kow from a tecnical point of view that the stock market is ripe to fall off a cliff? Could you pls expand on this

Todd S said...

Please see a blog post I dedicated to your question.