Turning points, at extremes create great opportunities. Is the spread between Doc Copper (FCX) and Uncle Sam (Dollar) suggesting a turning point extreme, is close at hand? What would you do at (3)???
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Spread is rather large at (3), FCX looks to have created a “bearish” rising wedge and UUP looks to have created a “bullish” falling wedge. Oh….forgot to mention sentiment on the Dollar… well you already know about that!
Going to bet its “different this time” at (3)?
cK – I did the copper trade (theft) and wonder if I can raise bail of margin? Could you check for me since current “room accomodations” don’t include access to my trading platform!
Thank you for the comment and you are correct, per the Dollar itself trumps the price action of an ETF!
IMO your thinking out loud is spot on. I share the UUP chart, since many viewers seem to find it easier to watch/montier UUP over the actual Dollar index.
Thanks for thinking out loud!
UUP and DXY charts are somewhat different although the components are identical. DXY might be more reliable since ETFs can sometimes become distorted. Not sure, just thinking out loud.
I’m with little ck, but I vote with the big CK (Chris).
Looking at the chart I would buy UUP, but while we wait on the charts to form the pattern, we also give Chris time to play with the crayons. The time span from fine point to the outside of the crayon is how long we wait. In this case they both may go sideways, no, maybe, doesn’t look like sideways happens much with UUP.
This is in response to beisha’s comments: I looked at UUP and it seemed to make identical lows in July 2008 and November 2009 – both at 22.26. It dropped slightly below that (at 22.21) just a few days ago, but immediately bounced back… so 22.2 or so looks like resistance, maybe. The successive peaks have been falling, though.
About (2), correlations, I think I know what Chris would say: “I don’t ask why – I just look for the power of the pattern!” I’ve groped towards the following explanation: who knows what news will happen in the future (QE2, European crackups and prosperity, etc.) but the pattern suggests it would be hard for the dollar to drop lower (even on bad news) but easy for the dollar to jump higher if there is any good news.
Thanks for the great questions…I draw lines with a “fine point pen” (very narrow) yet when trading, I like the concept of using a crayon (wider). Back in 2009, UUP did break the narrow line by less than 1%, then rallied over 25% in the following months.
The price action off that line and a break of less than 1% appears the markets did a great job a faking out people…with this in mind I am watching it as support.
Agree,that correlations work until they don’t. The strategy I use is called TB&M (Tops, Bottoms and no Middles). Potential turning points provide excellent opportunities for low risk/high rewarding trades.
Am looking to inform viewers that a “price pattern/turning point” could be very close at hand.
UUP is the Dollar ETF
Chris: what is UUP ( the dollar index in the chart) ?
As always, an enlightening post. I however do have a few questions:
1.) When drawing this chart, I would not draw a straight support line for the dollar (as it was broken in November 2009), but rather a falling channel, with lower tops and lower lows. Seen this way, the dollar still has a little room to fall, until about $1.44-1.45 to the euro, before rebounding.
2.) Correlations are great, but only for a certain time. The inverse correlation between the dollar on one hand, and the stock market on the euro on the other, dates to about 2003-2004. I don’t know when copper started to follow the same pattern. When, and why will this pattern break? At the moment it seems as if either everything goes up or everything goes down, in a basic risk on/off mode.Is this sustainable, or will this correlation break then? This correlation seems to rely on the assumption that the dollar still is a “safe haven”, people buy dollars when they are scared and buy stocks, euro, copper when they are more risk-willing. Will the dollar lose the “safe haven” status, and what then?
3.) Many people see the current dollar depreciation as a reaction to QE2 and Bernanke money printing. This chart shows its just following an already ancient pattern, to linket at all to current fiscal policies.
With the G-20 meeting a non event, the tail would certainly be wagging the dog if the USD bounced. Maybe we’ll just skip along this level till something material with QE2 comes out…… If Ben “the beard” Bernanke doesn’t give the market the USD dillution its looking for then we’re really in trouble…..
Copper trivia: As stated in a CNBC interview, octogenarian Julian Robertson was “considering” shorting copper in late 2009. FCX was around $65 at the time. Don’t know if he ever put on the trade….maybe he’s putting it on now?
Looks like strong support for the dollar going back two years. A successful test of the dollar support would commit me to the obvious trade.
Alternative 1 (preferred): Nothing until Chris indicates a developing pattern/opportunity appears to be confirmed.
Alternative 2 (Wall Street Philosophy – discouraged): Break into the neighbor’s home and strip out all the copper and sell it for dollars. Wait for the dollar to rally, then trade dollars for euros. Wait for the dollar to drop/euro rally and then buy back the dollars and also break into another neighbor’s home to steal the copper and sell for dollars (then repeat).