Implications of the peaking dollar on US Stock & Bonds

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Kimberly Eleanore Cunningham
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August 29, 2014 Implications of the peaking dollar on US Stock & Bonds Dollar plunges against every major currency The US Dollar is peaking intermediate-term, the implications of its subsequent

1 August 29, 2014 Implications of the peaking dollar on US Stock & Bonds Dollar plunges against every major currency The US Dollar is peaking intermediate-term, the implications of its subsequent dramatic reversal on the US Stocks & Bonds are vast. For foreign investors, the losses resulting from plummeting market prices become compounded in currency translation. When these non-us investors take their chips off the table, they sell dollars to buy other currencies, resulting in capital flows out of the dollar. In a self-perpetuating downward spiral, demand for US Dollars plunges as its supply surges, to result in an intermediateterm plunge in the dollar versus every major currency. From the recent dollar index high of 82.75, it will likely plummet to the area of Below is the monthly Dollar Index since The dollar peaked in mid-2001 to coincide with the Wave A trough within the Bearish Diag II in stocks (see Big Picture Stock Chart in Figure #6 & T-Bonds in Figure #7) Similar to many inversely correlated assets, such a Emerging Markets, Commodities & T-bonds, the Dollar began a 5-wave Bearish trajectory immediately after its long-term peak. Annotated below as wave 5, is Page 1 of 11

2 the Orthodox top. The irregular top which followed represents the a-b transcending reversal from bullish to bearish. Figure #1 US Dollar Index Monthly (versus a basket of foreign currencies) The Bearish Big Picture Diagram The diagram below gives you the larger perspective; all assets other than inverse funds are to be found somwhere on the diagram below. Although at the highest degree is denoted by waves 1-5, the wave 2 is a Bear Market Rally. Before it can get off the ground, a drop in wave (e) to the area of is required to complete wave ii. (see US Dollar index in figures #1 & #3) Page 2 of 11

3 Figure #2 The Larger Bearish Pattern to culminate at the Wave (A) trough Below you see a partial view of the wave ii Diag >. Each wave from (a) to (d) subdivides into an a-b-c, shown in blue to facilitate your identifying them. The lower degree Diag > s within the larger, echo its structure as fractals and serve to synch the dollar with other asset classes in a perpetual rebalancing, so that the major asset classes reverse in near lock-step. The final (e) wave, while still taking shape as an a-b-c, will have relatively short waves a & b, while wave c elongates one degree of magnitude higher, to far exceed most linear projections. (this is one of contributions to advance & refine the Wave Principle, not found anywhere else) Page 3 of 11

Figure #3 US Dollar Index Daily (versus a basket of foreign currencies) Shooting Star denotes confused Traders The shooting star which terminates wave (d) of the Diag >, is not part of Elliott, but

4 Figure #3 US Dollar Index Daily (versus a basket of foreign currencies) Shooting Star denotes confused Traders The shooting star which terminates wave (d) of the Diag >, is not part of Elliott, but rather one of key patterns of candlestick charting. This structure, distinguished by a candle having two long wicks, and a short body is the pictorial representation of confused traders. Despite prices having touched extreme highs & lows within the day, the trading day closes at nearly the identical to the gaps-up opening price. The advantages to Candlestick Charts Candlesticks leave a much clearer and complete price history, versus the customary Hi, Lo & Close employed in Western-style charts, permitting us to more precisely forecast future price movements. Page 4 of 11

The Dollar Index inverted becomes the Falling Dollar ETF The vertical inversion of the dollar index chart above, results in the Bearish dollar index below to appreciate as the Dollar tumbles for our

5 The Dollar Index inverted becomes the Falling Dollar ETF The vertical inversion of the dollar index chart above, results in the Bearish dollar index below to appreciate as the Dollar tumbles for our clients this ETF is intended to serve as a money market substitute for the cash balances, which back-out approximately half the leverage, intended to minimize volatility. The dollar is highly overbought and the Bearish Dollar Fund highly oversold As shown below the Dollar Bear fund is highly oversold and confirms the irrational euphoria for the Dollar and Dollar-denominated investments just prior to a nose dive. Five waves down the (c) wave are complete, as well as the upside transcending a-b as shown. This falling dollar fund replaces the Australian Dollar Fund for half the cash, in entire portfolio. Figure #4 Inverse Dollar ETF has bottomed and is 2x highly oversold Page 5 of 11

T-Bonds are highly correlated with the Dollar T-bonds take a proportional hit, while inverse T-Bonds benefit T-Bonds are considered dollar equivalents by many.

6 T-Bonds are highly correlated with the Dollar T-bonds take a proportional hit, while inverse T-Bonds benefit T-Bonds are considered dollar equivalents by many. For now, long-term principal repayment remains unquestioned by most investors. T-Bonds are closely tied to the relative value of the dollar. In the next move, long dollar T-Bonds will pull back from their irrational highs in a sharp sell-off, to complete wave (iv) the Diag >, required to set the stage for the final Spike. Obviously this next plunge in dollar purchasing power will benefit inverse bonds, TMV, shown below in Daily increment candlesticks. Figure #5 TMV Inverse 20-year+ T-bonds The most likely trajectory in Bonds From the current vantage point, the most likely trajectory for TMV in figure #5 is shown as the smaller Diag > on the bottom right, just having completed the a-b transcending reversal. The next move is a rally to the most likely area marked (iii) at 59, followed by a drop back to the area of (iv). Wave (v) of the smaller Diag > will Spike in an e-wave Page 6 of 11

7 to complete the larger Diag > within a likely range of 72-74, as shown in the red and green arrows in figure #5. It s the e-wave that will then thrust up to retrace at least the area 72, from 41 on Thursday Aug 27. Swing Trading for optimal returns In keeping with our swing trade strategy, we intend to sell half the inverse bonds at 59. Should it continue to climb, we will likely sell another half. After the wave (iv) pullback, we intend to buy-back in the area of 42. Mediocre Investors: emotional, irrational, impatient herding Obviously the 3x levered inverse bonds should be far more profitable than the money market substitute shown above, but it also carries a proportionately higher volatility component, which strikes panic in rookie investors. These novices perpetually sell, precisely when they should be buying. In our information age, everyone is accustomed to instant gratification. However, in the realm of investing, instant gratification is highly inconsistent with exceptional returns, and can only lead to mediocre wealth-building. Exceptional Strategy strategically navigates contra the herd Our exceptional strategy is precisely the opposite of such mediocrity we buy what the herd seeks to irrationally unload at bargain prices. Later near the high, we scaleout, selling back to the same herd now turned euphoric, just prior to a plunge. It would seem difficult to fare worse if the herd intended to lose!..of all the late Malcolm Forbes s quotes my favorite is a mediocre person is always at his best. Ho-Hum, Mediocre investors don t experience peaks and valleys or take calculated risks. In attempts to play it safe, they take far more risk than they could possibly imagine, such fools are soon parted with most of their money. Likewise, a mediocre investment strategy, persists in perceiving a perpetual Bull Market fourteen years after the Bear Market has been in full swing. Like a metronome, the market swings from overvalued to undervalued & back again concurrently, at all degrees of trend, to mean the Monthly, Weekly, Daily & Hourly charts of the same asset class often move in opposite directions. Page 7 of 11

8 Failing to anticipate, it reacts in a knee-jerk When you fail to plan, you plan to fail Mediocre investing fails to anticipate, and lacks the patience to sit tight long enough to reap the benefits of a well-thought out & executed investment strategy. Like investing through the rear-view mirror, mediocre investors are ever jumping to last year s winner, just before it becomes this year s loser. Losing Asset Allocations This time is always nearly identical to the previous In a Bear Plunge all long assets are losers By Alteration, this time is somehow opposite the previous, similar circumstance in a minor way, while remaining essentially the same time, in the larger scheme of things. That s the irony in Rogoff & Reinhart s This Time is Different, this same mantra is recited like at every Major Market Top, by fools who haven t got the foggiest idea of what actually occurred last time! Just as the probability that lightening will strike the same spot twice is infinitesimal, those expecting such identical strikes, will continue to make losing asset allocations, through the rear view mirror. In this Bear Market Plummet, all long assets are losers. Mediocre investors are always looking to confirm their investment decisions with the herd unfortunately the herd is wrong for the majority of the time. Whether sourced greed or naiveté, such trend-following void of independent thought, can only result in serial opportunity losses. Without occasional gains to offset the losses from emotional, irrational, impatient, herd-following strategies, they become perpetual losers of their own devices. Stocks are inversely correlated with the Dollar & Bonds Below is the Big Picture Dow Chart, Bearish Diag II since 2000 figures prominently. Compare this to the chart of the Dollar to see that relative highs in the Dollar are highly correlated with lows in the stock market. In the chart below, stock market toughs in waves A and C represent highs in the dollar, just prior to the upside reversal, investors give up on stocks. In a last-ditch attempt to keep from losing, the herd buys T-Bonds. Page 8 of 11

9 Figure #6 Big Picture Bear Market since 2000 Page 9 of 11

10 Finally below you find the long, Bond chart. Note that the 2009 peak in bonds occurred in tandem with the trough in stocks. Figure #7 T-bond prices since 2007 If you subscribe to Stockcharts, please vote daily your vote is critical, this link will take you directly to our page you have 3 votes daily. Eduardo Mirahyes Page 10 of 11

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Visual Evidence of a Dramatic Reversal into a Bear Market Free-fall

October 10, 2015 (revised Oct 12) Visual Evidence of a Dramatic Reversal into a Bear Market Free-fall Below you see the SPX in arithmetic scale since 1982, this was the only segment of Supercycle (III)