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November 01, 2004

Markets at Key Inflection Points Before Elections
by Jes Black

All major markets are at or near key inflection points providing us with a variety of opportunities to trade from. The dollar reached a new record low in bullishness according to the MBH commodity advisers, while euro net speculative longs also reached a new record high. In our opinion we are days to weeks away from a major reversal. Gold and silver traders are also as bullish as they were in April before the precious metals collapsed, while bonds and stocks continue to spin in place, neither one willing to bow out first. If stocks prove us wrong and continue to rally we can only see bonds falling hard and fast.

If the dollar is trading at new multi-year lows and the elections are pulled off without a hitch (terrorist strike or Supreme court) the dollar is likely to enjoy a sizeable short covering rally especially if EUR/USD reaches our target price of 1.33 in the coming days.

The chart above shows us both the EUR/USD rate as well as gold priced in dollars and euros. The purpose is to identify any potential breakouts or trend reversals. As you can see, our Elliott Wave count would run into key resistance at 1.33 while gold is also bumping up against key resistance.

Our macro view on bonds is that interest rates put in a decade low in 2003. As such, regardless of where the economy is, rates should head higher. This is an unconventional view. But at key inflection points, the odds are with the contrarian.

For stocks, sentiment measures continue to show investors remain ebullient about future prospects. If the elections pull off without a hitch we could easily see a rally taking hold. Yet the record high sentiment measures indicate this could be just another bull trap. So our focus remains on the downside possibilities not the upside potential of this market unless and until we have a breakout.

Meanwhile, our foreign ETF holdings such as Australia iShares (EWA) broke out nearly one month ago even as the global equity markets remain in limbo. We still expect AUD/USD to eclipse this year's high of 0.80, and for the Australian All Ordinaries index to reach new all time highs. That this market remains off the radar screen only instills further confidence in our bullish view since we first featured the potential of EWA at $13.85 back in September.

Moreover, European indices look as if they have potential to outperform as well. The FTSE is trading at new yearly highs while some of the laggards like the Amsterdam index can be bought with the Netherlands iShares (EWN). If there is "catch-up" to be done, it will likely occur here. Therefore, considering that we are very cautious on US equity markets yet want to participate in a stock market rally we continue to favor a select blend of foreign markets as our long bets.

Recent Testimonial for FX Money Trends: "I find FX Money Trends' work extremely helpful. As a macro hedge fund manager I base my success on ideas generated both internally and through external research services: FX Money Trends and its founder Jes Black constantly provide ideas which are based both on very clever fundamental and technical analysis and research. FX Money Trend's intellectual independence makes their ideas precious, never obvious nor "late." - Francesco Clarelli, Italy.

Jes Black
fx Money Trends

Jes Black, hedge fund manager at Black Flag Capital Partners, specializes in foreign exchange and global macro trends. Prior to organizing the fund he helped MG Financial Group launch Forexnews.com. In the summer of 2004 Mr. Black formed FX Money Trends, a research firm catering to professional traders.

Mr. Black holds a degree in economics from the University of Kansas and an MBA from the ESC in France. His market commentary is often featured in the Wall Street Journal, Financial Times and Reuters. He has also written numerous strategy pieces for Futures magazine. To find out more about the funds research letter visit www.fxmoneytrends.com/products.html. Qualified prospective investors can find out more about Black Flag Capital Partners by e-mailing info@blackflagfund.com

Under no circumstances does the information contained in this site represent a recommendation to buy, sell or hold any security.

Copyright © 2004-2007 Jes Black

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