Dollar Looking Toppy which Could Send Stocks and Commodities Higher

By: Chris Vermeulen | Mon, Jul 11, 2011
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It's been an exciting couple months as stocks and commodities have moved like they are a roller coaster at a theme park. We all know every good roller coaster has a few monster hills which make their clients scream in fear/excitement that's what it's all about!

But if we step back into the financial world where fear/excitement cost people month it is not so fun. Look at the US Dollar index you will see three monster hills which investors/traders have just finished riding. These quick price movements were enough to make most traders hit the sell button in fear of wilder price action. This is the type of price action which can whip-saw traders in and out of positions for several back-to-back losses.

Having multiple losing trades back-to-back triggers a series of events causing most traders to lose large percentages of their trading capital.

First the trader starts to become frustrated and starts second guessing themselves. This causes revenge trading meaning they start to trade more frequently without proper setups and risk reward levels. Which lowers their confidence, while increasing the rate of their trading. This generally makes for a blowout trading session or week. Meaning they lose 20-50+% of their trading capital in a very short period of time all because they are trading off pure emotions and not clear trading rules.

Avoiding roller coaster rides with your trading capital/emotions is one of the things I do well. I do this by focusing on the US Dollar index because it plays a very large roll in what both stocks and commodities do. I analyze the dollar trends and use its price action to help gauge how big and long its next trend is. If the dollar index looks as though it may top, then I will be looking to buy/ accumulate some stocks and commodities simply because a falling dollar helps boost the value of stocks and commodities.

Take a look at the dollar index below. Just a quick glance and you get a gut feeling that it's trying to top and could have another sharp selloff in the next 1-3 days.

US Dollar Index Futures

Now if we take a look at the SP500 daily chart and use the dollar index analysis above, I would expect to see stock prices pause or pullback for a few days while the dollar tops and then look for a reversal pattern on the shorter time frame charts to add more to our position before stocks continues higher.

S&P500 E-Mini Futures

Looking at the price of gold we can see that it has been trading in a large sideways range since May and also near a resistance trend line (red line). We could easily see a 1-3 day pause/pullback in gold while it builds energy for another surge higher, which could take it through the resistance level.

Gold Futures


Pre-Week Market Trend Analysis:

In short, I feel the dollar is trying to put in a top which could take a few days to play out. If that unfolds then we should start seeing stocks pullback to support levels and then bounce with rising volume.

 


That's all for now, but if you would like to get my pre-market video analysis each morning and intraday updates along with trade alerts be sure to join my premium service here: http://www.thegoldandoilguy.com/free-preview.php

 


 

Chris Vermeulen

Author: Chris Vermeulen

Chris Vermeulen
President of AlgoTrades Systems
www.TheGoldAndOilGuy.com

10126 Hwy 126 East, RR#2
Collingwood, ON, L9Y 3Z1

Chris Vermeulen

Chris Vermeulen, founder of AlgoTrades Systems., is an internationally recognized market technical analyst and trader. Involved in the markets since 1997.

Chris' mission is to help his clients boost their investment performance while reducing market exposure and portfolio volatility.

Chris is also the founder of TheGoldAndOilGuy.com, a financial education and investment newsletter service. Chris is responsible for market research and trade alerts for of its newsletter publication.

Through years of research, trading and helping thousands of individual investors around the world. He designed an automated algorithmic trading system for the S&P 500 index which solves his client's biggest problem related to investing in the stock market: the ability to profit in both a rising and falling market.

AlgoTrades' automated trading systems allows individuals to investing using either exchange traded funds or the ES mini futures contracts. It is supported by many leading brokerage firms including:

- Interactive Brokers
- Trade MONSTER
- MB Trading
- OEC OpenECry
- The Fox Group
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- Vision Financial

He is the author of the popular book "Technical Trading Mastery - 7 Steps To Win With Logic." He has also been featured on the cover of AmalgaTrader Magazine, Futures Magazine, Gold-Eagle, Safe Haven,The Street, Kitco, Financial Sense, Dick Davis Investment Digest and dozens of other financial websites. His list of personal and professional relationships approaches 25,000, people with whom he connects and shares is market insight with out of his passion for trading.

Chris is a graduate of Seneca College where he specialized in business operations management.

Chris enjoys boating, kiteboarding, mountain biking, fishing and has his ultralight pilots license. He resides in the Toronto area with his wife Kristen and two children.

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Source: The Contrarian Take http://blogs.forbes.com/michaelpollaro/
austrian-money-supply/