"As favour and riches forsake a man, we discover in him the foolishness they concealed, and which no one perceived before." ~ Jean De La BruyFre 1645-1696, French Classical Writer
The dollar is still the worlds reserve currency and no mater what the world wants to do they cannot simply dump their dollar holdings and move into other currencies. First of all if they were to do this it would provide a "screaming buy opportunity" to make a fortune but this is not going to happen so we wont waste time looking at it. Secondly one has to remember that every single currency out there is just as rotten if not even more rotten than the dollar. Something is either rotten or not rotten; have you ever heard anyone saying oh my food is less rotten than yours so it's okay to eat. If it's rotten everyone is going to dump it. Furthermore everyone and his grandma are negative on the dollar. From supermodels to heads of governments, everyone is now stating that they want to either get paid in another currency or reduce their dollar holdings. Don't you see something terribly wrong here, something that begs a big question but most do not even know what the question is let alone the answer. The question that pops into our head is what in heavens name were these jackasses doing 4 years ago? Would it not have been wise to sell the dollar at that time, not now that it has dropped so much and should they not actually be thinking of buying the dollar or at the very least holding it. We are going to stop and put up a chart of the mass mindset that we published in the January 2005 market update.
1 = stock is going no where, its pure junk let me look at something else.
2 = lucky break, it's going to definitely crash.
3 = what it's still going up earnings are not so good people are definitely getting carried away its going to pull back and crash.
4 = ahh see I knew it was going to crash, thank God I did not buy. (Mistake the mass mindset misses the main point here. Yes it pulled back, but look where the pull back ended miles away from its first break out. A losers mind can only see the picture for what it is not, by replacing it with a picture from his or her imagination. Since they live in a losing sphere they focus on the negative aspects but not on the positive aspects).
5 = what happened here this stock was supposed to crash how the hell did it get here. Perhaps I should have bought I could have made a lot of money; this looks like a sure thing. So only halfway through stage 5 will the mass mindset decide it's safe to venture out. Now this person finally musters the courage to buy. Vow it actually went up, great I making money.
6 = this stock is going to go to the moon let me tell all my friends about it; it looks like a sure thing.
7 = what happened it pulled back ahh I am not going to fall for this like I fell for it last time (look at number 4). Time to buy more; buy on the dip that's it.
8 = I knew it, its going up and I made more money, wish I had bought more. Next time I will invest more on the pull back. (Notice the loser's mindset does not bother to take time to notice that the stock did not put in a new high. All that matters is that it went up).
9 = it's going down again, time to really load up I don't want to lose this opportunity. Earnings are great so it must be a good time to buy some more.
10 = first dose of bad news and the stock takes a big hit, okay this is just temporary it's going to go back up. (Blind faith (a huge mistake), one of the main ingredients of a losing mindset). Let me buy more and average down.
11 = maybe I should sell now things don't look good, but you know what let me just hold for a bit longer maybe things will change. Yeah things have to change look how fast this stock went up and it has pulled back so much. The worst is over it has to go up.
12 = this stock is dead I have to get out; it's not going anywhere (this is when the stocks start to bottom. The secret programmed desire to lose syndrome has completed its mission. Trader is in state of extreme distress and shell-shocked). I am never going to look at this stock again I knew it was garbage why did I ever buy it in the first place.
13 = Slow base formations and the possible start of new up trend and the worst part is that this trader is out.
This is very long term chart of the dollar (22 years worth of data) and one can see that from roughly 2002 the dollar has taken a massive beating. It took almost 12 years for the dollar to trade to the 121-123 mark but it took roughly 5 years for it to give up all those gains and more. Let's just stop here and make a statement "history repeats itself over and over again; those that pay attention to this stand to reap huge profits". Note how the dollar corrected very strongly from 1985 onwards until about 1991 and after that it traded sideways for another 5 years before taking off. We would bet that the very same stories that have been published in the last 5 years were gracing the face of newspapers and magazine covers from 1985-1995. What has changed now, nothing, the only thing is that the problem is different but the outcome has been the same. Nobody thought that the dollar would eventually rally and gain the strength it did; the outlook was bleak and hopeless just as it is now. Do we expect the dollar to just suddenly take off; no we do not expect this to happen. What we expect is that there is going to be a base building phase but this phase will not take as long as it did a decade ago; we have millions of new players and should we say greedy players so the moves today occur at pace that is almost 10 times the pace of a decade ago. The dollar could still spike a bit lower but bottom line is that individuals should now be looking at buying the dollar and not selling it. Just as the Yen moved up suddenly so will the dollar. Several months ago when we told our subscribers to buy the Yen when it was trading under 83 many thought we were nuts at the time; those that listened are now sitting on very lovely gains. Futures players were able to lock in upwards of 9,000 per contract. If the dollar can hold above 75 on a monthly basis then there is a very good chance that the dollar will put in a bottom within the next 30-60 days. The first level of resistance comes in at 81; we need to trade above this mark for 21 days in a row to indicate that the worst is over and the dollar is ready to at the very least test the 84-85.50 mark.
This is a 3 year chart and immediately here we can see the multiple down trend lines which as we stated before indicate that some sort of reversal is imminent. On this chart the dollar needs to stay above the 74 mark on a weekly basis (note on the long term chart above we need to stay above the 75 mark but only on a monthly basis so we could dip as low as 73 but as long as it moved above 74 on a weekly basis and above 75 on a monthly basis no harm would be done). If we break below these levels then it's possible the dollar could trade down to the 70.50-71.30 ranges.
In the short term it's possible that the precious metal sector might take a small hit due to the dollar rallying. If this happens we would view it as a buying opportunity and not one to run from. Long term we feel that the entire commodities sector will start to stand on its own feet and not on the so called dead feet of the dollar. Its demand that's going to drive these markets and not a weak dollar and demand is unlikely to fall anytime soon.
"It is defeat that turns bone to flint; it is defeat that turns gristle to muscle; it is defeat that makes men invincible." ~ Henry Ward Beecher 1813-1887, American Preacher, Orator, Writer