The dollar has been falling lately, which isn’t what a lot of people expected with the Fed being the only major central bank that’s raising interest rates. Higher yields on dollar balances should, according to basic economics, have attracted foreign capital to Treasury paper, thus putting upward pressure on the dollar. Didn’t happen though. The dollar is down about 10% since the Fed started tightening.
Stocks, meanwhile, might reasonably have been expected to fall, as their dividend yields become less attractive relative to rising risk-free fixed income returns. Also didn’t happen. US equities are now at record levels.
As for what happens next, Ron Rosen of the Rosen Market Timing newsletter has just published some dramatic predictions. Here’s an excerpt:
This REPORT attempts to demonstrate that the day the Dollar Index crosses beneath the 91.88 level will probably be the beginning of a collapse in the stock averages and a massive rise in the precious metals complex.
The completion of the 9 year Zig-Zag correction in the Dollar Index is telling us that D-Day will take place the day that the Dollar Index crosses beneath the 91.88 low. The following is an explanation of a Zig-Zag correction.
Excerpts from the NASDQ description of a Zig–Zag correction: “Zig zags look like a lightning bolt on the chart. There are 2 rules for zig zags: 1. The sub waves of an A-B-C zig zag appear as 5-3-5 2. Wave B of the zig zag cannot retrace 100% of Wave A – most of the time wave B retraces 38-78% of wave A The 3 waves of the zig zag (A-B-C) subdivide as a 5-3-5 meaning the ‘A’ leg has 5 sub waves in it, the ‘B’ leg has 3 sub waves in it, and the ‘C’ leg has 5 sub waves in it. As a result of the ‘A’ and ‘C’ legs both containing 5 sub waves each, the impact of the whole zig zag structure is to be a deep retracement and recover a lot of price from the previous trend. Also, the zig zag was designed to make progress against the trend. Therefore, wave B of a zig zag can be any 3 wave pattern (including another zig zag), but wave B cannot retrace 100% of wave A. A retracement of 99% is acceptable, though unlikely and progress needs to be made.”
It is as obvious as anything can be that the Dollar Index underwent a 9 year zig-zag correction that began in the June quarter of 2008. The zig-zag correction was complete at the high of 103.815.
The S&P 500 and the Dow Jones Industrial Average accompanied the Dollar Index on its huge corrective zig-zag rise. It is highly probable that they will accompany the Dollar Index on its coming collapse.
Gold bullion as representative of the precious metals complex has bottomed and completed its first minor rally. Its explosive move up waits in anticipation of the crossing of the 91.88 level for the Dollar Index.
The XAU as representative of the precious metal shares is in the same bullishly explosive position as gold bullion.
If something like this happens there will be all kinds of fundamental explanations (to go with the technical one outlined above), including political turmoil in the US and abroad, divergent central bank monetary policies and rising geopolitical tensions in Asia and the Middle East.
But the truth will be simpler: This bull market in financial assets has continued for far too long on the back of artificially easy money, something that is by its nature unsustainable. So it eventually had to end and now is that time.
Also nearly certain is that when a currency/stock market crisis finally hits it will be met with a truly breathtaking set of central bank asset buying programs. QE was big, but the equity, corporate bond, and (possibly) real estate buying binge that comes next will put it to shame.