Dec 16, 2009

 Buy the Dollar…Nobody else is…

Even though the rhetoric has quieted a bit as we head into the Christmas and New Year’s  break, I still think the “falling Dollar” is the biggest one sided opinion on the planet…and very much believe 2010 will see that opinion blown away, as is seemingly always the case in the markets when the trading world becomes dead certain about where any market is headed…For one thing, when opinion does become unanimous about a commodity, it does lead to the actual buyers and sellers of that commodity taking actions that do inevitably change that market’s  supply and demand equation; that is, if EVERYBODY is certain a market can only go down, sellers in that market are prone to sell ahead of their needs and buyers do just the opposite, maybe not doing any forward buying at all, the eventual result being the dynamics of that market do become changed…Obviously, there is a lot more than this involved in why markets reverse direction but opinion IS a factor.

I continue to believe the Dollar is a monster buy, and expect to see it trading up at least 10 to 15 points ($10,000 to $15,000 a contract) by mid 2010, but the truth is, why I believe this is not important. You either agree or disagree with me, and if you want my long winded opinion on the subject, it can be found in our website archives in several recent newsletters, http://www.crokerrhyne.com/newsletters/12-02-09.htm and http://www.crokerrhyne.com/newsletters/11-14-09.htm (the Lunatic Update). Otherwise, I just say I see absolutely tremendous leverage in the June, 2010 call options.

Moving average crossover systems have their drawbacks, but ultimately, they can be a valuable tool if you are looking for some technical evidence of a market turn. Years ago I came up with the system shown below, using 12 day and 48 day moving averages, and while it worked best in the Eurodollar futures contract (not the Eurocurrency), the one other market that it produced hypothetical consistent year to year profits was in the Dollar Index…Several days ago the system generated a “buy”,  and while this by no means is any guarantee of market direction, it does represent a step in the right direction…

Here is the same chart, for clarity, with the price action removed…

The next chart is a total aside directed at any of you who suffered with me years ago in the totally mechanical Eurodollar System in which we used these same two moving averages. The system, which I had back-tested all the way back to the first Eurodollar futures contract in 1984, had INCREDIBLE hypothetical numbers. We started actually trading it in 1997 and it promptly had its worst year since inception, and while it only lost about $3000 per contract during that year, it was just enough of a yearlong disappointment to have us abandon the system…And it’s a bit sickening to see what it has done since then…It takes time, but over time, it has continued to work, basically catching any major moves in short term interest rates…

Getting back to the Dollar…here is a longer term look at the Dollar Index followed by charts of how some of the other major currencies have traded against the Dollar during the past three decades or so…

All of the currencies shown below would probably be going down in unison (to varying degrees) as the Dollar goes up…I think they ALL look very much to have that bearish potential…

And one last thing…If I AM right about the Dollar, it probably would also mean that this whole EXTREMELY POPULAR “buy commodities” thing is going to get blown out of the water…which IS what I expect to happen…

Give me a call if you want to get something done in the Dollar (or anything else)…Quite viable June calls can be had for anywhere from $750 to the $2150 noted on the 78 call above…

Thanks,

Bill

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