Dollar Plunge

Looks like Lacey Hunt was on to something.  10Y Treasuries are rallying and the dollar is dropping like a rock.  World wide markets dropped.  There are many catalysts, though I believe the underlying economics are the root cause:

  • Major Hurricane will strike Florida.  Banks and insurance companies will get hit.
  • North Korea is a source of major uncertainty.
  • Fed has stopped raising.  Next move will be to bring back QE.
  • Debt ceiling was raised.  There will be no serious action on the budget until 2019.

The chart pattern for stocks still looks grim.  As always, I recommend selling half and moving to safety for now.  If I’m wrong, the other half will participate in any rallies, and your safe money will earn 1%.

3 Types of Investing

If you are interested in investing, there are 3 styles of analysis that you will want to learn about:

  1. Quant.  This is the analysis of money flows and is sometimes called momentum investing.  There are different aspects to it from basic charting, watching moving averages, watching trends, watching volatility, and looking at Volume Weighted Average Price (VWAP).  VWAP especially has been a very successful way to invest in the last few years.  Quant is relatively short term.
  2. Macro.  Macro looks at economic trends and is more long term.  It is important for reading where the market is at in an economic cycle.  More and more it has been used to predict Central Bank action, since you no longer invest for economic growth and innovation, but instead speculate by placing bets on what the Fed is doing.  For example, TESLA and Amazon are arguably worth about 10% of what they are currently priced, with TESLA probably worth zero due to its debts.  But you can’t short them.
  3. Value.  Value has been basically dead for a long time.  Value looks at debt levels, profits, cash flows, and dividends.  Ideally all you would look at would be value.  You’d buy companies paying a nice dividend with potential for some growth.  It still works in spotting egregiously crappy companies, and so can be helpful on the short side.  However the main driver for stock price increases has been companies racking up debt and buying back their stocks.

Market Looks Toppy

I don’t want this to become an investment blog, but the ole Elliot Wave part of me is freaking out. Check out this beautiful set up:

 

Wave 1 finished around June ’11, Wave 3 ended around June ’15, and Wave 5 just completed a nice 1-3-5.  This is the tricky part.  We are definitely in the final wave 5, but it could extend.

Basically at a minimum be very defensive here.  If you want to play it, don’t get greedy.  Give up on Wave 1 down.  Target would be somewhere around the 2200 level.  Look for the A-B-C rebound then short.  So if this wave 5 extends, no problem.  Just be looking for that Wave 1 sell off for the short set-up.  For reference, check out the beautiful A-B-C rally  around March ’08.

Using the 2008 blood bath as a reference, the initial Wave 1 sell off took 2 months, with the snap back rally (Wave 2) lasting 1 month.  If this is what is setting up, no need to get greedy, you’ll have time.

The Fed is going to raise again in September, so that may be the trigger.

Final note, chart was from a Zero Hedge article.

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