Down goes the Dollar!
That's significant because it's Options Expiration Day today AND we're settling the December Oil Futures Contracts (/CLZ6) so the well-timed 0.5% drop in the Dollar (which we predicted – thank you!) is boosting oil, gold, the indexes – well everything priced in Dollars – you get the idea. This is how they take advantage of TA people because TA doesn't take into account the value of the underlying currency of the thing they are charting.
To illustrate how silly that is, suppose you were charting the freezing temperature of a water and they kept changing the type of liquid but you just kept putting lines on the chart as if it were water all along.
A person looking at the chart would believe the freezing temperature of water varies wildly and they would come up with all sorts of idiotic reasons to explain this and, if there was a market for betting what temperature water would freeze at, they would start naming the chart patterns and selling you analysis that claims to give you the inside edge to bet what temperature water would freeze at tomorrow.
Does that sound idiotic? Well that's Technical Analysis! Water freezes at 32 degrees F and that's a F'ing FACT, not a theory. F is also the first word in Fundamentals – where we deal in FACTS, not theories. You can't ignore a massively significant FACTOR, like the price of the Dollar and expect to accurately chart the movement of something that is priced in Dollars.
Of course, at PSW, we are Fundamentalists and we do take these things into account, that's how we knew to go long on Gasoline Futures (/RB) at the $1.325 line this morning – based on the chart AND the chart of the Dollar AND the expectation of a rumor from OPEC we discussed in yesterday morning's PSW Report. We've been in and out of /RB all week and, at 3:24 pm in our Live Member Chat Room, I said:
RUT/Jasu – Still 6 short at 1,312 for overnight. Out of /RB and hoping for a dip before tomorrow's close to go long into next week, $1.325 would make me happy to start. /NG I'm waiting for a new bottom and /KC I always have a couple of longs.
As you can see, it's another day and another $1,000 profit already on two contracts which we grabbed this morning as we got a dip near $1.325 and we got a cross back over $1.33. Now our stop is $1.34, which is up $840 on two contracts but hopefully we'll pop over $1.35 ($1,680) and run up from there.
We've been extensively detailing Gasoline trades all week to give our cheapskate readers an idea of how we trade the Futures in our Live Member Chat Room and I hope you've had a fun, profitable time trading along with us. Since oil and gasoline are up on a bounce off our support line, a weak Dollar AND the OPEC commentary we KNEW (that or Rent-A-Rebel) would come yesterday, we're not taking the "rally" very seriously, dropping the Dollar is just one of the ways "THEY" goose the market and sucker the TA people into chasing their long tails.
Remember (because we are done with our free Futures lessons), a strong Dollar is good for the Nikkei (/NKD) and a weak Dollar is bad for the Nikkei because Japan is an export-driven economy – more so than even China. We're short the Nikkei (/NKD) at 18,000 using March EWJ puts (see Monday's post) because, though we nailed our call on the Dollar rally way back in the summer – we are VALUE investors and the Dollar is fully valued here at 101 – no matter how pretty the chart looks. As soon as the Dollar stops going up (and it's up 4% since the election with 5% being the limit at 102) the Nikkei loses it's driving stimulus and the Dollar doesn't even have to go down for the weight of Japan's debt to drag it back down.
We're also still short our indexes here (see all week's posts for levels) and will certainly take some into the weekend (and we aggressively pressed our portfolio hedges yesterday) but next week is a very thinly-traded holiday week in the US with markets closed on Thursday for Thanksgiving and a half a day the next day, which is ridiculous because who's going to leave their family to go back to work for 3.5 hours? More importantly, it's such a major holiday in the US that even the news will be dead so it will be a great chance to see how the World markets trade when it's all quiet on the US front.
Have a great weekend,
– Phil
