Monday, February 1, 2010


A while back I opined that the market would not be able to sustain upward momentum in the face of a stronger dollar. So far that's pretty much what's been happening. 

Other than a minor 30 point blip up as the dollar worked its way down into the last daily cycle low the market has basically gone nowhere since the dollar rally began.

I think if Bernanke wants to keep asset prices inflated he's going to have to get the dollar headed back down just like Greenspan had to do in `04 to get the market headed higher again.

The average duration for a yearly cycle counter trend rally is 50 days. Friday was day 46, so in that sense the dollar is in a live area for a final top in what I believe is just another counter trend move in an ongoing secular bear market.

Commercial traders now have the largest short position on the dollar that they've had in over a year and a half and sentiment has gone from extreme bearishness at the beginning of Dec. to levels of bullishness that have the marked tops of previous yearly cycle counter trend rallies.

Duration wise and sentiment wise the dollar is now setup to resume the secular trend. If Bernanke wants asset prices to continue rising he's going to have to continue pumping liquidity.

With real unemployment stubbornly holding over 15-17% does anyone really think Ben is going to start withdrawing liquidity?