Tuesday, October 12, 2010

The U.S. Dollar- Déjà vu?

In late November 2009, there were only 2% bulls in the U.S. Dollar. Only 2% of traders thought the U.S. Dollar was going higher. Yet, with all the pessimism towards the Dollar and optimism towards the Euro, the Dollar took off to the upside and the Euro collapsed to new 14-year lows against the Dollar. Then on June 7, 2010, the whole picture changed. There were  98% bulls on the Dollar and 2% on the Euro. Well, here we are again. The U.S. Dollar is down to 3% bulls and the Euro is up to 97% bulls. In November 2009, everybody was talking about hyperinflation, then they "forgot" about hyperinflation in June 2010, and now they are talking about it again. These are natural investor psychology cycles that occur in markets. Everybody loves a market at a top, and everybody hates it at a bottom. The Euro is very overextended, and may be getting ready for another leg down. Meanwhile, its death talk for the U.S. Dollar again,and with Gold at all time highs, Silver at 30-year highs, many commodities soaring due to fears of diminished supply, and the U.S. Dollar at its lowest level against the Yen since 1995, fears of "QE 2" by the Fed and hyperinflation are surfacing. People are talking about how now, both good and bad news is good for stocks. They justify that thought by saying if the news is good and the economy is getting better, the stock market will do well. If the news is bad and the economy is declining, the Fed will initiate more Quantitative Easing ("QE 2") and "fix" the economy and that will be bullish for stocks. This kind of thinking is typical at a market top.  Also of late many of these markets have started all moving together in what EWI calls "All the Same Market". Gold, Silver, the Stock Market, and commodities. this also happened in 2008 when Oil had a blowoff top and collapsed 78% in 5 months. Silver looks like it could be blowing off similiar to the way Oil did. We could be at a major turn here. The rest of 2010 should be interesting, to say the least.

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