Bullish the U.S. Dollar is Bearish Global Equities and I AM ~ The Risk Averse Alert

Sunday, May 31, 2009

Bullish the U.S. Dollar is Bearish Global Equities and I AM

Do you know how easy it is to be bullish the U.S. dollar right now?

Sure, there is a growing threat of a global hyperinflationary blowout of the dollar-anchored financial system. If the past year is any indication, the process should involve the simultaneous ratcheting down of physical economic activity and explosion of financial intervention. Along the way every attempt to resuscitate pre-crisis conditions should invariably fail (much as has thus far been the case) and lead to the next level of breakdown.

Still, belief in the possibility of success over coming months and quite possibly extending through the next couple years likely is to prevail to an extent more enduring than hindsight might prove prudent.

Let's face it. The stars [of power] are not exactly configured in such a way as will allow the dollar to crumble without a fight. So, although the risk of a dollar collapse likely will build, the actual moment when all faith is lost must be delayed while every attempt is made to regain balance.

During this interim, then, wisdom advises one be a dollar bull. Here's why...


What is the U.S. Dollar Index's 200-day moving average doing?

Behold! It is rising.

Thus, the U.S. dollar's trend clearly is rising, and so it is easy being a dollar bull. RSI and MACD being a wee bit oversold here certainly helps add conviction (seeing how the U.S. Dollar Index currently is trading below its [rising] 200-day moving average).

It is instructive, too, I believe, to view the U.S. Dollar Index's reversal last year and the positive impact this had on its 200-day moving average. Stock market bulls take notice. Nothing of the sort has yet to occur in any major stock index. There, the story told by the 200-day moving average is quite uniformly bearish, indeed.

So, wrapping up this thought...

About current U.S. Dollar Index weakness: it is partly a reflection of belief in the possibility of crisis resolution success over coming months. With the [U.S. dollar-centric] financial core momentarily stabilized, hot money flows have made their way back into those lesser developed (formerly booming) regions (BRIC) shredded during last year's collapse.

Hot money also is chasing commodity production. Here, one's analysis need be a little shrewder. Some wealth surely fathoms how controlling basic "things" can act as a means of preserving capital (or power; or both), should the risk of a hyper-depreciating dollar become a reality in the not-too-distant future. Thus, some portion of movement out of the dollar might not be done in belief the status quo of recent years soon will be returning.

Now, about the U.S. dollar's bullish outlook...

How can one underestimate the potential for astronomically rising capital needs among businesses of all sorts (holding dollar-denominated liabilities) during times like these, when economic functioning remains flat on its back and stimulus in the trillions, meant to shock life back into the system, is thought too little by some?

If the trend is your friend, then the U.S. Dollar Index's 200-day moving average suggests the mad dash for dollar-denominated capital that hit the globe last year might have only just begun.

We know what impact this had on equities. Not coincidentally, stock index 200-day moving averages likewise suggest a capital-starved world could threaten another wave of selling.

You might say all things here lead to the simple conclusion that, cash is king. It's little wonder, then, very short-term U.S. Treasury securities are all the rage these days...

* * * * *

© The Risk Averse Alert — Advocating a patient, disciplined approach to stock market investing. Overriding objective is limiting financial risk. Minimizing investment capital loss is a priority.

Analysis centers on the stock market's path of least resistance. Long-term, this drives a simple strategy for safely investing a 401(k) for maximum profit. Intermediate-term, investing with stock index tracking-ETFs (both their long and short varieties) is advanced. Short-term, stock index options occasionally offer extraordinary profit opportunities when the stock market is moving along its projected path.

Nothing is set in stone. Nor is the stock market's path of least resistance always known. More often than not, there are no stock index option positions recommended.

There's an easy way to boost your investment discipline...

Get Real-Time Trade Notification!