Whitney, the Dollar and Ben

{+++} Well, we closed above 1100, but it wasn’t without some herky herky fits and starts along the way. First, Bernanke did a horrible job of scaring the dollar bears with his “tough talk” on the greenback and we broke to lows not seen on the dollar index (DXY) since last month and  early this month. The market was agnostic initially to Bernanke’s comments, but then decided to sell off a bit before it gained composure. Then the Goddess of all things financial (and now consumer/retail), Meredith Whitney, went on CNBC and said to sell all things financial and stated oh, by the way, “I haven’t been this bearish in a year.” That’s a mouthful coming from her. Please keep in mind, as your resident jaded skeptic,I will say Whitney is trying to turn heads, she always is, especially since she started her own firm. Truth be told though, she is always as right as rain.

She is calling for another big leg down in residential real estate and she predicts higher mortgage rates to come, she thinks that banks are grossly inflated and are trading on fumes. As some of you know I listen to about two people on the market, she’s one of them. After she said her piece, the market sold off, but as no surprise to anyone, the invisible bid appeared below the market and we regained about four or five S&P points into the close.

So the dollar is failing miserably here, which should be good for stocks going forward, but keep in mind that greed can turn to fear quickly in the market. It may not be long before we start hearing how a “too” weak dollar is very bad for things in general. I don’t think we re there yet, but it will be soon if this dollar weakness continues. I’ve been saying for months now that the $72-74 level on DXY will bring out the Armageddon crowd quickly. The last time we were at those levels was the Q3 of 2008.

In the meantime, the most profitable trades are the ones that are the most painful to make.I had this conversation with my partner Todd today, actually it was his thought not mine. We were frustrated as we looked for longs or shorts for our fund and that was his takeaway. The financials were running and he took a very nice short position on the financials via FAZ and it worked incredibly well, almost a dollar in about a ten minute duration. Normally, that is the best way to go. We are at a stage in the market where you have to follow momentum on an intraday basis, but anything longer it may pay to take the contrarian view, meaning short with tight stops. In the case of that trade, it was also a contrarian trade. When the world screams higher some times you go the other way. The world is screaming higher here and that is when I am most cautious, it doesn’t mean we can’t go to 1200, it just means ultra caution here is required. Unless of course   you think the S&P will double from the lows. I personally think the bigger move will be on the downside from these levels, not the upside.

Options expiration is Friday, my gut tells me that if we are above 1100 on Friday it will be a bullish December, if not, the highs may be getting put in right here.


Previous Post
Next Post
Materials Ignore Strong Dollar

Recent Articles