The Chart du Jour
To Prudent Bear manager David Tice it is crystal clear: stocks are going down, and because of the huge U.S. merchandise trade deficit so too must the dollar. Hence he launched the Prudent Bear Safe Harbour Fund a few months ago to bet against the greenback.
What Mr. Tice misses, however, is that weaker equities together with an inverted yield curve, has in the past been the exact equation for the dollar to move up in value -- not down. For those confused as to how that can be, we invite you to revisit our article "When the Curve Inverts" written last February.
Bringing the question of a strong dollar into real time, we also do not think that the chart pattern of the British pound looks particularly complete from an Elliott wave perspective. Instead, we are likely just finishing a iv of 3 wave in an ongoing decline.
The picture for significant euro weakness looks far less clear than the pound and the Japanese yen, so one must be careful picking which currency to position against. The picture below of the old sterling-mark chart (call us old- fashioned if you will, but the new euro-sterling all upside down still does not appeal) suggests that after a strong wave 1 down, we may soon complete a lackluster wave 2 bounce (or alternatively a iv of 1 down). We'd look to sell the pound against the euro, with a stop set above 3.23 sterling-mark.
Unfortunately for Mr. Tice's new fund, an increasingly bearish equity market will not immediately result in a weakening dollar. Instead, we may get quite the reverse for awhile.
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