Perspective

Perspective is everything in the "business." In my six years working in financial services, I came across many who really did not have an idea of what was coming - a perspective if you will. One thing that I always had was a perspective of the environment. When I worked as an consultant on the sports management side, I always needed to be properly prepared and offer an outlook for the industry and what types of advertising and promotion would work. So today as I write this, after reviewing and updating some trading models, I am left with a different perspective so to speak. In short, I see tops and bottoms on the charts but within my trading models, thanks to a new function that I did not have before, I perhaps was too "quick" to jump the gun on various markets.

Now one could say I am being pushed around by the environment. That is possible but unlikely. I mentioned over the weekend that the dollar recovery hinged on the housing stocks. They have stalled and the dollar has weakened somewhat. I mentioned last night that crude was probably going to continue to bounce higher and the 111.50 level would provide adequate support for the bulls. Today, it finished up over the resistance point of 120. What I am offering here is an analysis of two different perspectives - one via my trading models from the computer and the other via the charts.

Now both share some commonality. I use the ADX formula on the chart and within my trading model. The trading model though changes the ADX formula a bit creating a different twist on things. Both have aspects of contrarian and momentum trading. The charts are about momentum and waiting for a turn or a double bottom whereas the trading models via the computer look for extreme points within an upward rising trend. Now if this all sounds like gibberish, then I apologize. So I will move on and explain my issues.

First, I have been openly bullish on the dollar since the beginning of time - time being the begging or launch of this website a month ago. My reasoning was simple: The DXY had found good support at 71.70 and was oversold while doing so. It bounced higher breaking through several resistance levels in the process. Other indicators on the chart started to turn. Meanwhile, the Euro has a double top sitting around 1.60 and it was extremely overbought. Add to this some policy issues with the ECB and I thought it was ripe for a beating (also the GBP though I did not envision the decline being this much). I also had bearish readings for crude and gold as well.

So with that in mind, after putting together some stronger trading models tonight, via my computer (and programming magic), I discovered some interesting things. First, the "trend" if you will for the Euro, GBP and Yen still argues for strength (ie dollar weakness). While there were numbers that indicated trading against that trend was a good idea, they have disappeared...ever since the Euro hit its lows last week. Now, this is not to say that the Euro is very strong - it is actually at its weakest point since 2006 in terms of trend strength. This is to say that I may have been a bit premature in terms of being overly bullish on the dollar. As for crude and the gold market, the call last night on crude was partially based on this model, combined with the charts. Gold, it was so beat up that it had to bounce - it too though is exhibiting and extremely strong upward trend.

In the end, I now have two perspectives. Which one does one ride? Well, I believe they can both be used. So lets give a quick rundown of each going into the weekend.

Dollar
The Dollar Index has found resistance the last few days as the credit issues rise to the surface again and the homebuilders back off. Meanwhile the Euro has found some support and is moving higher. I still argue that the chart holds some more significance here and the rally peters out around 1.50 at best or sometime early next week. The weakness in the pound, on both the chart and within my trading models, also argues for strength in the dollar. Thus while the trends of both the GBP and the Euro point up, I argue that the trends are weak and long in the tooth. I remain bullish on the dollar

Gold
Gold is somewhat interesting. I argued a few weeks ago that a break of 850 would lead to a nasty decline lower. Sure enough, the yellow metal collapsed as everyone was looking at the same level (and the stops rained down). Now it has climbed back and is attempting to get something going. I am inclined again to believe that the primary trend is due to correct further and gold is as well. Now, here comes a divergence in opinion. Gold's uptrend is very powerful and I would be very surprised now if we saw the 600 level, like I mentioned a few weeks ago. Short term the sellers could reemerge as the yellow metal, with further strength tomorrow, will be overbought.

Crude
I argued Crude's case yesterday so there is very little reason to rehash. I will say though that after the sizable bounce, I am less bullish now. $122 is a major resistance point now and it looks like that a turn lower could come sometime next week. AT the same time, the crude barrel is oversold - very much so as a matter of fact. I would guess that the market bides time heading into the hurricane month but a move back to the highs now, cannot be ruled out. I myself will be playing the long side heading into the next month but again there might be some short term top in place next week where I then would start looking short again.

Well, that's it for now. I will have some new models coming in a few days covering the soybean market as well as the silver market. Have a good night.