A Correction To Fade


SELL THE TUESDAY RALLY - Not a surprising start to the week. After a nice pullback in risk assets and some more broad US Dollar demand, the market was finally ready to ease up a bit and find some corrective price action. In my Monday note, I had warned of such moves and still believe there is room for more upside in US equities and currencies before we see a resumption of the trend. The SPX closed out Monday trade around 1940, and another push towards 1950-60 is well within the cards for Tuesday trade. However, once we see 1950-60 tested, a fresh sell opportunity should present. Use an hourly RSI as your guide for entry. If you see the hourly RSI on the SPX trade above 70 while the market is over 1950, this should be a good signal to enter a fresh short position. On the currency side, we still could see a little more USD weakness that extends beyond Tuesday trade. I am more bearish equities over currencies in the short-term, given currencies have already sold off quite a bit against the US Dollar. So US equities are playing catch-up (or catch down).

BUY USD DIPS - Nevertheless, this doesn't mean I won't be aggressively looking to buy Dollars as well this week should we see an acceptable USD dip to buy into. As you all know by now, I have chosen the New Zealand Dollar as my currency of choice to sell against the Buck, and if we get a push back towards 0.8600 in the sessions ahead, I will look to reestablish a short position. The same strategy for entry will be employed as highlighted with equities. I will look at the hourly RSI and should we see an overbought hourly RSI reading with the price trading around 0.8600, I will look to sell. My only open exposure at the moment is long USD/ILS from the 3.42 area, and this is one of those plays that I would like to be holding for a while. The Israeli economy had already been slowing pre-Gaza conflict, and this in conjunction with an overvalued Shekel, lower rates, a suffering export economy, and BOI intervention, should start to weigh more heavily on the Shekel going forward (higher USD/ILS rate).

Really like the idea of selling a $NZDUSD rally into the 0.8600 area. Via @joelkruger

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