CONVICTION - So the US Dollar is running on all cylinders and it is definitely great to see in light of my views of the past several months. I have been a strong US Dollar bull on the Fed reversal story and the markets are finally responding. Looking back, it is always amazing to see just how difficult it is to hold a strong conviction when everyone around you is telling you your views are foolish. As a contrarian, I am always in this position and I have learned to appreciate the fact that in trading, as is the case in life, you need to hold onto your convictions and try as hard as you can to not be distracted by any forces that try to diminish or even dismiss your views. Now this doesn't mean you should trade with reckless abandon. But it does mean that if you are within your risk parameters and have a strong opinion, stick with that opinion. That's great Joel but what are you seeing out there now? Ok, so let's get to it.
TIME TO FADE? - I think the US Dollar has run a little too far a little too fast, and there is some serious risk for a correction. I think we should probably see a nice reversal in the sessions ahead, though I have no new recommendations at the moment. I will say that as bearish as I have been the New Zealand Dollar this year, I would be happy to take a shot at a short-term long position on a dip below 0.7680. We may very well get down to 0.6500 as per PM Key in the months ahead, but I suspect there will be some upside swings of a few hundred points along the way. I also continue to love the idea of fading overbought intraday moves in the SPX 500. I believe this market is topping out, and I believe we will see a move towards 1800 over the coming weeks. If currencies have responded to Fed policy reversal with a rotation back into the US Dollar, it stand to reason that equities should also go through a similar rotation.
LOOK OUT BELOW - Equity market participants have squeaked out just about all they can get from the "nowhere else to put your cash to work" strategy. And now that the Fed is on a path of reversal, there will surely be other places to put your cash to work. This should open the door for some form of material selling in the stock market. By the very admission of Fed officials themselves, monetary policy has incentivized reckless investment in equities and as this policy is unwound, we should see an unwinding in stocks. I would be very surprised if that unwinding doesn't happen between now and the end of the year. Finally, I go back to EURCHF. I would love to get the chance to buy this market somewhere around 1.2000. The SNB will not sit by and watch this market break down and even if they can't fight it, the shots they do take will have an impact. So let's see if we can't pick up some EURCHF in the days ahead. Here's to NIRP!