Dollar Rallies As Commodities & Equities Are Smacked

The Euro fell after a statement by the ECB that they would wait until at least June to hike interest rates once again to combat the already out of hand inflation across the Eurozone. The dollar rallied which sent commodities such as oil and silver tumbling with volatility unlike anything outside of the 2008 liquidity crisis. Silver closed at $34.67 down 40% from the intraday high set last Tuesday. This kind of volatility is proof that speculation ran out of control and leveraged paper played a significant role in the run up to $50.

Silver took the elevator up and the window down. After testing the 100 MA in under one week, I think it is likely that we see a small bounce going into the weekend, but my fingers aren’t crossed. I do not care to speculate on the outlook for silver as of right now, mainly because the leverage that was built into the market caused distortions in the price and the market is too unstable to accurately make predictions. The CME did us a favor in hiking margins as they have prevented a premature mania phase in silver, and for those who recognized the unsustainability of the parabolic move and were able to take profits at the top, this will soon serve as a fantastic buying opportunity. I recommend that regardless of your sentiment, you should be averaging into positions and not going “all in” on anything.

Okay, if you leveraged yourself up and re-financed you mortgage to buy silver at $47, this chart may cheer you up a bit as gasoline will likely drop a significant amount over the next few days. Once again, this kind of volatility in the oil market is unheard of outside of the action during the summer and fall of ’08.

As a result of the strong dollar, equities were hit hard and the SPY retraced to the trendline I said that it would touch on Monday. It has strong gap fill support, a pivot support at $134, and 20 and 26 MA support which I believe it is likely to bounce off of and move higher. Friday’s are usually light in volume which bodes well for the market as POMO has more of an effect during lighter volume. Despite a huge margin call at 3pm, the SPY and other equities rebounded off of the lows and closed just on top of the 20 MA. This may be the last stop in the wedge pattern above and the SPX could make a run at 1400 beginning next week.

The SPY found support at the 20 MA, and the UUP found resistance at its own 20 MA. It really hasn’t broken the trendline that goes back to the beginning of the year yet but the next short term target could be about $21.50 where we have a gap to fill. The dollar was oversold for quite a while and a rally is more than reasonable. The UUP was up a percent and a half but the 14,3 STO is only just above 24 so there is room to move to the upside. Once again, I am bullish on the dollar index in the short to medium term.

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About Aaron Basile
Market Technician, Equity/Commodity Trader, Austrian Economist, Contrarian Investor

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