Let's Take Profits On Dollar Longs And Any Short Commodities For Now

Let's take profits on dollar longs and any short commodities for now

 
Chart 1:  EUR hitting monthly trend-line support here - take profits long dollar UUP.  Courtesy Bloomberg

We've suggested long UUP since the dollar broke out.  However the dollar is getting way overbought and the EUR is hitting monthly trendline support - let's take quick profits on this one for now in this wild market.

We've also suggested long DDP to take advantage of the commodity bear market cycle.  If indeed the dollar corrects this would probably lead to a correction in the oversold commodity market.  Combine this with both oil and the CRB hitting support zones this week, we'll suggest taking profits in these markets too.

The stock, bond, and commodity market reaction to the FRE/FNM nationalization has been incredibly muted.  Our models suggest that long-term deflationary forces remain dominant and that the plan doesn't address foreclosures, other countries that are now clearly weakening and the spread of deleveraging to other debt instruments.  Volume and breadth have been poor.  The market could rally short-term but so far the trend remains down, and we continue to suggest extreme caution.

Our long/short strategy remains happily 100% in T-bills awaiting new trades.  Since our last update we got close calls on the buy side from NTLT and UBNK, with a close calls on the short-side from GAP, and no valid signals either short or long.  Check out www.midasresourcegroup.com for daily listings of Top EPS/RS New Highs and Bottom EPS/RS New Lows to make sure you catch all potential breakouts meeting our criteria.  As the chart at the bottom of the page illustrates, we do not have top RS/EPS new highs or bottom RS/EPS new lows in a clearly dominant position (40 over the other for 5 or more days in a row) to signal a good environment for either long-side or short-side dominated activity. This is often the most dangerous, volatile, and tricky phase of a bear market and with neither breadth or volume or leadership strong in any direction right now, we suggest the sidelines heavily.

For those not familiar with our long/short strategies, we suggest you
review my book "The Hedge Fund Edge," my course "The Science of Trading," my video seminar, where I discuss many new techniques, and my latest educational product, the interactive training module. Basically, we have rigorous criteria for potential long stocks that we call "upfuel," as well as rigorous criteria for potential short
 stocks that we call "down-fuel." Each day we review the list of new highs on our "Top RS and EPS New High List" published
on www.midasresourcegroup.com for breakouts of four-week or longer flags, or of valid cup-and handles of more than four weeks. Buy trades are taken only on valid breakouts of stocks that also meet our up-fuel criteria. Shorts are similarly taken only in stocks meeting our
down-fuel criteria that have valid breakdowns of four-plus-week flags
 or cup and handles on the downside. In the U.S. market, continue to only buy or short stocks in leading or lagging industries according to our group and sub-group new high and low lists. We continue to buy new long signals and sell short new short signals until our portfolio is
100% long and 100% short (less aggressive investors stop at 50% long
 and 50% short).   We keep capital in T-bill cash while waiting for more trades.

The chart below shows that neither Top RS new highs (available on www.midasresourcegroup.com) or Bottom EPS/RS New Lows are over 40, let alone greater than their opposite series by 40 or more.  Heavy cash and alternative asset class defense should be utilized!