Dollar Dreams II

S&P cracked again yesterday. The best part was that other than the Telecom(+1.8%) sector almost all other sectors were down big. Energy(-2.9%), Materials(-3.2%) and Financials(-3.2%) led the decline. The trend in the S&P is clearly down.

Dollar Index has moved up and signaled a buy in our trading system. This gives more credence to the fall in the S&P. The real question is whether this rally in the Dollar and effectively the fall in other asset classes is tradeable and sustainable. In the past we have seen the Dollar give these sharp bounces only to revert back down. I am sure a lot of people have noticed this.

The interesting thing is whether the fact that people have noticed this fact that the Dollar reverses after a few days of rally is a good enough reason to expect the dollar to continue to rally this time?. I would think so. I think some complacency has been built into the system now and the Dollar carry trade is now a crowded one. If the trade has to be unwound even a little then the rally in the Dollar could continue further.

Given all this one can expect the other asset classes to fall. I had talked yesterday about my worry that I have missed the opportunity to short the Nifty. I still shorted it when it broke below its 5 min low yesterday at 4813. I hope that this trade will work. I will be more comfortable if we break below 4700 -the strong resistance in the past which is now a potential strong support. Naturally my stress is on the word "potential". I am hoping that the potential remains just that - potential- and the support does not hold.

P.S I read this blog again just to check whether it makes any sense at all. I leave it to you to decide. But one fact struck me. Did you notice that this is a note on Nifty and I actually did not talk about the Indian sectors or stocks at all but did make it a point to mention the sectors that moved up and the sectors that moved down in the US?. Really man, I think this takes the cake!!!.