Dollar Dreams

S&P fell again, confirming its change in trend according to the trading system I follow. If the system has got it right this time, then we could see another 4-5 % fall from here in the S&P.

The Dollar Index rose again. The RSI on the daily DXY chart has not yet crossed 50. The trend for the Index is still down for the moment. If the DXY trend changes to a BUY then I would be more comfortable with the short call on S&P.

This focus on the Dollar and the US seems appropriate given the fact that baring exceptional circumstances, the direction of the world markets seems to be determined by liquidity flows encouraged by the Dollar Carry trade. Local news like the RBI credit policy yesterday can only impact the trend for a few days. The local markets will finally fall in line with the overall trend in the world markets.

Given all this, I am going to short the Nifty if we break below the lows of yesterday. I do get the feeling that I have missed the boat in terms of shorting the Nifty (naturally it would have been great to be short earlier). But I am hoping that this is the beginning of a larger fall in the Nifty. The levels between 4700-4750 which had acted as a strong resistance to the rally is a potential support and is lurking close by but I cannot keep waiting for ever to put on the short positions. I am hoping that even if the Nifty takes support at 4700-4750 and then rallies I will be able to get out of my short position at minimal impact to my equity. If we break below the support ( because who knows whether these potential supports hold?) then I should be making out big time.