FXE Frowns Upon Rally
The euro is down again as I’m writing this Sunday night, and the FXE may fall below the last Fibonacci level on the chart that I posted back here. Normally, stocks would be moving down with the euro, but they are not, probably because of the short squeeze that is killing off the quant funds that Zero Hedge has been writing about.
But once the squeeze is over, SPY may play catch-up with FXE black-swan style.
Kill the Dollar
When Ben Bernanke dreams at night, he dreams of chopping the dollar into little pieces. That’s how “growth” is accomplished here in our post-capitalist economy.
If you don’t want to allow the “creative destruction” phase of capitalism to function, then you have abandoned capitalism. In a real capitalist economy, Citi would go belly-up and BB&T would take over a chunk of their assets. Bad managements would be punished and good ones would be rewarded, right?
But we can’t have any of that here, now can we? Citi must be saved at all costs. And that makes growth sub-par because resources are held hostage by bad managements propped up by the government.
And so we try to grow by inflation: print a lot of dollars, get some inflation going, and just watch your stocks and real estate shoot up.
It’s a very dumb economic strategy, but this is the USA’s policy. So, if the dollar refuses to die, it will be very difficult to pump up the stock market. That’s why this divergence between SPY and FXE is so alarming.
Everybody is aware of the rising-wedge pattern on the SPX. And with the market making this bearish pattern right at strong resistance (875), I wouldn’t be surprised to see the rally die here. “Wedge snaps” can be sudden and powerful. Of course, there is no way to know how far down dip-buyers may lurk. But what if the dip buyers have been quant funds getting blown out of their short positions?
Death Stars Align
Strong dollar, SPX wedge, dying quant funds, ridiculous overbought levels, giddy CNBC talking heads, “sell in May”, and the super volcano that we call Yellowstone National Park about to explode, well, you can color me bearish.
If the Zero Hedge “black swan of black swan events” comes true, an early warning might be spreads widening. So, keep on eye on whatever you are trading, and if you see the spread acting funny, it might be a good idea to start running.
On a Bullish Note…
It seems to me that the QQQQ and SMH would not come this far without at least tagging their November highs. So, maybe there is another stab higher before the lava starts flowing.