Trader Scott’s Market Blog
January 8, 2017
We are suddenly seeing stories galore about the end of the bull market in the US$, “because” of the comments last night from Donald Trump. The WSJ on Monday night ran a story where Mr. Trump said he was not at all pleased with the “too strong $”. Which is amusing, because the day before that on Sunday in this blog post I said:
“When I initially bought the$, Donald Trump wasn’t even on the radar screen. He didn’t have anything to do, so far, with the $ bull market, but he will certainly have something to do with the major top in the S. The bigger $ rally will cause its’ own demise. Likewise, the President-elect will not be pleased at all with a‘too strong $.’ “
So all of the people who did not even recognize that we were at a serious resistance area in the $, (and we needed to see a correction first, to setup a move to new highs above 104) now are claiming the $ has “topped”. Over the last several weeks, I have been adamant about 3 things. The $ has way too many brand new bulls, is at a serious resistance area, and needs to sell off first, to be able to get thru that serious resistance area. The sentiment in the $ and the stock market has been, “what can possibly go wrong”. And the sentiment in bonds and gold has been, “what can possibly go right”. So this selloff in the $ is exactly what it needed to do. The high in the $ for this move was on January 3rd, as can be seen in the chartshowing the support and resistance zones, and the longer term chart, showing why I was targeting 103.50. Why this “sudden” move lower should be a shock to anyone is baffling, as my posts have been saying for weeks. The most recent one was the day before the January 3rd high:
“There is tremendous bullishness right now in the $ right as it’s sitting in a pretty big resistance zone. There is also alot of hope in the new Administration. There was alot of hope 16 years ago for the previous Republican Administration of George (Hanging Chad) Bush, but that didn’t stop the $ from putting in a major top. I would expect a similar situation early on with this President-elect. Gold will begin to “sniff out” a topping process in the $, and it will begin take pressure off of it. And there are situations coming up this year in Europe, where gold and the $ can rally together.”
People have been telling me for years that I’m wrong about the $, but this current selloff isn’t surprising, nor unexpected. Maybe this time they’ll be right, but all I can do is stick to my work. And my plan going forward is if there is a deep enough selloff in the $, then to add on. But it is no longer worth getting too aggressive about being long the $, because it’s days are now numbered. At this point it’s more of a “comfortable” place to hold liquidity. There are a couple of markets and stocks which are very interesting, and I’ve been talking about recently. So those will be a much better place to “store”cash as we move forward. It’s the Dollar’s rally which will cause its’ own demise. And over the next several years, we could be talking about the high in the $, not just a high. But getting there is the problem.
Trader Scott has been involved with markets for over twenty years. Initially he was an individual floor trader and member of the Midwest Stock Exchange, which then led to a much better opportunity at the Chicago Board Options Exchange. By his early 30’s, he had become very successful in markets, but a health situation caused him to back away from the grind of being a full time floor trader. During this time away from markets, Scott was completely focused on educating himself about true overall health and natural healing which remains a passion to this day.Scott returned to markets over fifteen years ago where he continues as an independent trader.
January 18, 2017 @ 12:14 am Fen
Great post again, Scott.
Thank you very much.
January 18, 2017 @ 5:03 am Fen
Scott, you’re right on the $ again. Your understanding of the markets is amazing.
January 18, 2017 @ 9:00 am traderscott
You’re very kind Fen. Thank you. This business is a struggle every day, it’s just about hard work.
January 18, 2017 @ 3:15 am Aamer
Can you elaborate on how this will unfold ? I still remain USD bullish in the medium term…..so will be looking to go long again after this correction phase is over. It seems that this is only phase 1 of the bull mkt…..or am I missing something ?
Like you I am expecting a crisis of sorts in EU….and possibly the ME. If these scenarios pan out we will likely see inflows in the US equity mkt etc plus higher commodity prices….still more need for USD etc and finally the possibility of higher rates in the US will also lend support to a stronger USD. And there is a small possibility that global debt levels decrease going forward….and that is a again in USD. The USD still remains the most shorted currency………
So would be grateful to understand what the sign posts are and what time frame are you looking at for this USD run to revert in a more sustained manner ?
January 18, 2017 @ 9:16 am traderscott
The bull market started in March 2008. If anything we’re in about the 7th inning (no extra innings). I do not believe the $ will crash, so to speak (also my feeling for years about the stock market). I’ve heard that the whole time I’ve been long. The top will take years to unfold, so don’t be looking for a downtrend/reversion anytime soon. The sign post(s) is all about the first sign post and then watching the process unfold. And the first sign post is the first big ending action (SOW). That will give us the warning signs for the process to begin.
How are debt levels going to decrease Aamer. I don’t get that one. But it’s a fantastic point about the most shorted currency – why is that so hard for so many to understand – it has to be covered.
January 18, 2017 @ 11:07 am aamer
thanks for the clarification.
My point about debt levels eventually going down ….is really about either debt gets paid back or is forgiven so USD gets taken out of the mkt place !!! I am perhaps naive but believe that when we get to the end of this cycle / sequence of events , deleveraging has to occur ……National level, state level and personal level…..and of course wealth destruction will also occur.
January 18, 2017 @ 11:20 am traderscott
The other option is the debt gets inflated “away”. But agreed it will be a massive humongous mess, with many moving parts. So back to markets, and this sounds too simple, but it’s reality – this thing is just about working extremely hard everyday.
January 18, 2017 @ 3:31 am Aamer
I guess my need for clarification is re your sentence….’ It’s days are numbered ‘ !
Whilst I can see all the negatives on a paper currency known as the reserve currency…..don’t see any other alternatives. All the CB’s are being run by mad men…..there is talk about SDR’s replacing the reserve currency etc but this would imply a depression in the US ( no reserve currency implies living within one ‘s means )…….will this be acceptable to the US ? What is the point then of having the largest army in the world…….
January 18, 2017 @ 9:04 am traderscott
It’s days are numbered as a reserve currency. We can’t think about the outcomes in terms of the current situation/mindset/confidence levels. Those things are all changing slowly, but surely. When the 10 year yield is above 3% for good, everything will have changed, and I believe some of this will make a bit of sense. I’m trying to be patient about all of this.
January 18, 2017 @ 8:21 pm Q
As a Scott fan but with limited trading knowledge and/or skills would like to put my two penneth in here if I may. As a background I, like Scott I think, am sure that in the medium term the debt, derivatives and dollar demise have to come to some sort of resolution. I agree with Scott now that the dollar demise probably won’t be a spectacular collapse. As you all may know Scott’s other forte is geopolitics so I hope I am not treading on any toes here… I am pretty sure that the Trump phenonomenon and the MAGA reboot is about the transition of the dollar to a domestic currency with the SDR as the supranational currency. All fiat currencies fail eventually. The Rothschild affiliated Economist predicted a supranational or one world currency by around 2018 I think if not before called the Phoenix and Keynes talked about the Bancor apparently but I try to stay away from anything to do with Keynes. The strong dollar is not compatible with Trump’s plan to make the US a manufacturing nation again. As far as I am aware Scott forsees a medium term market correction and a medium term dollar devaluation. Perhaps in upto 30% I suggest. As you say though what will keep the US markets and the dollar higher than everything else for a while is the strength of the USA on the basis of a 100 plus years of Federal Reserve and Dollar backed debt creation. I hope the MIFC has less of a role going forwards but let’s see. JC Collins over at Philosophy Of Metrics has a logical argument for the SDR transition and hence predicted Trump as POTUS. Scott’s insight into the bond bubble also makes perfect sense too and see his articles on Trump vs Reagan. Q ps my guess now is 2017 is the year for Euro chaos and by 2020 for the US
January 18, 2017 @ 8:56 pm traderscott
Yes Q, Europe this year, especially moving into Spring time, and that will continue roiling. And we still need to get to Japan, even before we get here. But that won’t stop the $ from already having topped. And Q, the top in the $ could be THE top, meaning the end of the “official” reserve status. And right, we’ve got to get out of the crash mentality, as in really fast, so to speak. When I refer to the bond market collapse, it’s always been in terms of a many. many year time frame. Markets as big as currencies or bonds are just not going to crash like that. Years ago I put out an outlook for a Spring of 2017 major $ top, and Trump of course had zero to do with that. But it’s like the right person always shows up – the big trends bring in the “right” person, it is not the person who initiates the trend. Like your Maggie Thatcher, or our Ronnie Reagan, they were right person to step in. So like I said a few days ago, Trump is not going to want a “too strong $”, and then he says it afterwards. He will see a major high in his first term, and he will have had zero to do with it. The funny thing is all of the clowns trumpeting the NEW US$ bull market, and how it shows how great Trump is. What are they going to say when the downtrend is set.
And speaking of “clowns”, (and I don’t mean that harshly) I like to do anecdotal sentiment stuff, and there is some goofy bullish talk starting again in PMs. That is NOT a timing tool, but it’s a cautionary item. Why do they wait for gold to rally $100. The rally builds the crowd’s confidence, we should be buying when the crowd has no confidence. The only way to buy the “low” is to step up into weakness, whether you think something is going lower or not is irrelevant. If some warning signs of a bottom are showing up, then you need to just close your eyes and step up, it’s the only way to do this thing well over time. This business is already really tough, why make it even tougher on ourselves. Earlier today, I noted that the Stocktwits crowd was getting excited about SLV and USLV, that’s not bullish.
January 18, 2017 @ 9:12 pm Q
January 18, 2017 @ 10:34 am traderscott
This thing with markets is about the trend – up or down or sideways/trading range. (Trading ranges are usually accumulation or re-accumulation or distribution or re-distribution.) So if you think the trend is up, but it’s overextended, then your thought process should be to let it back off, to re-accumulate (re-energize). Then it can push thru the resistance area above. it’s about energy. Resistance and support are energy fields. The current market needs enough energy to push thru levels, or it gets halted by a greater energy force. And it needs time to back off and re-energize. I keep using the words backing up for a reason. I’m not going to allow myself to geyt freaked out by a market backing up, when I’m long, and expecting a backup. It’s how markets operate. And a market may need to back up and break some support areas to freak people out and RE-ENERGIZE. That’s how I feel about the $ currently. It needed to back up and “break support” to “convince” enough people that the “top is in”. I’m giving it room to do just that.
January 18, 2017 @ 1:27 pm traderscott
Corn and soybeans are at new 6 month highs today, but wheat continues to lag. Wheat, corn, soybeans, and cotton are the biggest components of the ag indices. So wheat is needed to really get these indices moving more aggressively.
January 18, 2017 @ 2:05 pm traderscott
SLV and USLV showed up on stocktwits today for the first time – (where have they been, where were they at around $15.75) – which is a bit disconcerting. They generally are chasing stocks.
January 18, 2017 @ 3:58 pm traderscott
The people who write to me personally, know I will get more specific about what I’m doing in markets, and that I used the strength in miners yesterday to sell – it’s just selling into strength, like a reflex. The PMs really needed to backup, they were extended, and – fill some gaps for miners, at the very least.
January 18, 2017 @ 5:52 pm Jon
I did the same except used out of the money covered calls (with gold resistance at 1220 and silver at 17.30). Was watching the tape and saw the “breakout” of the miners looked tepid at best. Starting to get a better feel for selling into resistance and buying at or below support. Thanks Scott!
January 18, 2017 @ 6:06 pm traderscott
Sounds to me like you’re just calmly, wisely reading the tape Jon. It takes time to RESPECT support and resistance, but it can quickly convince, and more importantly, build confidence. When combined with understanding momentum and the immediate trend, and TAKING PROFITS, and quickly realizing when we’re wrong, it’s a killer combination.
January 19, 2017 @ 2:17 am traderscott
There’s a dumb ECB meeting this morning, and these things can be quite volatile. I don’t make predictions about these things, only have a plan for an opportunity to buy or sell taking the other side. So on a bigger time frame, not trading per se, the $ is working on a bottoming process. There was a sell stop run and bounce at the two support areas so far, 101.30 and 100.70. At this point, I’m giving the $ and the PMs plenty of room. We don’t always have to be doing something, just being patient is a virtue, so to speak. The PMs are seeing some sentiment shifts, so I need to see a deeper backup to do anything. And if it gets weird on the upside (hopefully not), I’ll lighten up – $17.30ish is the silver resistance area. There are other things bigger picture to focus on – ags, solar, biotech when it shakes out some more people, and from a subscriber, Mexico is interesting. I have no position there yet, and may not, but it’s quite interesting – the setup.
January 19, 2017 @ 9:30 am traderscott
Not to make this complicated, but on a very short term basis the $ index has resistance at the top of the previuos bounce at 101.80ish. It’s all part of a trading process and an accumulation or distribution process in markets. There can be two parts, depending on time frame.
January 19, 2017 @ 10:40 am David V
Also looks like gold is at a temporary support area. Might cast a small line at the bounce.
NG could have an entry point soon?
January 19, 2017 @ 10:55 am traderscott
Yes, nice backup in PMs. I covered a USLV trade from yesterday. As far as big picture long positions, I’m just watching. But I understand your point David daytrading.
The really important thing I’ve been talking about to watch now that we’re finally in Q1 – how is gold performing against the $.
January 19, 2017 @ 11:05 am David V
JDST short term plays, waiting to reload my bread and butter stock AG but getting interested in UGAS.
January 19, 2017 @ 12:20 pm PRice
New to JDST – does the regular tendency to fill gaps apply, such as January 4-5?
January 19, 2017 @ 1:59 pm David V
JDST gaps have been filling particularly in GDXJ, again backed up to fill this morning
January 19, 2017 @ 4:17 pm David V
Nice, right up to the trend and resistance line, that’s the patience of Job.
January 20, 2017 @ 9:59 am traderscott
With a stock market hanging around all time highs, and there will be a post soon about Inaugurations/stock market performance, the ag stocks I’ve mentioned a couple of times are being ignored. I was using the recent reaction (buying into weakness) to accumulate, this is a long term thing for me, not a trade. I’m super bullish long term on these. As with solar energy stocks. Also uranium is very interesting, a drawn out reaction would set it up nicely for an opportunity. The miners are currently in the middle of a range, so short term – just watching.
January 20, 2017 @ 2:17 pm Mark
Which specific ag stocks are you bullish on?
January 20, 2017 @ 2:38 pm traderscott
Check out this post Mark. I’ve been using the weakness to buy into the different selling waves over the last several weeks, as a basket.