Dollar

The Dollar’s Seismic Shift Is Coming


The Dollar

Thank you MarketWatch for making our story from yesterday your call of the day!

Bad news for the S&P – this powerhouse of a sector may be poised for a cooldown

It’s a big day for earnings, and industrials will be out in front. After GE’s disappointment last week, and zigzag trading action since, expect the other big names to be in focus. Our chart of the day says that sector, which runs tightly with the broad index, could be getting ahead of itself.

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The Dollar is at a significant turning point, and it could mean a substantial rise against the Yen and Euro.

Look at the monster reverse head-and-shoulder forming in the Dollar Index. The only thing left for the Dollar Index to do now is break the next line around $94.25, and the Dollar could see a significant move higher from current levels. It seems more than possible to see the Dollar Index rise to 101 from current levels.

Based on the trading in the Yen, it would seem likely that the Dollar Index does gain strength. The Yen looks as though it could be about to weaken significantly versus the Dollar as well, potentially rising to 118 on its way to 125, which would be even more bullish for Japanese equity price, more than even the Japanese equity markets current run.

If the two previous charts were not convincing enough, just look at the head and shoulder pattern in the Euro versus the Dollar.

We are the verge of a seismic shift in the FX markets. This is the FX market saying the US Economy is about to come back to life in a big way.

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10- Year Treasury

The 10-year is just about ready to bust higher too, sitting at 2.40 percent, and likely well on its way back toward 2.60 percent. This is reason for the financials big rise recently.

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Equity Market Rotation

All of the movement in the Dollar and Yields appears to be causing a change in leadership.  It seems entirely possible and in fact likely that money is now rotating out of biotech and moving into financials. Just look at the performance over the past three months. Something materially changed in the market on October 16, that sent financials up and biotech’s down.  The move lower in biotech is no coincidence for sure; it is because of the giant shifts we are seeing take place above, and because the equity market is also preparing for a US economic revival.

IBB Chart

IBB data by YCharts

Add in that on October 16; President Trump reminded everyone drug prices were out of control.

Whether it is front page news or not, all of this is clearing weighing on the two sectors, while also reminding investors that drug prices are still an issue on the Presidents agenda. It is causing investors to likely use the biotech names for now as a source of funds.

The biotech sector hasn’t helped itself of course with some big news that has hit the space hard, such as Celgene’s disappointing data, and Biogen’s disappointing results. But still, their is an apparent rotation occurring.

The S&P 500 is up today, even if it is only 20 basis points. Are you surprised? Well, you shouldn’t be, because as usual the Algo’s filled the gap in the S&P 500 yesterday, and can begin working the index higher again. The chart below illustrates it pretty well.

 

Amazon’s shares are bouncing nicely today, up by 1 percent and back to $976. Just like that Amazon may have bottomed. Why well look the chart below shows how the stock filled the gap, and of course is finding  bounce off support around $967.  Next target for Amazon $1000? Don’t be surprised if does.

The same can be said for shares of Alphabet, with its in this strange region. Shares are hardly moving today, after yesterday’s sharp sell-off in a market that isn’t terrible and Technology Select Sector SPDR ($XLK) which is up a modest 33 bps. Still Alphabet needs to remain on the radar, until after results.

Back tomorrow.

Thematic Growth Investment Portfolio – IB Asset Management Mott Capital Management uses a long-term thematic growth approach to investing in equities. We search for investments that both reflect and help to shape…

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Michael Kramer and the clients of Mott Capital own shares of GOOGL

Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future.

 

Tags: Alphabet, Amazon, Technology, Biotechnology, Tesla