Wednesday, April 17, 2013

US Dollar Index - Good Odds for a Melt Down

A friend of mine who lives somewhere on the other side of the world and definitely on the other side of the equator was conversing with me yesterday about gaming the ultimate demise of the S&P 500. One of the clues we determined would be extremely helpful for timing purposes was the behavior of the True Strength Index (25,13) on a weekly chart. 

We observed the TSI (25,13) weekly at the crucial point in both 2000 and 2007 when the S&P 500 was just turning from a cyclical bull to a cyclical bear and saw the same clues that were in place. And we noted that for now, it is time to be patient as the setup is not ready.

But this got me to wondering what to make of the US Dollar Index (/DX) so this morning I took a look. And I made a chart to document my thinking which follows.

Click on the chart to ENLARGE
What I see is a price chart with a failed and left translated daily cycle. I also see an intermediate cycle that has topped and failed to make a higher high (April 2013 vs. July 2012).

I also observe that the previous US Dollar crash beginning in August 2012 was announced by the daily TSI (25,13) by a multi-month trend line break SELL signal that was right at the ZERO crossover of the indicator. 

And, the current setup has much in common with the preceding melt down. If the US Dollar is going to melt down sometime in the upcoming months I've got to think the setup we have now is a clear warning.


  1. This is the same report that smartmoneytracker published.. what gives..also hes been wrong countless times what makes you think he will be right jOHN?

  2. the dollar is going up big time... take a look at a weekly or monthly chart and notice the base pattern that resulted in the dollazr going to 120 on the index.. its the same base pattern.

  3. John, i also disagree with you. Market is getting soft and sell of is coming, so dollar will probably strengthen.

    I posted a cyclical chart here some time ago, major low was in early jan 13 for the dollar index.

    Good luck!

  4. I think it's important to keep our emotions out of the game. There are many disputes about things like NUGT for example, easy fix.

    Math! If GDX doubles to about $60, NUGT will come in a little bit under $30 (because it decays overtime). Therefore, NUGT $76 -I think is unlikely. This washout soon be finished soon. As far as Gary, I agree that he is a bit too optimistic...

  5. Really, John? Deflation fears all around, and you think the USD is going to melt down? Come on.

  6. John,

    We've all been pretty negative, I wanted to post something positive. This does NOT mean gold $5000, but it's worth a read:


  7. John,

    any updates my friend.

  8. New post:

  9. John is the dollar still doing its decline it seems to.have breached 82.6 or that red have

  10. John -
    Like you I believe an irrational response in gold price will always correct itself as long as the fundamentals are unchanged. Selling on rumors of Cyprus liquidating reserves + ETF outflows + technical selling on stops = a cascade in a small market. This is a volatile game we play and is not for the weak-kneed. I'm using this period to collect dividends at ridiculously low prices in my long-term account (John Doody fan).

    A question, though. A review of your blog history shows an earlier propensity for trading short term based on TSI. Most of your recent blogs show a "sticking to my guns" longer term approach. Do you not think a NUGT/DUST/NUGT/DUST approach based on TSI would serve you better with your "play" money?

    BTW, thanks for your analysis and perspective.


  11. Hey Billy - well, I got under water when I went through a spell of not really paying attention to what I was doing. Then as things got to looking like they should have been done going down, and I was doubling and tripling and quadrupling down myself, the bottom fell out on the price of gold. So, I have been changing tactics and will come out a big winner, just over a different time frame than I am accustomed.

    You know, I'm in agreement with you that my TSI game, when I am playing it with my full attention, works pretty well. But I've also got to admit that when the market can move so irrationally and forcefully from time to time it makes that game a lot tougher. I view this spell as temporary though I am quite sure most have not been able to endure it. Anyway, I will just wait my turn - one of the great benefits of trading 'with' the direction of the bull.

    Over time the fundamentals trump the technicals. I can be patient and I do absolutely have a vision of what I will accomplish.