Monthly Archives: November 2015

A Day Late And A Dollar Long

Those who follow our work know we are ambassadors of patience, risk management, and high probability asymmetric risk/reward scenarios. Simply put, we like to minimize losses while maximizing gains. Related to our top-down approach, we have been known to tell our readers that “cash is a position too.” Back in January, we shared with our readers an important development taking place using ratio analysis involving the dollar and the S&P 500.

Ratio analysis, which compares the price of two securities against each other, is valuable for identifying opportunities. Following up on our research from January, we’re going to review the U.S. Dollar Index (USDX) as it relates to the S&P 500 (SPX). (As a reminder, the U.S. Dollar Index is our proxy for the value of the U.S. dollar. This index uses a weighted mean of the dollar’s value relative to other select currencies. When USDX rises, it indicates U.S. dollar strength and when it falls, U.S. dollar weakness. If we ever want to take advantage of an appreciating dollar, we can use ETFs such as UUP to capture that move.)

Jumping to the visuals, here’s the chart we shared back in January:

USD SPX Ratio

And here is the same chart today:

US Dollar Rising

As we can see, the S&P 500 has been flat (and volatile) since this ratio broke out from its downtrend. During that same time frame, it’s easy to appreciate the… appreciation… of the dollar (sorry, couldn’t help it). Up almost 10% year-to-date, this move is significant when we realize the dollar has broken out of a 30 year downtrend.

USD Index 30 Year Downtrend Broken

Since the breakout and 10% move, the dollar consolidated nicely and has recently broken out of a bullish pennant (see green trendlines in chart below).

USD Breakout from Pennant

Though resistance is ahead at the 99-100 level, it’s not too late to take advantage of this bullish (for the dollar) scenario. Nothing is guaranteed as price is the final arbiter of value. However, if/when the 100.00 level is surpassed, the next leg up could be just as powerful as the one that brought us to this point.

Trade safe.


Disclaimer: Nothing in this article should be construed as investment advice or a solicitation to buy or sell a security. You invest based on your own decisions.

The Power Of Technical Analysis: A Tale Of Two Trades

At 360 Investment Research, we use Technical Analysis to identify asymmetric risk/reward opportunities. This approach allows us to mitigate risk and maximize reward. The power of Technical Analysis is risk management and being on the right side of the trade. For example, let’s follow up on two opportunities we previously shared that exemplify the technical approach. The […]

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