Tuesday, December 1, 2009

A Technical Analyst Sees Hope for the Dollar

By Michael Khan

It seems that no matter what type of analyst is talking, the theme is that everything happening in the world today is supposed to hurt the U.S. dollar.

Rising spending, near-zero interest rates and the need to export our way out of economic malaise all grind the greenback down.

But it is just this type of sentiment that has set the dollar up for a nice little surprise.

Sentiment analysis is the most misunderstood tool in the chartist's toolbox. There is no sentiment ETF that trades and we cannot say that sentiment went up or down by some specific percent each day.

Rather, it is a more abstract concept where we take polls of investors, analysts and newsletter writers. Each one can yield different results, too.

Subjectivity is the name of the game so we must be both flexible and creative. For example, just reading the news media tells us that the prevailing mood surrounding the dollar is negative. Indeed, we can make the leap that the mood is so skewed towards the bearish side that contrarians start to notice. If everyone is bearish, who is left to sell?

Jake Bernstein, proprietor of Trade-Futures.com and a 40-year veteran of futures trading, reports that his Daily Sentiment Index (DSI) is at an extreme low of 14% bulls, as of Nov. 20. That means an overwhelming majority traders polled think the dollar is going lower. And typically, that precedes a low in the market.

Read the rest of the article here.

Michael Kahn writes the Getting Technical column for Barron's Online, which analyzes sectors and markets twice a week. http://www.barrons.com/ . Read his blog at www.QuickTakesPro.com/blog .

1 comment:

  1. Robert - this certainly supports your expectation that the US equity markets are due for a fall. But the markets always tell their own story best, and right now they are pushing higher.