"Water shapes its course according to the nature of the ground over which it flows; the soldier works out his victory in relation to the foe whom he is facing. Therefore, just as water retains no constant shape, so in warfare there are no constant conditions."
Sun Tzu

Sunday, November 8, 2009

Dollar and the US Stock Market

There is this famous inverse correlation between US Dollar and the stock market. If you believe the relation will keep up being strong in the future and that the Dollar is driving stocks, you might just analyze a chart of the Greenback to get some clues on where stock prices might be going. So here is a plot of the US Dollar Index:

From a purely technical standpoint, the Dollar is moving down in a nice trend channel. With a little stretch, you could argue for a "declining wedge" and "MACD divergence" in the last months, which usually would be a sign for upcoming reversal. The wedge doesn't show up very strong, so I wouldn't bet the bank on a change in direction yet.
Bottom line: based on the Dollar chart, I have to be bullish on stocks FOR NOW.

Friday, November 6, 2009

Some Nice Swing Trading Setups on the LONG Side

Despite all the chatter about market weakness and expecation for a major correction, we can identify some nice short term swing trades on the LONG side. Check out the following stocks for a quick trade if the market behaves well after job numbers:

BTU: Entry @43, Stop@41, Target@50 = risk/reward 3.5

TUP: Entry @45.5, Stop@44.5, Target@50 = risk/reward 4.5

ABT: Entry @51.6, Stop@50.8, Target@54 = risk/reward 3