There is no question in our minds that what those people did when they took over the capital building this week was appalling...and disgraceful. However, what in the world would have happened if they had been terrorists? Sure the Capital Police would have been very willing to fire their pistols more quickly, but what would they have done against terrorists with a high level of firepower?......Sure we know that we can always rely on Keifer Sutherland to hold the country together, but where is the outrage in terms of the lack of security when the entire Congress and the VP were all in close quarters with one another?.......Let’s hope they can fix the situation before the State of the Union speech. (This has nothing to do with the fact that Washington DC is not a state. Bringing in the National Guard more quickly would not have done anything to prevent a complete disaster if that has been a suicide terrorist attack.)
Anyway, we want to reiterate something we’ve been talking about over the last month (and something we emphasized in our weekend piece last weekend). As much as we think the dollar will go lower over time, it is getting quite ripe for a “tradable” bounce...one that lasts for at least several weeks. We won’t bore you by regurgitating our entire argument...except to say that there are several reliable indicators that show that the greenback is oversold, over-hated, and over-shorted. Therefore, no matter what its long-term fundamental outlook might be, it can (and we believe probably will) see a counter-trend bounce that will catch a lot of investors offsides.
This is why we are a little bit hesitant to be aggressively bullish on commodities and commodity-related equites up at these levels...even though we’ve been very bullish on them for many months...and continue to think they’ll do very, very well in 2021 as a whole. We believe investors can still nibble on these assets on the long side right now, but we would hold-off being as aggressive as we had been saying for most of the second half of 2020...at least for a little while. If you’ve been acting on our bullish comments in this asset class over the months, you should have a nice “base” to work from...and therefore, “holding off” at these levels should be a good idea. You should be able to add to those base-holdings at lower prices than they’re trading at right now.
So what’s different than what we said last weekend? Well, we’re looking at the MACD chart. (The easiest way to explain the MACD chart is to say that it acts like a “golden cross/death cross”...only with much shorter-term moving averages.) The MACD on the dollar has seen a mild upward “cross” recently, so if it becomes a more meaningful cross, it should be a positive development for the dollar on a short-term basis. However, when we say “short-term,” we’re not saying it means a bounce of a few days. It should last for (at least) a few weeks.
This is particularly true because the present cross (if it becomes more meaningful) will come at a much higher level that its last positive cross (which took place in August). The last positive cross was followed by a material bounce in the dollar that lasted a full month. Thus if this positive "cross" takes place at a “higher-low,” there’s a good chance that the bounce in the dollar will be a more compelling one...and a longer one.
Again, we do not think it will change the long-term trajectory of the dollar, but it could/should still be large enough and long enough to have an important impact on many different markets as we move through the first several months of 2021.
Matthew J. Maley
Chief Market Strategist
Miller Tabak + Co., LLC
Founder, The Maley Report
275 Grove St. Suite 2-400
Newton, MA 02466
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