May 062011

Just one day  prior to the anniversary of Dow's 1000 point crash, the Ghosts of the 'flash crash' came back to haunt risk assets with greater ferocity. Crude got walloped by 10%, Gold got slammed by over $50 and Silver was decimated by another 12% on top of its recent sharp drop!!

The force behind this move is the Dollar Index, which until now had refused to head higher despite being heavily oversold on multiple counts.

Dollar Index - Daily Chart

If you look the charts of UUP, the bullish dollar index fund, the 1.5% rise for this currency basket has come with a massive buildup in volumes. Also a gap up in UUP after a congestion holds the probability that the gains could stick and could even be a reversal.  A follow through in Friday' session for the USD would bode well for those rare Dollar Bulls. One thing that is quite clear, if this is not the reversal for the green-back, whenever it occurs, what we saw in yesterday's session is a mere curtain-raiser of things to come for risk assets.

Looking at the charts of Gold and Crude, there is more evidence that this is probably a turn of high significance for the intermediate to long term.

Gold: The weekly charts of Gold will end up being a bearish outside week (unless it recovers $40 in today's session) and this high probability reversal has occured at a very important time ratio as shown in the chart.

Gold - Bearish reversal

Crude: A bearish outside week in crude and  Price/Time have squared at the high.

Crude - weekly charts

  15 Responses to “Dollar Index bounces, Flash Crashes galore”

  1. Hi,

    So what levels are we looking at for the Dollar Index, Gold, Silver, Crude, Copper, etc. and what is the significance of this drop for the stock markets? Would the stocks head higher in such a scenario? At least for the time being, considering that money would flow from commodities to stocks?

    Please enlighten us all.

    Thanks. 🙂

    • In my CNBC interview of Oct or Nov I had projected a medium – long term tgt for DXY closer to 100. Right now, there could be one more attempt to push DXY near to the lows. There will be no alternate bearish case for the DXY above 76.78. Silver will ultimately come to $26-25, Gold to $1150-1050 (might have one new high left), copper to 365. Stocks too wont be spared.

  2. hello sir good to see you on cnbc today morning.please post your schedule so that i can watch that day

  3. hello sir
    just now completed mba want to make career in financial markets can you please give your advise

    thanks in advance

    • Zubair,

      Good luck. Any break into the industry should help. Aim to be on the institutional side/ Buy-side, you may not get the break straight away. So do not hesitate start to with retail and progress towards that end.

      All the best,

  4. Hi Jai

    Great to see your views. Just wanted to know you had proposed certain pair trades or long short trades today morning on CNBC.

    Do you take a call on them by seeing charts independently of two stocks or you use mean reversion techniques.

    • Hi Nitesh,

      Welcome to my blog. Usually, it is better to go for mean reversion techniques for market neutral strategies. But if you have high confidence WRT timing, one can even use charts. But time is the most difficult component to predict. I prefer to use a combination with more weights given to mean reversion.

      Good trading,

  5. hi sir.
    according to your view silver 34.11$ enjoyed the ride thank you

  6. Dear Jai,

    Last 6-7 sessions has been sideways for NIFTY. Today it has shown strength again & is 5600. What do you think, still it looks like 5200 & lower levels will be tested first before going up?

    Thanks & Regards,

    • Parag,
      So far nothing has changed. After 8 straight days of decline, this corrective move can behave in such irritating fashion, it is normal. I had given room for a bounce close to 5700 but the fact that its stalling under 5600 itself is a sign of lack of strength.

      Good trading to you,

  7. Thanks Jai,

    I admire your technical skills! I know you suggested “Elliot Wave Principle” sometime back. If you had to suggest 2 great books on TA, what would be the other?

    • Parag,

      Here are 2 more: 1) Reminiscence of a Stock Operator – this is a classic on Jesse Livermore. 2) Market Wizards by Jack Schwager.


  8. Reminiscenes of a Stock Operator is a ‘classic’ – even though the book was first published in 1923, it is a must read for anyone thinking of trading in stocks. My all time favourite.

    In Jack Schwagers “Market Wizards”, Reminiscences is quoted as a major source of stock trading learning material for experienced and new traders.

    Both wonderful reading material…brilliant selection…:)

  9. hello sir
    what is your price objective for nifty

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