Something's Up

Monday it looked like the dollar would break out. It rose and then failed.

Then, after having declined in a gorgeous impulse wave, it bounced.

Monday, with what little of the futures action I saw, it looked like 1396.56 was the next target on the S&P.

Wednesday, after being closed for two days, the market headed higher but couldn't hold it.

Yes there was a hurricane, and there is a big jobs number on Friday, and a presidential election the following Tuesday, but I think something's up.

For some perspective on just how different things are today, the following quotes from Market Wizards by Jack Schwager may be interesting. They illustrate just how different the markets were back in 1987 leading up to the crash. Instead of extreme monetary intervention back then, (the Fed was slowly raising rates) it was fiscal -- it was politics.

Paul Tudor Jones:

Treasury Secretary Baker's weekend statment that the U.S. would no longer support the dollar because of its disagreements with West Germany was the kiss of death for the market.

Marty Schwartz:

I don't think Monday would have been nearly as bad as it was, if Treasury Secretary James Baker had not started verbally bludgeoning the Germans about interest rates over the weekend. He was so belligerent. Once I heard Baker I knew I was dead.

Jim Rogers:

Then on the weekend before October 19, you had Treasury Secretary Baker telling the world we were going to stick it to the Germans by letting the dollar go, because the Germans weren't loosening monetary policy as Baker demanded. It looked like the trade wars of the 1930s all over again.

Victor Sperandeo:

The straw that broke the camel's back was Secretary of State James Baker's dispute with Germany, in which he urged Germany to stimulate its economy. When Germany refused to cooperate, Baker made a weekend announcement that the United States was prepared to "let the dollar slide."

Stanley Druckenmiller

The Fed had been tightening since January 1987, and the dollar was tanking, which suggested that the Fed was going to tighten more.


If Treasury Secretary Geithner said we were going to let the dollar slide, today's markets would cheer.

A few weeks ago, the Commitment Of Traders report showed that the cumulative net-long position in currencies other than the dollar was higher than it was back in 2008. In other words, speculators were more short of the dollar than they were at its all-time lows. The reason why I think "there's something up" is that the dollar is failing to collapse. Yes, it may want to test 78 or so. But it feels we're inching closer to something unexpected.

For the near term, I don't think there will be anything unexpected until the S&P breaks out of the 1475-1396 range. I see higher numbers and lower numbers, and too many cross-currents in between. I'd feel better about seeing above 1421, the gap at 1433.81, or 1396.56 being tested.

Something's up, but what's up I have no idea.