U.S. Dollar: Technical Tools for Timing October 3, 2009

Posted by smarttradepro in Events.
Tags: or wait for a breakout above the 50 day SMA., There are two ways to play potential dollar strength: get in early in anticipation that last week’s low will hold
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Every once in a while, a simple solution comes along that absolutely makes my day.

Earlier this year, we were getting ready to have some friends over for a nice dinner. The wines were chosen. The food was bought and ready for preparation. Of course, Murphy’s Law was about to rear its ugly head. This time it came in the form of the garbage disposal.

The thing was stuck. When I’d flip the wall switch, I’d hear the hum of the electric motor trying to turn and then the circuit breaker would trip. After making sure there was no power coming to the motor, I reached my hand down into the jaws of the thing (it barely fit) and found nothing, other than the scraps of food that were starting to get a wee bit aromatic.

I reset the circuit breaker and tried again—same result. Of course, by then it was late Saturday afternoon and my normal “fix it” guy was out doing his own weekend thing. The plumbers that I called promised me huge bills due to the weekend hours and doubted they could get there before the guests arrived.

Cooking dinner for guests with a partially plugged kitchen sink raises the difficulty and stress level of the situation by a factor of ten.

So I quickly went to the internet and Googled “stuck garbage disposal”. Scores of useful sites turned up. The top results all said the same thing: Find the big honkin’ Allen wrench that came with the garbage disposal, and turn the thing by hand.

Just great. Who knows where the Allen wrench is? Apparently the garbage disposal manufacturer does. In a rare fit of anticipating my tool-related angst the manufacturer conveniently located a little pouch attached to the side of the garbage disposal containing the needed tool.

I popped the Allen wrench into the proper hole, turned the thing by hand, and low and behold the disposal was free and spinning! A hard little piece of something had gotten wedged in the gears. And now it was dislodged. Moments later, that ugly crunch-grind-whirr of the garbage disposal in action was sweet music to my ears.

I have to admit, I was elated. Not only had I brought down the dinner party prep stress back to an enjoyable level, I had also saved a couple of hundred bucks on a weekend house call. Most importantly, I had found a simple solution that worked. I love it when that happens.

Simple Technical Tools—Still Useful, and Dollar Friendly

Last week we looked at some great macro fundamental analysis from hedge fund manager Marshall Auerback. He has a short-to-intermediate term bullish take on the dollar, and I relayed some of his recent thoughts in last week’s Trading Tip. I find Marshall’s research to be well reasoned and spot-on. And when his fundamental dollar analysis meshed with my technical take, the time was right to let you know about it.

Below are some timing tools that might help us play a probable swing up in the greenback.

First, let’s look at some basic daily momentum indicators.

The U.S. Dollar index got oversold on the RSI and then a week later, made a new divergent low. And we see a similar story in the weekly time frame.

With the dollar hitting divergent lows in multiple timeframes, we’ve seen a little bounce up. Is it time to start buying the dollar with reckless abandon? Let’s use another simple tool to see when this up move might begin to attract some widespread attention.

For the dollar to register any sort of bullish case on many institutional fronts, it has to get above this 50 day simple moving average (SMA).

So there are two ways to play potential dollar strength: get in early in anticipation that last week’s low will hold, or wait for a breakout above the 50 day SMA.

Great Trading!
D. R.