The
dollar was up on heavy volume yesterday and of course this hit equities
hard. As we have been trying to drill into everyone's heads over the
past week or so, the risks of getting long when the Dow was at
resistance, the dollar catching a bid, and sentiment levels too
extremely bearish were just too high.
Yesterday the market caved into this high risk scenario and marked a distribution day.
The dollar, however, is back at resistance measured by its 20-day
average. The dollar generally doesn't turn on a dime so there is a good
chance those who are short here will be frustrated the rest of this
week when they don't get a waterfall to the downside like many are no
doubt hoping for.
Nevertheless, the dollar is bottoming and preparing for a corrective
bounce of one sort or another, so pressure on equities is likely to
remain over the next few weeks and those trying to play the long side in
this market are likely to be frustrated as upside participation thins
out and as smart money sells into strength.
We aren't calling for a market top here mind you. Rather a much-needed
correction that will likely last until the typical end of the year ramp
up kicks off sometime next month.
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