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January 16, 2012

Hunting a Spot to Buy Commodities

Over the course of the last week, the U.S. Dollar Index reversed a pair of swing highs, each of which held the potential to mark an important top. The latter reversal managed to push the DX above an important pivot level and has extended the dollar's daily cycle to a point where a bullish cycle becomes a more probable result.

DX Daily

While this outcome certainly negates my recent call for the dollar to peak as it tested the DX 81.40 pivot zone, my expectations for an imminent top are undeterred. Rather, the dollar is only accommodating the need for stocks to take a breather.

SPX Daily

With public sentiment under the dollar remaining at nosebleed levels, as well as an important commodity low likely being left behind in December, the dollar is still quite likely to print an important high once the equity correction completes. In fact, a key confirmation of these interpretations should come by way of seeing both gold and the general commodity complex hold their December lows as stocks print a near-term low and the dollar peaks.

Gold Daily

CRB Weekly

Positive divergences by gold and the CRB would constitute extremely bullish developments for the commodity complex as a whole. With the dollar still in rally mode, the prudent posture at this juncture would be to mitigate exposure and remain in observation mode until the anticipated divergences reveal themselves. I am, however, prepared to get aggressive once this framework matures.

 

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