Despite a fall in the VIX, I think US stocks should brace for a protracted correction.
By Daniel at 17 October, 2009, 11:44 am
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This is gonna be a paradox of sorts, because economic data currently has a positive bias, but the $ cannot fall much further, based on the Purchasing Power Parity Theory, as US goods and services have become very cheap.
“We find ourselves at the crossroads with respect to the near-term direction of the dollar. From a technical perspective, my work argues that the dollar is extremely oversold and is “ripe” for a sharp, sustainable near- and possibly medium-term recovery rally.
With the dollar so oversold, it is dry timber susceptible to the slightest spark — and another round of more forceful administration rhetoric or a few phone calls from the Federal Reserve trading desk to a few major players in the FX interbank market might trigger the necessary response.
At that juncture, the Law of Unintended Consequences surely will kick in, and who knows what will transpire thereafter? My sense is that a dollar crisis will make the subprime/credit crisis look like child’s play.”~
Mike Paulenoff, MPTrader
The end of quantitative easing and the beginning of the tightening cycle indicate that the dollar will strengthen progressively in 2010 relative to other currencies.
A rise in the dollar, will give more than just a correction in the Indices; its weakness is the only reason markets are not falling.
The recent exuberance in gold will also wane precipitously.
– ASD
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