I'm finding the current moves in the dollar versus gold to be fascinating. Usually, if the dollar is going up, gold goes down in dollar terms (almost as if gold is a currency, hmm). Right now, both are going up, which of course means gold is really going up in non-USD currencies... suggesting that demand is quite strong.

I'm short again, market-wise... shorted QQQ this morning... so many of the big stocks have made lower highs and lower lows (AAPL, CAT....) and others, (F, SBUX, DE) have 1 or the other. The QQQ now has both. Even the transports (IYT) look toppy to me. Of course the price action will tell...

Lol, this morning oil had a 5 hour rally, which the bobbing heads on TV claim is a bottom... of course it's dropped 1.60 in the past hour or so. Reducing drilling plans for next year does not shut down the rigs currently completing wells (rig count is still not dropping - it will, but these things take a lot of time). Short term, everything still points to increasing supply in the next few months. 

As always, your comments would be greatly appreciated :)
Hope all is well...

Eoin Treacy's view

Thank you for your kind words and this informative email. In an environment where almost every central bank, with the notable exception of the Fed, is increasing supply of fiat currency, the relative attraction of gold tends to be burnished. In many respects deflation is a more bullish factor for gold than inflation since it is less likely to have to compete with higher yielding assets.

For example, while gold experienced a deep decline in US Dollar terms over the last few years it has been confined to a range when redenominated to Yen which has been among the weakest currencies. While gold is holding steady relative to weak currencies it will require a more convincing bullish catalyst to reignite medium-term demand dominance against the US Dollar. 

As you are aware, shorting into a primary uptrend is a risky business that can pay off big when you get it right. The lowest risk entry point will be closer to the upper side where a progression of lower highs is being tested rather than when a recent low is being tested, so I would be a little cautious about shorting the Nasdaq-100 at this exact moment.

If one were looking for reasonably low risk shorting opportunities it might be better to look at those shares which performed spectacularly well into the end of the year but are now underperforming. 

Southwest Airlines has lost momentum and is approximately 25% overextended relative to the 200-day MA. It is not unreasonable to think the potential for a mean reversion outweighs that for an additional upward acceleration.

L Brands has rallied for 12 of the last 13 weeks and continues to hold a progression of higher reaction lows. The first clear downward dynamic is likely to mark a peak of at least near-term significance and would possibly open the way for a reversion towards the mean. 

With regard to oil prices, Brent has paused in the region of $80, $70, $60 and $50 on the way down and has not rallied by more than $4 in that time. Yes an oversold condition is evident but there will be no evidence of bottoming activity until we see a rally of more than $5.