Seismic rumblings coming from the currency markets – could be a sign that more extreme volatility is ahead in equities. The euro broke out convincingly from the triangular pattern I discussed and now looks ready to test $1.35. Bearish positions in the dollar index, using the inverse fund UDN, paid off nicely yesterday.

Interestingly, the long fund UUP spiked down even more abruptly than the inverse fund.

Lots of trend-following systems could start to kick in against the dollar.

With negative yields on 3-month bills, it’s hard to find good reasons to be in dollars especially if the bulk of the hedge fund redemptions/repatriation is over for the year.

I’m expecting that forex traders wiil be taking a shot at Pound/Euro parity – could happen in the illiquid period between Xmas and New Year.



News overnight that the Senate rejected the rescue package for the auto makers has been greeted with selling across the globe. The German index, DAX, which is perhaps most likely to see the failure of the package has gapped down after failing to take on its 50-day EMA and could now be ready to retreat to the baseline of the descending wedge pattern.

It is conceivable that the US Administration will try to divert TARP monies to rescue GM and Chrysler from immediate bankruptcy, but the fragility of sentiment that has been revealed again is not constructive for the bullish case.



The Dow Jones Transportation Index (^DJT) suffered more than most yesterday and is now the least healthy looking of the major US equity indices.



Clive Corcoran is the publisher of TradeWithForm.com, which provides daily analysis and commentary on the US stock market. He specializes in market neutral investing and and is currently working on a book about the benefits of trading with long/short strategies, which is scheduled for publication later this year.

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