Ultra Long-Term $DXY Count

Here is a long-term bearish count for the Dollar Index. I have puzzled over this for many months now. It is conceivable that we remain within a multi-decade correction. The two most recent legs “down” (2017 & 2020; pink and orange “ones”) look very impulsive to me. It may suggest that since the 2017 high, the $DXY has begun a large impulse wave to the downside, a “c” wave of cycle degree.

Two points of interest: 1) How low can we go? and 2) How long will it take?

On the first point, a trend line strike below would be a reasonable place to speculate about while we are still this far away. It would give the whole structure the right “look.” But then there is the question of time, and that’s one thing that makes me believe we may have a long time to go in the equity markets before we see a major top. Normally, we want to see a relationship (even in time) between legs of a correction. And if cycle (yellow) “a” took twenty years, we will want to see cycle (yellow) “c” take some amount of time that has a relationship to the length of cycle (yellow) “a” in time.

Being conservative, and just looking at that trend line below leads me to speculate that the 61.8% extension of “c” over the length of “a” in time might be a good spot. But this suggests that the dollar will continue to weaken for almost another decade.

We should gain clues soon, based on the magnitude of the next leg down that I expect us to enter upon shortly (if we have not already).

DXY

A $DXY Update, Could Top Out at Any Moment, Or Extend

Review my last post on the $DXY which I made here. That called for higher highs, a bit of which we’ve gotten, but: I want to point out that we may also be topping here as well. The count below shows the box where there is a good fib relationship between green C and green A. It’s about where we would like to see a correction complete, somewhere near equal legs.

My last count was looking for some serious acceleration, but we’re stalling. We can count this spot as the orange 4, after which we may see another push higher, but given where we’re at, we may just as well squish the numbers all in there together.

I know it’s not helpful to say “we could go up or we could go down.” But my main point is to communicate that contrary to the prior post, we may not see further upside from here. This would take significant pressure off of equities.

DXY

Revised $DXY Count, Now Looking for More Upside

I had thought that $DXY was in the final stages of a 4th wave correction, after which I expected it to turn lower. However, given the recent price action, and its pushing above the 250-week EMA, I believe it may have a higher destination. Since it’s now pushing the limits of what can be credibly interpreted as a wave 4 of that degree, I am upgrading the wave degrees across the board, and I believe we are in a much bigger wave 2 correction.

It is still probably most of the way done (in time, as with the other count), it’s just that in this case, it probably needs to go higher first for a few weeks or so. The target range for a wave 2 of this degree will coincide with a retest of a long-term trend line, from beneath.

Ultimately, this is a much more bearish count for $DXY in some respects (in the intermediate term). On my other count, I was looking to take out the lows from early this year soon-ish, then have this rally we’re having now. But since we’re having it now, we’re likely to end up going significantly lower in the next move down, and sooner than I had thought before.

DXY

A $DXY Update

In this post on the $DXY, I pointed to two alternatives. On the one hand, we had a good candidate for a minute (blue) 2, after which, we should begin to descend, and on the other, we had an inverse that could send us higher. In the meantime, the inverse has sent us higher, however:

  1. It’s still only at the 78.6% retracement of the prior two, entirely acceptable still for a wave 2, and
  2. The structure from minute (blue) 2—as I have it labelled—looks like a zig-zag so far, a 5-3-5 structure that is most commonly found in twos.

So, it’s still possible that we turn down here, though the full measured move on the inverse may still need to be met.

DXY

Mixed Signals on $DXY

The bearish view is defensible: the move from the January low looks corrective in nature and (more objectively) we remain under the 250-week EMA, the literal definition of being in a long-term downtrend. As such, I had been counting the recent high as being the high for a while. Today’s price action has brought us to the 50-61.8% retracement of the prior move (orange box we’re in at present), so if we’re going to turn lower, this is a good place for us to do so.

However, locally, we may also be observing an inverse. If it plays out, we may extend to the measured move. If we do, we may move the count over one wave.

DXY

Here’s Why I Doubt We’re Near A Major Market Top

Now, Dear Reader, do not get me wrong: yes, I know that the indexes are expensive; yes, I know we are miles above many long-term moving averages; and yes, I still enjoy trying to solve my own psychological problems germinating from my profound unhappiness by watching things burn to the ground.

None of these variables has changed. However, it’s just that those things aren’t always very good predictors of major market tops. Do I think we may be getting close to some delicious corrective action? It’s absolutely possible: and in fact, it’s my preferred analysis. But as far as, let’s say, seeing anything more than a ten or twelve percent decline, I am skeptical of that here and I wanted to share my evidence for that all in one article. And even if we do get some corrective action, that may also still be a ways ahead of us though I am open to the possibility that it could come at any time. Hell, I’d love it if we just fell apart right now.

There are several things I like to watch that very often help us to measure the risk off sentiment of the big players in the market:

  1. Oil – Obviously as growth slows, energy demand does too, and oil often leads equity markets lower.
  2. Copper – Same as oil, the decelerating use of copper as an industrial metal will very often lead the markets lower, so effectively so at times, that we’ve come to refer to it as “Dr. Copper” in recognition of this metal’s ability to ascertain market health.
  3. Yields – Yields falling of course implies that the safety of shitty returns is being highly sought. Since the big boys don’t have mattresses large enough to stick their cash into, they like to park it here.
  4. The dollar – Though not always perfectly correlated, dollar weakness can often be tied to equity strength.
  5. Credit – In the great debt black hole that has become the world financial clown show, an expanding economy necessarily requires an expansion of credit. A slowdown in credit expansion (or heaven forbid, an outright contraction of credit) is the canary in the coal mine that can alert us to the onset of Bear Paradise.
  6. LEI – The Conference Board’s “Leading Economic Index” has an uncanny ability to often, ahem, lead the markets lower and alert us to recessionary forces.

Let’s look at each one in turn.

I have two preferred ways to count $OIL. The first one is as a nested 1-2-1-2 (pink, then orange).

OIL

If this count is correct, oil stands to make significant gains over the coming many months. This would imply some admixture of growth and inflation ahead. The count seems to me to have “a good look” in terms of both price and time. But let us not be obnoxiously bullish because that feels silly. And so, we can move a couple of things around and assign a different bullish-but-less-bullish count to oil thusly:

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