Trend Signal Now: The Coming US Dollar Collapse?

Tuesday, December 31, 2024

We're in the heart of whipsaw hunting season.

Now is the time.

Every year we see an extended trend, going into late December, that extends just a bit too much, and then completely unwinds once the new year begins and the big portfolio managers are back at their desks.

Look at what happened to US Treasury Bonds at the end of 2013. Look at what happened to Gold and precious metals at the end of 2015. And look at Large-cap Growth stocks at the end of 2022.

These are just a few examples, just to give you an idea of the power of the end-of-year whipsaw.

So because of experiences like these throughout my investing career, I've made it a point to look for the leading candidates for this end-of-year period that I call "Whipsaw Hunting Season".

We're hunting for this year's epic whipsaw, like the bond ripper in 2014, the Rally in Precious metals in early 2016 and the historic returns of Large-cap Growth stocks in early 2023.

We don't know for sure until after the fact, but this year's leading candidate, to me, has to be the US Dollar.

We have an extended trend. The dumbest money in the world is betting on a stronger US Dollar, based on futures positioning, and it's also one of the most crowded trades, according to the BofA Fund Manager Survey.

A failed breakout here in the US Dollar, right in the heart of whipsaw season, could be the catalyst for an epic collapse:

Meanwhile, the positioning in the Euro is the exact opposite.

Remember that the Euro represents almost 60% of the entire US Dollar Index. And small speculators have their largest net short positions in years.

So again, the dumb money is betting on a weaker Euro and Stronger US Dollar. The smart money is taking the other side.

Here's a chart zooming out on the US Dollar Index itself.

Look where this potentially failed breakout is setting up, just above a shelf of former highs:

I don't know what is going to happen. But here's what I do know.

If the US Dollar does break out from this base, and the "dumb money" actually has it right (that is entirely possible) I would expect that to bring added pressure to US equities.

On the flips side, I think we have to be impressed with how well stocks and precious metals have done, despite the Dollar ripping higher over the past few months.

If the dumb money is wrong, as they tend to be near critical turning points, then I would expect the Dollar to come off here, and that in my opinion, would be a tailwind for equities and other risk assets.

I'm looking at 107 on the Dollar Index. If we start seeing prices below those key levels, then the party is on and the unwind has likely begun.

We'll be discussing exactly how this is playing out and what we're doing about it on the first LIVE Monthly Strategy Session of the year - this Monday January 6th.

Our LIVE Conference Calls are where we walk through the entire top/down global complex, and then drill down to very specific trade ideas that are actionable now to take advantage of these trends - both longs and shorts.

If you're managing a portfolio, allocating assets on a regular basis, or just looking for idea flow, then this is the subscription for you!

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JC Parets, CMT | Founder & Chief Market Strategist, All Star Charts

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