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Dollar about to rally?

The other day a guy tweeted to me that I couldn’t have been more wrong about one call. Yes, I do get them wrong, as much as 50% of them. If not more.

I often write about that, as I also say that for your (financial) well being is probably much more important to be able to manage risk effectively than to be able to make a higher number of calls right. But I get where the guy was coming from. In the world of instant gratification people feel the need to be right all the time and demand instant results. Go figure, ha? Is this also be a reason why so many traders converge to short term trading? I guess.

Anyways, let’s get to today’s topic. I was a dollar bear not so long ago, but the recent developments were making me change my stance to more and more neutral lately when I was becoming also more open to bullish scenarios. It’s ok if traders live in their idealistic world where they constantly feed their own biases, but this might not so profitable. To me it’s not hard to change my mind and admit my initial analysis was negated.

We saw a breakout attempt in the dollar a few weeks ago and it initially seemed it will be rejected. We can see this from the $DXY dollar index chart below, see circled candles.

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Don’t get caught up!

I don’t mean by the markets, but by yourself. Regardless of your system, you will have losing trades. Some of the best traders have a win ratio of only about 50%, so their predictive system is not much better than a coin toss. However they have great risk management in place and they know when to back off. Everybody experiences a series of bad trades, but only the best know when it’s time for them to stop to minimize the damage that would have been incurred otherwise.

If I could count how many times I was stopped out and how many times I experienced one of those series… numerous. But what prevented me from going bust was exactly that, knowing when to stop.

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New all time highs is not a downtrend

The S&P 500 index is back at new and fresh all time highs. Maybe this is not the best time to be writing a bullish post, it could backfire and we could see a 2015-16 bottom style retest. We have just seen an incredible 25% bounce in about 4 months, volatility is depressed and just about to burst. However let me remind you, I wrote a series of posts in October, starting with Winter coming?, warning you we could see a market crash, and then in Jan I flipped the side asking myself and my readers if Is it over?.

I was cautious along the way. The bounce could easily have been a bear market rally, but getting to fresh all time highs should reduce that likelihood, right? We were getting constructive signs along the way, let me just mention recent The most important market in the world right now post.

And while we’re back where we left it a good half a year ago, let’s discuss the current environment and why the party might not be over just yet.

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Tesla or TeslaQ?

Probably the most controversial company in the stock market is Tesla. People either love it to such extent they almost worship it or they dislike it so much they think it will be de-listed from the Nasdaq exchange. It seems there’s no middle ground. It also seems no other stock divides people that much.

If I said I care it would be a huge overstatement. I don’t. Why would I have to? And as much I’d want to dive straight into your favorite ideological debates, that’s not the intention of this post. I want to warn you of a potential deeper correction that might happen in Tesla’s stock.

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Workshop feedback [video]

Here is the feedback with a few opinions about the workshop I held last week. The video is recorded in Slovene language, but it’s subtitled in English.

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The most important market in the world right now

Back in October last year the German stock index DAX was flashing warning signs for the stock market as a whole (see Winter coming?). We paid attention and whoever was alongside, was able to protect the damage that could have occurred otherwise. However in the beginning of this year we flipped the table and started (cautiously) accumulating stocks again (see Is it over?).

In this post I’d like to present why I think the DAX is again one of the most important markets in the world to watch right now.

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Biotech stocks poised for a breakout higher

After the best first quarter of a year after quite some time, the rally from the low keeps on going. In March I was advising to get cautious if the market decides to start turning lower. Some might have taken that as too cautionary, however I must remind you we’re still in a cyclical correction and approaching upper trading range. To me playing defense is more important than playing offense. Don’t forget, in October last year we got out of longs and how important that was for preserving our emotional health and keeping an open mind in Q1 this year.

A good thing to see is that under the surface some nice bases are being built. This could provide the necessary fuel to extend this rally towards previous all time highs and later even beyond. This has been my thesis since beginning of the year (see Is it over?). One of the nicest bases being built is in biotech stocks. After a magnificent run between 2011 and 2015 when they more than quadrupled, they’ve been consolidating ever since.

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Is the bottom in for bitcoin?

A few weeks ago I wrote a post Are cryptos trying to bottom? giving you heads up for what might happen. I invite all readers of this post to read that one as well, because now I just want to give you a brief update on bitcoin. There’s a great chance the bottom is in.

Let’s jump straight into it. Here is a daily chart of bitcoin with a potentially huge breakout of a bottoming formation.

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Don’t be stubborn

The markets seldom move exactly as one expects them to move. A few weeks ago, when the S&P 500 was trading at 2800, I was wondering if the move higher had exhausted itself (see Shakeout before higher?). It seems I was a bit too early, the S&P rallied a bit further, to 2860 on Thursday. This was just a day before we saw a nasty reversal with the close at the above mentioned level 2800.

At first Thursday’s price action looked constructive to me. There were quite a few breakouts out of solid bases, the market convinced everyone into believing it can continue moving higher for longer with very shallow pullbacks. But then, on Friday, reality struck and we realized the market fooled us. Most of the breakouts failed hard, and as it seems, most likely marking a short term top.

As stated many times before, I believe we are/were most likely in a cyclical correction and not rolling lower into a full blown recession. However, the key is in managing risk, so don’t be stubborn.

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Had retirees invested, they wouldn’t have financial issues

No matter where you live, you probably face similar financial issues to people elsewhere in the world. As a society today, most people have to rely on others. For example, we rely on others to get our salaries on time, or that others will grow our retirement fund big enough to support our current living standards in retirement. But unfortunately the current demographic in the western world is not optimal and is particularly challenging for the pension system.

The current generation of retirees probably can’t do much to improve their situation. However, the active generation still has everything at their disposal to guarantee themselves a better and more stable future. To get there they must learn how to invest and use the power of the compounding interest. As Einstein said so many years ago, compounding interest is the 8th wonder of the world.

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