This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Warning on the Dollar COT Report

I believe a pricing pattern breakdown in the Dollar Index will lead to high probabilities of a sharp selloff. The commercials are not buying. That leaves it up to the speculators to continue to buy, and if they are already on the other side of the open interest, who is left to buy? This goes back to the probabilities of supply and demand and it is the reason why the commercial traders are "trend enders."

Think about what happens when the speculators want to sell and nobody else is buying? How do you unload that many contracts of your net long position without demolishing the price? When there are few bids to buy, and there are highly leveraged positions that have to exit "at the market"... that leads to a violent selloff if the bids are thin and the offers are large. Margin calls will exacerbate the supply side of the equation.

What could these commercials possibly know in the face of Euro disaster? Is this front running QE3 for a bailout of the Euro? Holding a leveraged long Dollar Index position while the market is closed with the current structure of this COT report would have me feeling like I was playing a game of Russian roulette.

I have no position in the dollar Index, and I am well prepared to speculate to the short side when there is an appropriate reversal pattern that develops. Although I believe this has great potential, trying to time the top is a good way to lose money.

Let's look at the chart below. Dollar is making new highs again but it is unable to close above the prior one. This is the second consecutive time it has happened, signaling a lack of demand at higher prices.

Keep in mind I do not rely heavily on technical indicators but it is worth pointing out the slight bearish negative divergence I marked with red trendlines on the MACD Oscillator and the RSI indicator.

Lastly the pattern on the dollar right now is a small "Inverted" or "Expanding Triangle" where the trendlines are diverging rather than converging as compared to the more common "Symmetrical Triangle." I have drawn this with blue trendlines. While the symmetrical triangle shows consolidation, the expanding or inverted triangle is showing confusion or congestion. This market over the past few days does not seem to be sure which way it wants to go.

2 of 3

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,912.11 -70.48 -0.42%
S&P 500 1,969.95 -8.96 -0.45%
NASDAQ 4,442.6980 -2.2110 -0.05%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs