The moon is waxing crescent. It is 39% visible on its way to the first-quarter phase appearing on July 10. It's not until July 18 that the full moon is visible, as the sun reflects the moon's full image back to Earth.
It is said that people, animals, tides and events are affected by the lunar cycle. The notion is that these unpredictable occasions become increasingly emphatic as we approach a full moon. It is believed that crime rates increase and people's behavior becomes more erratic and agitated as we approach the full moon.
Apply that science to the markets, and we are in store for some wild trading over the next 10 days. If the wild swings and gyrations of the last two days are any indicator of the next 10, put your seat belts on and get ready for liftoffs or crash landings or more likely, both.
So what has been moving the market the last few days? Oil? Nope. Earnings? Nah. Economic data? Not really. The one indicator that has been moving just ahead of wild swing in the market is the dollar.
The dollar started out strong in Europe on Monday, and the indexes were up in early trading. The dollar started to weaken and fell sharply at around 10 a.m. Two hours later, the
began a rapid slide from 11,350 down to bear territory at 11,150. Then, on Tuesday, after spending the early morning resting around the unchanged level , Mr. Jamie Dimon, CEO of
), offered a bit of hope through a truly compelling speech to the FDIC forum in Arlington, Va.
The market moved sideways for a while until global currency traders realized the sky was not falling and bought the dollar. I am sure many dollar bears were wishing they didn't have to cover positions. But there is a risk that the European Central Bank may be on hold and the
may be ready to raise rates.
is bullish for the dollar.
Jean-Claude Trichet, president of the ECB, has been true to his innuendo in the past, and his recent comments indicate a "one-and-done" rate increase from there. Meanwhile, statements from Fed chairman Ben Bernanke, Dimon and U.S. Treasury Secretary Henry Paulson seemed to have tipped the scale toward a potential rate increase. Funny how we all thought that rates needed to go lower for stocks (mainly equities) to firm up.
As I have been saying in this column for a while, the dollar must find that bid in order for the markets (equities and housing) to regain some desirability.
Is this enough of a bid? It remains to be seen. I like the way the dollar held up in a tough trading environment, though. Earlier in the year, I recommended the
PowerShares DB US Dollar Index Bullish ETF
. It tracks the dollar against foreign currencies. As the dollar moves against those currencies, so does the UUP.
I bought it at $22.70. On June 4, I recommended a stop-loss with a settlement below $22.05. I bought the dollar index futures today at 7320. That translates (closely) to a $22.50 price for UUP. I am adding to the position and will continue to use the $22.05 settlement as my stop-loss out.
For the reasons I stated earlier regarding the central banks of Europe and the U.S., as well as the fact that the dollar is much oversold right now, I love this trade. But because one of my mottos is "live to trade another day," I still recommend the stop-loss as a form of money management.
Be true to your stops, and you can greatly reduce your losers; marry a position and divorce will cost you. Consider the stop-loss as a prenup agreement. I love you, but in case you or I sleep with someone else (the unforeseen event), we part with as little damage as possible. In this case, it's about a 2.5% downside before triggering the sale. The upside can be enormous if that carry trade ever unwinds!
I am sure A-Rod wishes he had a stop-loss tool in his bag of tricks now, right?
Trade with your head, not over it!
At time of publication, Bolling was long UUP and long dollar index futures on ICE, although holdings can change at any time.
Eric Bolling is a host on the new Fox Business Network. Bolling was one of the developers and original panelists (nicknamed "The Admiral") on CNBC's "Fast Money."
Bolling is an active trader specializing in commodities, resource trades and ETFs.
Bolling is a member of several exchanges including The New York Mercantile Exchange (NMX), The Intercontinental Exchange (ICE) and The Commodity Exchange of New York.
After spending 5 years on the Board of Directors at the NYMEX, he became a strategic adviser to that Board of Directors where he assisted in bringing the company (NMX) public. He has been included in Trader Monthly Top 100 in 2005 and 2006. Bolling was the recipient of the Maybach Man of the Year Award in 2007 for his contribution of philanthropy and willingness to de-mystify investing to Main Street.
Bolling graduated from Rollins College in Winter Park, Florida and was awarded a fellowship to Duke University. Bolling was an accomplished baseball player. He was drafted by the Pittsburgh Pirates where he played before his career was cut short due to injuries. He honors his baseball past by sporting the NYMEX trader badge, R.B.I.