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Carry Trade Shifts Into Parabolic Gear


It could replace the multi-year bear market with a random and wide-trading-range market.

Editor's Note: This article was written by Richard Suttmeier, chief market strategist at, which is a fundamentally-based quant research firm in Princeton, New Jersey, that covers more than 5,000 stocks every day.

The Dollar carry trade shifts into parabolic gear. Treasury yields decline, commodity prices rise. Stocks are approaching maximum resistance levels to say it's still a bear market rally.

President Barack Obama and Federal Reserve Chief Ben Bernanke are mum on dollar support -- shunning China's warning.

The president and Fed chief both talk about a strong dollar policy, but don't back it with action. In fact, Bernanke says interest rates will stay low for an extended period, on recovery concerns.

Bernanke says he expects moderate growth in 2010, yet there's no talk of an exit strategy on the policy of flooding the world with dollars. Then he says that unemployment and job creation will be an issue in 2010.

How do we get moderate growth without job creation with a weak housing market and tightening credit conditions? I guess by creating parabolic bubbles of dollar-denominated assets via the dollar carry trade. (See also The Decoder: Carry Trade)

We've been on this trip before. Remember June 2003 through June 2004 with the 1% federal funds rate -- that created the parabolic bubbles in home prices and equities that popped in 2007.

Monetary policy helps Wall Street make trading profits, leaving Main Street high and dry with failing C&D and CRE loans, and waves of bank failures that will last at least through 2012.

The Dollar Index remains above up trend support at 74.48 with oversold MOJO. Note that the Euro stayed below the psychological 1.50 level on Monday.

Source: Thomson Reuters

The yield on the 10-Year US Treasury is approaching weekly resistance at 3.32 with the 200-day simple moving average at 3.283. Wall Street borrows at 0% and has been buying 10-Year notes since June when the yield was 4%.

Source: Thomson Reuters

Comex Gold reaches a new all-time high of $1143 above my quarterly resistance, now a pivot at $1135.1, which is a sign that the parabolic phase has begun. We're back below the pivot this morning.

Comex Copper held its 200-week simple moving average at $294.50 and reached a new 52-week high of 312.75. Monthly resistance is a parabolic 348.

Nymex Crude Oil held above its 200-week simple moving average at $75.50 with the October 21 high at 82 and my quarterly resistance at $83.16.

The Dow Industrial Average traded to 10,434 on Monday testing the Ascending Wedge resistance on the weekly chart. The down trend that goes back to October 2007 is 10,655.

Source: Thomson Reuters

If this trend breaks, the carry trade would have successfully ended the multi-year bear market replacing the environment with a random and wide-trading-range market.

Quarterly supports are 7,962 and 6,546 with semiannual resistances at 11, 407 and 11,508.

Other key levels are 1118 on the S&P 500, which is on the down trend that goes back to October 2007.

For the NASDAQ, it's the 200-week simple moving average at 2212.

For Transports, it's a return to my zone of annual resistances at 4037 and 4199.

For the Russell 2000, the double-top remains at 624 / 625.

The SOX is similar with a double-top and my semiannual resistance at 337.

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