For A Few Dollars More

August 19, 2005
Technical Analyst & Editor

Introduction

You can tell by the title of this article that I'm a Clint Eastwood fan, have been since childhood. What I like about his characters in most of his movies is that they are always portraits of righteousness. There is no grey area, just either black, or white. And the market should be the same way, either it is a buy, or it is a sell. There is no need to make it more complex than it already is, simply follow it, and try not to get ahead of it by predicting and forecasting.

It is absolutely amazing that only after the dollar has lost over 30% of its value, dollar bears began to surface and sentiment became overwhelmingly bearish early this year, especially when the two richest men in the world publicly trashed the dollar and embraced the Euro.

Lets look back a few months…

This is the 10 year monthly chart, since early 2002, the dollar has lost about 30% of its value, in exactly three year's time. So, if Buffett and Gates were real nice guys, they should have gone public with their "short the dollar" campaign much earlier, so that every Joe, Dick and Harry could make a fortune in the Forex market. Why now? Technically, we have a bullish divergence on the dollar, which suggests a major bottom in process…..

In a special report dated Feb 1st this year, I alerted my subscribers to watch for a major bottom on the dollar….

and a major top on the Euro, contrary to public sentiment at the time.

And now, six months later, the dollar bears are still growling, insisting that the new found strength is nothing but a bear market bounce, and the dollar should free fall soon and worth no more than the papers they are printed on…..because of this and that. I'm not here to argue, or even to offer my opinions of why this and why that, simply because I'm not smart enough, and opinions do not matter, price action does.

Sure, technically the dollar is in a long term bear market, but we have a buy signal this year and how high or how long will the rally last is anyone's guess, but as long as we remain on a buy signal, the dollar is not dead. It is alive and well.

Euro, on the other hand has dropped considerably since, and as long as we remain on a sell signal, I'm not saying "oui".

And from the trading perspective…

After a brief pullback from our TLBSS (sell signal), we have a TLB (trendline break), and waiting for MACD to confirm a BSBS ( buy signal.)

While the Euro did the exact opposite, by breaking support after gap was filled, and now waiting for MACD to confirm a BRSS (sell signal).

So, both the long and short term outlook point to a rising dollar and falling Euro, and what would that do to Berkshire Hathaway's shares?

BRK is behaving more like a currency than a stock these past few years. By his own admission and according to his annual shareholders reports, BRK is heavily invested in foreign currencies, and this exposure may produce poor returns for his shareholders now that the major trends have reversed. Therefore, some of my very well heeled subscribers may wish to hedge against their heavy exposure to BRK by buying the dollar via the futures market.

 

Jack Chan at www.traderscorporation.com

19 August 2005

Jack Chan is the editor of Simply Profits, established in 2006. Chan bought his first mining stock, Hoko Exploration, in 1979, and has been active in the markets for the past 37 years. Technical analysis has helped him filter out the noise and focus on the when, and leave the why to the fundamental analysts. His proprietary trading models have enabled him to identify the NASDAQ top in 2000, the new gold bull market in 2001, the stock market top in 2007, and the US dollar bottom in 2011.

A one-ounce gold nugget is rarer than a five-carat diamond.

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