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This Commodity Trade Is LaughableBy Jeff ClarkThursday, June 4, 2009 "Ladies and gentlemen," booms a voice over the loudspeakers, "the Peking University Laugh Factory is proud to present the comedic musings of Mr. Tim Geithner..."
The audience erupts with applause as the U.S. Treasury Secretary takes the stage and grabs the microphone. "Good afternoon, everyone," he starts off. "I just flew in from Washington D.C., and boy are my arms tired."
The audience screams with laughter.
"Hey," Mr. Geithner continues, "did you hear the one about the strong dollar policy? I can assure you your dollar-based assets are safe."
The students at Peking University nearly bust a collective gut when "Shecky" Geithner pulled that punch line this week. After all, anyone can look at the following chart and realize the government's "strong dollar" policy is a total joke...
 The dollar has lost about 12% of its value since peaking in early March. Long-term Treasury bonds have suffered a similar decline. So our Treasury secretary and resident comedian felt some urgency to travel to China and reassure the world's largest buyer of dollars and Treasury bonds that their investments were in safe hands.
The students laughed at his comments.
The dollar did rally yesterday. Looking at the chart, though, it appears the rally is simply an oversold bounce off an obvious support area. The dollar index is in a new trading range with support at about 78 and resistance at 83.
Yesterday's action may have kicked off a short-term rally phase for the greenback, and it may have several more days of upside ahead. That's good news for the Chinese, but it's bad news for investors in commodities like oil and gold – which fell sharply yesterday.
Notice, however, that there's absolutely no positive divergence on the Moving Average Convergence Divergence (MACD) indicator. This momentum indicator is moving in the same direction as the dollar index chart (down). That means the downtrend is strong and unlikely to reverse anytime soon.
So the dollar may bounce higher for the next few days, and commodity prices may fall in response. But it won't last.
Smart investors should use this short-term correction as an opportunity to establish or add to commodity positions. Then, when Mr. Geithner reiterates the government's strong dollar policy, you can laugh, too.
Best regards and good trading,
Jeff Clark
Further Reading:
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