It's Time to Buy the Buck

It's Time to Buy the Buck
By Jeff Clark
September 03, 2009

Betting against the dollar is a popular trade right now. Maybe too popular.

The Daily Sentiment Index, published by Jake Bernstein, recently reported a mere 3% of survey respondents were bullish on the greenback. That's among the lowest reading of the past 20 years.

Not since Zimbabwe printed its first 100 trillion dollar note has a currency been more maligned and despised. And with good reason...

The national debt is approaching $12 trillion. The Treasury is printing greenbacks around the clock, and Federal Reserve Chairman Bernanke has been tossing them to the masses like Mardi Gras beads on Bourbon Street. So it's no wonder sentiment toward the dollar is bearish.

But as we've seen so many times before, when everybody lines up on one side of a trade, the odds favor it going the other way. Consider what happened in July 2008. The dollar index was pounding out new lows, and the Daily Sentiment Index dropped to just 5% bulls. It seemed everyone was bearish on the buck, and they were betting heavily on its demise. Four months later, the dollar index had rallied over 20%.

We're seeing something similar today. Everyone is convinced the dollar is a doomed currency. And they're probably right over the long term. There are a lot of stops on the way to the graveyard, however. And like the monster, Jason, in all those Friday the 13th movies... just when you think he's dead for good, there's another sequel in the making.

Take a look at this chart...

The first circle back in July 2008 highlights the previous bottom in the dollar. The circle in March shows where the dollar peaked.

Today, the dollar index chart is morphing into a bullish rising-wedge formation. If the dollar breaks out of this wedge to the upside, its only near-term resistance is at 81. Above that level, it's smooth sailing all the way back up to 86.

This Popular Trade Is a Comfort Trap

We're About to See a Massive Rally in the Dollar

The best way to make this trade is through the Power Shares U.S. Dollar Index Bullish Fund (UUP). UUP tracks the performance of the U.S. dollar index. So it rallies along with the greenback.

If the dollar behaves like it did the last time everyone was so bearish, UUP could be good for at least a 10%-15% rally from here over the next few months. That'll be a nice way to cushion the blow of a declining stock market.

Best regards and good trading,

Jeff Clark

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•	Gold surges past $970... moving closer and closer to $1,000.
•	Gold stocks enjoy huge spike with gold... big gold stock fund up 7% to reach highest high since early June.
•	No rest for natural gas... more miserable new lows for natural gas funds.
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	Last	Change	52-Wk
S&P 500	994.75	-0.33%	-22.14%
Oil (USO)	35.18	-0.26%	-60.56%
Gold (GLD)	96.19	+2.44%	+21.45%
Silver (SLV)	15.22	+3.12%	+17.62%
U.S. Dollar	77.97	+0.49%	+4.96%
Euro	1.43	+0.87%	-1.01%
VIX	28.90	-0.86%	+31.42%
HUI	383.66	+9.31%	+18.10%
10-Year Yield	3.30%	-0.08	-0.40

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GHL Acquisition	GHQ	acquisitions
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Sepracor	SEPR	pharma
Mosaid Tech	MBTHF	semiconductors
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Golden Star	GSS	gold mining
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Charlotte Russe	CHIC	clothing stores
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Exeter Resource	XRA	gold mining
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Company	Sym	Industry
Rexahn Pharma	RNN	biotech
LogMeIn	LOGM	network services
Phlo	PHCP	wine
Madeco	MADKY	metal fabrication
Integral System	ISYS	business services
APP Pharma	ABII	biotech
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Nobel Learning	NLCI	for-profit ed
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Raser Tech	RZ	industrial equip
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TowneBank	TOWN	bank
Cardinal Health	CAH	health care

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