Weak Dollar Wednesday – Markets Propped Up in Grand Illusion


I wish I could get enthusiastic about the rally but the volume on the SPY yesterday was just 51.5M vs the already low 90M 3-month average, so not even 60% of a normal day AND the Dollar collapsed from 95.80 to 94.80 so that's down 1% in the thing our stocks are priced in which means the stocks have to gain 1% just to be even.  

I know a lot of people don't really get this concept so let's look at it very simply.  Let's say you have a cake recipe that has to be EXACT to work and it calls for 100 teaspoons of sugar and you measure it out and make your cake.  Simple, right?  Now, let's say you have some sort of metric teaspoon that you know for a fact is 1% smaller than a regular teaspoon – now how many teaspoons do you put in?  101, right?  

Well, if I have a stock that was $100 yesterday and today each of those Dollars has lost 1% of their value – then I want $101 for my stock, don't I?  That's because, ultimately, it's not the Dollar I want per se but the buying power of that Dollar – the things I can turn around and exchange it for.  If the Dollar loses value, then it will take more of them to make me happy.  

So, yesterday, when I said 4,800 would not hold on the Nasdaq, the Dollar was 1% higher so today, with the Dollar 1% lower, I need to see 4,848 because, frankly, the 0.625% move to 4,830, though impressive looking, was actually a 0.375% loss in a steady-money basis.  This is another HUGE flaw in TA, because it doesn't take into account currency fluctuation.  

Image result for little rascals cake baking animated gifThat's like you baking cakes and not worrying about whether you are using a teaspoon or a tablespoon to measure things with – you'll end up with something – but it won't be the cake you expected unless you LUCKILY happened to use the right spoons at the right time – giving you the very dangerous impression that your "system" works.  

So, with that in mind, we are still

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