I saw this comment from a long absent sloper this morning & thought it deserved a wider audience:
I haven't posted in SOH since 2009, but I sense a sea change in the market trands and when its time to short, this is the best site bar none, so I'm back.
Here's my take regarding the Whipsaw, and a low risk way to get positioned near the beginning of a trend that will likely last close to a year.
Its becoming more apparent that, there is an imminent and significant trend change underway. The reversal of this trend will change the direction of virtually every asset class, and will provide a multi-month opportunity for profit by entering near the pivot. Over the past two years, a majority of asset classes have been influenced by a weakening US dollar.
Currently, the dollar is trying to put in a bottom. Sentiment has reached negative extremes that mark multi-year bottoms, and the commodity complex and stocks are showing signs of topping with sentiment having become extremely positive and price volatility increasing. When the dollar puts in a bottom, the unwinding of the weak dollar trade will take several months, lasting until sentiment reaches the opposite extreme of overwhelming favoritism toward the dollar, which will likely be the point at which the dollar begins to once again roll over.
With this trend reversal, assets that have risen for the past two years will fall..
-Commodities (oil, precious metals, and agriculture)
-Stock sectors (energy, real estate, financials, tech, retail)
Here is a low risk tactic for getting in on this trend early. The dollar has recently bounced at 72.69. That currently marks a potential bottom. When the dollar has its next correction, if it manages to stay above the 72.69 pivot, and reverses upward through its peak prior to correcting, positions should be bought that favor a strong dollar.
Short commodities (oil, precious metals, and agriculture), stocks sectors (energy, real estate, financials, tech, retail) and the Euro.
To manage risk, position size should be determined by setting a stop 1% below the 72.69 level on the dollar (71.97), and calculating how large a position can be taken such that one’s loss if the trade goes against them is within one’s risk tolerance.
For example: With a total hypothetical account size of 100k, I might be willing to risk 2% of my account to open this trade. Thus, if I buy DUG at 32.00 (appx where it will be if the dollar breaks through its peak pivot), and set a stop at 25.00, (appx where DUG would be with the dollar at 71.95), I could open an initial position of 300 shares. 300 x 7.00 would give me a loss of 2100 or 2.1 percent of my account if the stop is hit. If the strong dollar trend continues, positions will be added when the dollar has corrections, and when it reverses higher after becoming oversold. New stops will be set below bottoming points. The reward to risk ratio is highly favorable if one waits for this setup.
An even more compelling oppty awaits when Silver and Gold reach their bottoming points, which is why I'm only willing to risk a small percentage of my portfolio. I want to preserve capital for that time, but I believe getting into a strong dollar trend offer the potential for substantial gains in the meantime.