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The bounce in stocks over the last week has mirrored the
bounce in Oil. Indeed, both assets bottomed to the day: January 29th.
With that in mind, it’s worth looking at Oil’s chart.
From July 2014, until last week Oil has lost nearly
60%. Those who are betting on a significant rebound should consider
that we have yet to break above even the first real line of resistance at
$55.
The real story for Oil is not Saudi Arabia, Oil shale or
anything along those lines (they matter, but they're not the most critical
item). The real story concerns the US Dollar rally that began in July 2014:
the exact moment when Oil began to collapse.
The below chart shows the price of Oil against an
inverted chart of the US Dollar (meaning, when the Dollar rallies, the blue
line falls). Note how closely the US Dollar’s rally mirrors the plunge in
Oil.
Now, consider the US Dollar’s chart. Not the 1-year
chart, but the LONG-TERM chart.
You are looking at the single largest falling wedge
pattern in modern financial history. The move started in July 2014, broke
this pattern. So while we may get a brief correction here (the
reason for Oil and Stocks bouncing the last few days), we are truly only just
getting started here: the above chart predicts the US Dollar moving to 120 on
the next move.
A move like this would demolish stocks. During the last
two US Dollar bull markets, stocks fell 30%. This, incidentally, is
roughly how stretched stocks are from the long-term trendline of this latest
bull market.
In plain terms, the point is not to focus on how stocks
bounced the last few days, but how susceptible they are to a very serious
collapse occurring when the US Dollar begins its next leg up. Everyone knows
stocks are in a bubble. What they don’t realize is that it is the US Dollar
that will burst it.
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