Trader’s Narrative

Earlier in this month’s sentiment overview, I mentioned a lesser known sentiment indicator called the “Daily Sentiment Index” (DSI). It is compiled and disseminated by Jake Bernstein’s firm through various “proprietary data collection methods” which include internet, telephone and/or email.

Since the objective is to arrive at a contrarian signal, pains are taken to only access retail traders and investors and to avoid professional traders. Also according to Bernstein, they do their best to survey the same base as much as possible. The resulting data is available daily on major global indices and commodities without lag by 4pm the same day. Overall, it has proven itself to be a very good contrarian measure.

Here is a recent chart of the US Dollar index along with its DSI:

Similar to other, more well known sentiment indicators (such as the AAII weekly sentiment survey), a simple question is asked: are you bullish, bearish or have no opinion. But unlike the AAII survey, the DSI is a considered ‘a proprietary indicator’ and there is no detailed disclosure of its exact nature or methodology. While you might think this opacity would make people reluctant to rely on it, the DSI has a large and loyal following, especially among the institutional crowd who don’t balk at paying almost $2,000 a year for a subscription. You can get more information on the DSI at Bernstein’s website.

For some perspective, here’s a very long term chart of the US Dollar Index with the two extreme lows in sentiment:
Continue reading ‘US Dollar Sentiment: Contrarian Bullish’

This video features Elliott Wave International Senior Currency Analyst, Jim Martens, using Elliott wave analysis to forecast the U.S. dollar’s near-term moves.

Now through May 20, you can access all of Elliott Wave International’s intraday and end-of-day Forex forecasts completely free. Access EWI’s FreeWeek.

About the Publisher, Elliott Wave International Founded in 1979 by Robert R. Prechter Jr., Elliott Wave International (EWI) is the world’s largest market forecasting firm. Its staff of full-time analysts provides 24-hour-a-day market analysis to institutional and private investors around the world.

To contrast the video’s short term view, the chart below shows a very long term view of the US Dollar Index. The green/red line is the US Dollar support line going back to the early 1990’s. When this important level broke, I suggested that we could see it play out as a bear trap, similar to what we saw in 1992.

The remarkable thing about this bear market has been the rally in the US dollar, taking the index back above its long term support level. At least for now, it does looks like the important break of 80 was a bear trap (although somewhat of a big one).

To get FREE forex analysis like the above video, sign up for EWI’s limited time offer (no purchase necessary, just sign up with a valid email).

Today, most financial companies are an endangered species. But other brokers and investment banks may be struggling and getting government bailout money to spend on bonuses, Interactive Brokers (IBKR) goes from strength to strength.

They recently reported earnings for 2008 and for the first time they broke the billion dollar mark for income (before taxes and minority interests). When you consider this was done on revenues of only $1.85 billion, you get an idea of how tight a ship they run.

I’ve mentioned before that they are one of my favorite brokers and arguably the best broker out there for the non-proprietary trader. As a customer, it’s good to know that your broker is on solid financial footing - one less thing to worry about.

If you trade with them you soon get to love their SMART routing which gets you better prices at surprising frequency. Based on independent analysis by the Transaction Auditing Group, IB’s SMART routing beats the competition. You can get the full details here.

As well, they are continuing to roll out new products and expand their already impressive market reach:

• Korean Kospi 200 Futures and Index Options (for US resident customers) soon
• National Stock Exchange of India (NSE) equity - initially to residents of India but eventually to others
• …to be then followed by NSE index futures trading
• addition of American Century no-load mutual funds

You could argue that IB is becoming a quasi-prime broker. They are a one stop shop for equities, derivatives (options, as well as futures) in more than a dozen international stock markets. And they have forex to boot. Add to that mutual funds marketplace they implemented in recent years and you’ve got a top-notch brokerage firm.

But that doesn’t mean they are the perfect fit for you. I think they are definitely worth a look if you are an active trader or have a large portfolio. But you should do your own due diligence to find a broker that you’re happy with.

Here’s a chart of Interactive Broker’s (IBKR) stock price since their IPO:

As you can see from the chart, fundamentals count… but not really

No question, this was a financial shock that leaves everyone grasping for superlatives. But as measured by the TED spread and other financial health metrics, it is all but over:

Unlike the CBOE VIX volatility index which reached record territory, this spread has been higher actually. I’ll scrounge up a very long term chart. But the important thing is that the TED spread has now come down so much that even if it blips up, it has put in a lower low. So while we may see an uptick or two since nothing every goes up or down in a straight line, the chart suggests that things have calmed down.

But what the shock has resulted in is just getting underway. A complete re-ordering of the financial landscape: RIP the carry trade. Now watch as the currency markets drive the equity markets. They are after all a zillion times larger.

Can you tell which chart is the S&P 500 and which the Euro Yen cross?

A dozen spoos points and a slightly singed Swingline stapler to the first lucky guesser.