The Dollar is set for a large decline, here's why

In our “2006 Investment Roadmap” (see below) we tried to repeatedly emphasize the importance of the Euro 1.235 level that gave way since last week’s column. The GBP, Swiss Franc, and CAD have also broken out versus the dollar and the dollar has broken down at below the 88 level of a weekly head and shoulders top pattern that looks setup to ultimately reverse the entire dollar bull market of 2005. As indicated in our Roadmap, this is a landmark event that changes the environment of the financial markets significantly. Investors who can hedge against dollar declines should do so. Even those who don’t have hedging accounts should consider margined hedges in FXE, the ETF for the Euro.

Just a few trading days after the critical breakout in the Euro and breakdown in the dollar, Bernanke looks to be giving his nod to a dollar decline by suggesting in the strongest language yet, that the Fed is likely to be close to the end of its tightening cycle. Investors should look for more wild moves in commodities, a new bear leg in dollar, more market volatility, and fasten your seatbelts.



Last week the metals blew-off but the lows held in all but silver and with the dollar breakdown, their strength is impressive. New highs by base metals in particular will show remarkable resilience. The markets feel more and more like the wild seventies than I could have imagined.



While this is a wild ride party for those on board the right trends, investors need to keep their feet on the ground. No one should NOT be troubled by the persistent decline in bonds – it is musical chairs time in the markets and investors should keep margin levels low and expect for some chairs to eventually go missing so that risk should be lower than normal here.



I continue to suspect strongly that the period directly ahead is one where it may be ABSOLUTELY CRITICAL for investors to have a solid grasp and understanding of the Big Picture Macro background of global markets, the top secular themes, and the huge vulnerabilities of this environment. A potential MAJOR SHOCK to the markets is brewing and those unaware could easily be sideswiped. That is why I wrote the “2006 Investment Roadmap” which is my best effort at thoroughly explaining the global macro picture and its precarious state as well as what to watch closely to monitor how massive risks are developing.



Our US selection methods, our Top RS/EPS New Highs list published on TradingMarkets.com, had readings of 137, 123, 66, 68 and 80 with 18 breakouts of 4+ week ranges, no valid trades meeting criteria, and no close call. This week, our bottom RS/EPS New Lows recorded readings of 11, 7, 11, 14 and 9 with 6 breakdowns of 4+ week ranges, no valid trades and no close calls. The “model” portfolio of trades meeting criteria is now long (USG | Quote | Chart | News | PowerRating) (use this weeks low to 50 day ma as ops area if not stopped out already), (GG | Quote | Chart | News | PowerRating) (use support around 30 level as trailing stop and re-enter if partial profits taken), (TS | Quote | Chart | News | PowerRating) (this week’s lows look important to hold), (MTU | Quote | Chart | News | PowerRating), and (WIRE | Quote | Chart | News | PowerRating) (here too this week’s lows look critical)– with new highs this week in WIRE, GG and TS. Continue to tighten up trailing stops whenever possible on stocks with open profits and strive to move stops to break-even or better as quickly as possible in new entrants.

In our “2006 Investment Roadmap” we tried to identify how major markets could change and what the impact of those changes could be along with noting what levels to watch in which markets to see those changes developing.

We have now had TWO major changes -- one in bonds, and one in the dollar that has developed since then. The impact of these changes is too long a subject to cover fully here, but we believe it is critical to investors to understand and monitor more closely than ever. A perfect storm may be brewing for certain asset classes.

Mark Boucher has been ranked #1 by Nelson's World's Best Money Managers for his 5-year compounded annual rate of return of 26.6%.

For those not familiar with our long/short strategies, we suggest you review my book The Hedge Fund Edge, my course "The Science of Trading," my video seminar, where I discuss many new techniques, and my latest educational product, the interactive training module. Basically, we have rigorous criteria for potential long stocks that we call "up-fuel," as well as rigorous criteria for potential short stocks that we call "down-fuel."

The “2006 Investment Roadmap” is also my best effort at explaining the top secular themes that every trader should be focused on in their portfolios. A special offer of this exclusive report is available to TradingMarkets.com clients at www.midasresourcegroup.com. So far the groups highlighted in the 2006 Investment Roadmap are exploding in value and appear set to continue to do so.