I’ve been a follower of Robert Prechter and since I stumbled on his work on Elliot Wave Theory in the 90’s. His calls have been a little late but his predictions have been consistently accurate for some years now. I’ve read most of his books and recommend them. I subscribe to several of his publications. In the interest of full disclosure, if you buy something from him, he pays me enough to buy a beer and a burger.
This article is based on Precter’s consistently contrarian investment theory.
Death of the Dollar, Again: Before You Mourn, See This Chart
October 9, 2009
The following article is based on analysis from Robert Prechter’s Elliott Wave Theorist. For more insights
from Robert Prechter, download the 75-page eBook Independent Investor eBook. It’s a compilation of some of the New
York Times bestselling author’s writings that challenge conventional financial market assumptions. Visit
Elliott Wave International to download the eBook, free.
By Nico Isaac
If you want the latest news on the U.S. Dollar Index, try a search under its new ticker symbol, RIP. —
as in, “rest in peace.” Let the record show: In the early morning hours of Tuesday, October 6, the mainstream
financial community officially declared “The Demise of the Dollar” (The Independent).
The “coroner’s report” cites these details as the causes of death:
- An alleged (and later denied) secret meeting
among leaders of certain Arab States, China, Russia, and France which aimed for the immediate discontinuation
of oil trading in U.S. dollars.
- And, an open statement from one senior United Nations official that proposed
the dollar be replaced as the world’s reserve currency.
In the words of a recent Washington Post story: “The
growing international chorus wants the dollar replaced… a move that would end the greenback’s six-decades
of global dominance.”
And with that, the line between negative sentiment — AND — “EXTREME” negative
sentiment was crossed. It occurs when the beliefs about a market lean so far over in one direction, that
the boat investors are sitting in is about to tip over… Just like the last time.
Case in point: Spring 2008.
The U.S. dollar stood at an all-time record low against the euro after plunging more than 40% in value.
And, according to the usual experts, the greenback was “dead”-set to
meet its maker. On this, these news items from early 2008 say plenty:
- “The dollar is a terribly flawed currency and its days are numbered.” (Wall Street
- “It’s basically the end of a 60-year period of continuing credit expansion based on the dollar as the world’s
reserve currency.” (George Soros at the World Economic Forum)
- “Greenback is losing Global Appeal… the ‘Almighty’ Dollar is Gone.” (Associated Press)
YET — from its March 2008 bottom, the U.S. dollar came back to life with a vengeance, soaring in a one-year long winning
streak to multi-year highs. In the most current Elliott Wave Theorist (published September 15, 2009), Bob Prechter
presents the following close-up of the Dollar Index since that trend-turning bottom. (some Elliott wave
labels have been removed for this publication)
At a measly 6%
bulls, the bearish dollar boat tipped over. The situation today is even more remarkable: The percentage
of bulls is lower, at 3-4%, while the dollar’s value is higher than the March 2008 level.
It’s crucial to understand that markets don’t necessarily respond to sentiment extremes immediately. But,
such extremes do indicate exhaustion of the trend — which is usually the opposite of what the mainstream expects.
Robert Prechter, Chartered Market Technician, is the world’s foremost expert on and proponent of the deflationary
scenario. Prechter is the founder and CEO of Elliott Wave International, author of Wall Street best-sellers
Conquer the Crash and Elliott Wave Principle and
editor of The Elliott Wave Theorist monthly
market letter since 1979.