11/14 - Inflection point for risk appetite

With all the media focus attributing strength in the stock market to weakness in the US Dollar, I believe this correlation is being misrepresented and is often misunderstood. In fact, I believe the exact opposite, that the exuberance seen in equity prices (coupled with the record high price of Gold) is driving the DXY (Dollar Index) lower. It was the stock market (the financial stocks such as Lehman Brothers to be more specific) that initially created market panic and risk aversion world-wide. The Greenback was merely a bi-standard and rallied as a result of the reduction of risk-taking. Since March, however, it has been a different story, while stock markets and risk appetite have recovered, the Buck has reverted back to weakness. And since early September, the point when Gold broke-out of a long-term trend of consolidation, the DXY has continued it's persistent downtrend. While the fundamental outlook remains grim for dollar bulls, there are several "technical" signs that the current trend may be nearing an inflection point. In late February, I noted that there were signs that the on-going trend of dollar strength & equity weakness were showing signs of abating. I used factors such as the stock price in relation to their 200-day MA's, formation of topping & bottoming patterns in various markets and Elliot wave counts for the basis of my argument. It was only a few weeks later in March that the market began to turn. Well, I am seeing similar "technical" indications now, but of course in a different way. First off, Gold, which is now becoming extremely overbought according to weekly & daily charts, is now in the process of completing a "5 of a 5". This Elliot wave term means that Gold is nearing the completion of the fifth wave of a larger 5-wave move, suggesting that a substantial correction is possible. In addition to stock indices being almost 20% (18% to be exact) above their 200-day MA, volume has been characteristically weak and leadership of the financial stocks has shifted as of late. The Dow Jones Industrial Average is bumping up against bull channel resistance at a key juncture (10340 - a major 50% retracement). The S&P 500 has only marginally breached its October high and is in jeopardy of resembling a possible double top pattern. And the NASDAQ is possibly forming the right shoulder of a head & shoulders top. All 3 indices are demonstrating possible daily bearish RSI & MACD divergence. While, I am not inferring for one to sell their entire stock portfolio, I am simply insisting that the market is due for some sort of consolidation or correction, and that the backdrop maybe shifting beneficially for the US Dollar. One of my core recommendations include buying the USD/CAD when the so called "risk trade" has gone too far.