Interview with a Dollar Bull
By Teresa Bell
I recently sat down with Jay Norris in Chicago to ask him a few questions about the current markets.
Teresa: “Jay I know you’re a dollar bull, so I’m guessing you’re a little underwater right about now?
Jay: “I am, yes. I’m long UUP in a cash account, and I went in with 50%, and I’m kind off wishing I would have layered in now. But that’s life…I am not leveraged though”.
Teresa: “The Dollar has backed down significantly over the past few weeks with the Euro rallying nearly 500 pips. Are you still as dollar bullish and Euro bearish as you were a month ago?”
Jay: “No doubt. Thank you for asking. My primary reason for being long the dollar is I believe this 12 or 13 year-old bull cycle in commodities is done. And just as that led to foreign currency strength and dollar weakness, the flipside will mean U.S. Dollar strength. Now there’s a lot of other interesting things going on which I see as dollar supportive, which of course would be the case given a sea change shift in commodities. The long-term cycle on the chart I’m betting is a reflection of underlying fundamentals”.
Teresa: “You said your long dollar position was not leveraged. Why not?”
Jay: “I was short the Euro and Cad in leveraged accounts but exited on July 10, based on a pretty reliable technical signal, just before Bernanke spoke. My gut told me to stay short, but my method told me to get out. Luckily I chose discipline and the method and just got out”.
Teresa: “Can you elaborate on that?”
Jay: “Sure. For me the pattern on the chart absolutely reflects the underlying fundamentals in a market. If I have a leveraged position on…futures or Forex…I watch it more closely than a cash or stock position. With stocks I’m making decisions off a weekly or even monthly chart. With Forex I’m focusing on a daily chart. But if there’s a big number out (a significant news release) and I have a leveraged position on I’ll use a 4-hour, or even hourly chart. I’m always focusing on the pattern on that chart. If I’m short and the pattern is showing me lower lows and lower highs, that’s great. But if that pattern changes, as it did on the FOMC minutes on July 10, I have to heed that shift because what happens on the chart is a reflection of underlying fundamentals. I may not be smart enough or quick enough to tell when something is changing, but the chart is”.
Teresa: “So what did the chart tell you on July 10th?”
Jay: “I always monitor the last impulse move in a market. You can always tell the last impulse move in a bear market because it will leave a lower low. As long as the market is making new lower lows and not retracing that last impulse move down, and printing lower highs, you stay short. If/when it does retrace that last impulse move down by more than 100%, it’s breaking that pattern of lower highs and you need to protect yourself. On July 10th traders had plenty of time to exit short Euro positions after the Fed minutes but before Bernanke’s speech because the market had broken the pattern of lower highs”.
4-hour Euro Chart from July 10th
Teresa: “So how do you know to go back short – assuming you are still bearish”?
Jay: “I’ll definitely be interested in going short when the current short-term bullish pattern retraces that last impulse up move by oh, say 70% on a two candle closing basis on a 4-hour chart”.
Teresa: “There have been a lot of articles in the financial press about markets having changed to a degree. And we have definitely seen traders here in Chicago and, even the larger money centers like London and New York, not being as successful as they once were. Do you think there has been an underlying shift on how markets move”?
Jay: “No, but I will say secondary moves tend to last longer, and the central bankers have gotten much better at manipulating markets to their advantage…which I don’t see as a bad thing. The more I think about the more I see it as just evolution”.
Teresa: “That’s deep”.
Jay: “Well markets were not designed to collapse, but they were designed to move up and down. And I think it is probably better to have somewhat social minded central bankers moving markets to their advantage, than investment bankers, which is who the biggest players used to be. But secondary market moves which used to play out in a few months are now taking much longer to play out, and market spreads are definitely tighter which actually means markets are more efficient. Because of the tighter spreads the old exchange traders and smaller market makers, who were essentially middle men, have been swept away”.
Teresa: “Do you have any examples of secondary market moves taking longer to develop?”
Jay: “Yes, thank you for asking. Take the Euro. We see the rally from last summer’s low as essentially still a correction of the 2011-2012 sell-off, even though this correction is now a year old. In the old days a year old move was a primary pattern. Today it’s still a correction, a retracement. The Euro basically has retraced 50% of its overall downtrend…it just took it a year to do it”.
Teresa: “Which is why you are still bearish on the Euro and bullish on the dollar?”
Jay: “Yes. I wish I could give you some examples of previous year old corrections, but I really see them as being something new for all of us…if there is anything new in this game”.
Teresa: “I know you like to take time off from the markets every summer. I’ve heard you say in the past that help you. How so?”
Jay: “I love to take time off and get away. Markets are very mesmerizing and we all have a tendency to think we can figure out why it is they do what they do and what they are going to do next. No one is smart enough or has a strong enough crystal ball to predict what will happen tomorrow and even trickier, how will the crowd react to what happens tomorrow. Getting away, and letting life slowdown is a great thing for traders. I think educators had the right idea when they decided to give kids the summer off from school. It works. It makes us better prepared for class come fall. I think it’s the same thing with trading”.
Jay messaged me this past Friday, 8-2-13, that he had taken a small leveraged position short EURUSD, his first short in that market since exiting on 7-10-13.
Teresa Bell is a co-author with Jay Norris on The Secret to Trading: Risk Tolerance threshold Theory
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