One more thrust and the dollar will record its best rally of the year. We can’t tell you why the buck has strengthened, at least not yet, but our hunch is that it will prove to be just another correction in a bear market now almost six years old. In the meantime, the rally is having a commensurate impact on bullion, and on the price of crude, which has fallen below $90 after flirting with the $100 threshold for a few days around Thanksgiving.

How strong is the rally?  At yesterday’s peak, the Dollar Index (DXY) had gained 2.75% relative to the record low at 74.48 recorded nearly two weeks ago. The recovery high so far has been 76.17, but if DXY can make it to 77.29, that would surpass the 3.75% rally that ended back in February.

Warning Went Out

Rick’s Picks subscribers received a timely warning just before the dollar turned. Here’s the tout that went out on November 6, a few hours before the bottom was in:  

“Even though I dissed the dollar in today's commentary, there's still a glimmer of hope for bulls (assuming any are left) in the form of a Hidden Pivot support not far below. It lies at exactly 74.43, and its provenance is shown in the accompanying chart. [See below.]  I'll skip the drum roll and trading advice in this instance, since I want to focus attention on the level rather than the number. The pattern that produced the target is one that I feel quite confident about, and although it may not engender a major bottom, it has the potential to put in a floor for the intermediate term. Also, although the pivot may not work as precisely as the ones we like to trade, my gut feeling is that it will be pretty close. It lies exactly 0.65 points beneath yesterday's record low.”

As it happened, the actual bottom at 74.48 was just 0.05 points from the predicted low at 74.43. Our target was a Hidden Pivot midpoint, which is where important trend changes are first likely to be signaled. ABCD downtrends tend to reach their ‘D’ targets if they are going to continue, but only their midpoints if not. Confirmation of a bullish trend change comes when the bounce from a midpoint creates an “impulse leg” on the lesser intraday charts by surpassing two prior peaks without a pause. This the Dollar Index did three days after the low, giving us reason to issue a cautionary note on bullion to our many gold-bug subscribers.

So far, precious-metal quotes have held up fairly well. But that could change if the dollar’s upward trajectory accelerates. There were signs that this was occurring near the end of Wednesday session, when the Dollar Index pushed past a 76.33 resistance and stayed above it after the final bell.  There is one more such resistance not far above, and its resilience will either corroborate or refute the suspicion that the DXY’s bear rally is just getting started. For specific details, see Rick’s Picks touts for Thursday.