10-18-2010 07:36 AM
I read an analysis that said the dollar was over sold, that a corrective rally was due, and that after the rally the dollar would go on down again.
Now, if the dollar is heading on down again anyway, why do we need a corrective rally? What is corrective about it? It's not going to rebound from being oversold and stay a little higher, as you'd think if it was corrective. It is said to be going up a bit before turning back down.
I think a lot of the verbiage and phraseology used in discussing, describing or explaining commodity markets is voodoo. If you sit and think about the words, they don't make any sense at all.
What, then, is a corrective rally if it doesn't correct anything in the long term? Does the patient have to get better before getting sicker? Does the person who is wrong get a chance to "correct" their position before the trend continues?
What is a "correction""
(No, I don't have a position that matters, I'm just struck by how silly some of our analysis is)
10-18-2010 10:04 PM
Correct me if I'm wrong, but, isn't an oversold position a condition where more people are in a "short" position than those who are long in the market? Then, yeah, a corrective rally implies that shorts must eventually get back in the market to buy back, thus creating a corrective rally. Makes sense to me, but still, the way you describe it also makes logical sense.
10-18-2010 11:20 PM
Corrections are caused by two things, 1. Profit taking
2. Those have delayed making a purchase of the commodity that prices where dropping seeing the prices starting to rise and wanting to get that commodity bought while it is still cheap. For example, say an exporter of some goods to Europe was paid in Euros, he has to convert it to US dollars. While the dollar is dropping he may wait to make the conversion until he gets nervous or sees the dollar tick up. He does not want to lose his additional profit and makes the conversion. On the other hand sellers see the uptick and hold off selling. It is the normal flows of the markets.