What are we afraid of now?

For 3 days the Dow has powered to new highs while our market has headed south. Today we found out why. We are now afraid of a strong Aussie dollar. To quote Southern Cross Equities director Charlie Aitken "the strong A$ has significantly increased the risk of currency-related downgrades for industrials with high foreign earnings," Aitken said. "It's also outpacing commodity prices which is negative for our listed resource stocks." So because some company contracts are priced in US$ and the 'American peso' is getting weaker, the earnings of Aussie companies are also getting weaker when measured in Aussie dollars. Charlie says some of these companies will have to issue profit downgrades if the Aussie dollar keeps strenthening. Hmmm sounds like a fad to me - you know, something that's popular today but irrelevant tomorrow. However, if enough market participants believe something, well it will probably come to pass. So what to do? Well first thing is to forget about the news, its always late anyway and usually selective. I am focusing on the chart. The Elliot Wave picture continues to point to new highs, but if last week's low of 4869 on the All Ords is taken out, we can forget about new highs in the short term. It came perilously close to being breached today but did not. If the market does fall below 4869, I will personally look at taking out insurance against further declines as at that point the Elliot Wave picture will weaken and the XAO Indicator will probably turn red. A good indicator to watch is the stochastic (5,3,3). If the raw stochastic falls below 40, it is good reason to get a little nervous. The chart below shows just how close we are.