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September 24, 2009

'Nuf Said

I'm going ot go out on a limb and say we have our confirmation that the dollar has entered its counter-trend rally. We should now see equities put in a correction severe enough to make people believe that new lows are forthcoming on the major indexes. Maybe new lows will be found. I don't have a read on such things at this juncture. However, some form of short may be prudent here, especially for books such as the Docfolio which are still laden with mining shares.

dollar chart

Although precious metals were hit hard today, I do not expect them to suffer the same sort of liquidation equities will see. As the DX works its way up to its 200DMA, stocks should underperform. I anticipate PM charts will look choppy, forming sideway action with a downside bias. Equities, however, will suffer a sharp decline. I don't have targets for either... I'm just keeping an eye on the buck for my sign to reverse positions. When this counter-trend rally is over, you will find me more heavily long precious metals than I have ever been.

There are a couple of problems with my view that equities will suffer severe selling. First, the spyders were the beneficary of a massive $632M of buying-on-weakness during today's session. Second, volume failed to accelerate with today's decline.

s&p 500 chart

So, we still await confirmation from equities. However, we all know that oil is highly correlated with the S&P 500, and the slick stuff posted a crude performance today:

crude oil chart

If global economic activity is weak enough to drag down oil in spite of coordinated printing of every fiat currency on the planet, then stocks probably won't retain a foothold either. There was a question in the comments section about downside targets. I don't really have specific targets... I don't like to use them because they bias my judgement when conditions change... but if the correction is for real, I'd expect the minimum decline to back-test SPX 950. I have absolutely no idea where gold and silver will go, and I don't care. I lightened up yesterday, and my plan remains firm: load up when the DX reaches its 200DMA.


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