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October 18, 2009

Buck, the Trend

The markets have been providing a lot of noise in recent weeks, but the plan for this autumn continues to be the hunt for a countertrend rally in the dollar. The idea is not to trade the countertrend move, but to try to spot its end so as to position for the after effects: another primary bear wave in the DX and and explosive rally in precious metals and mining stocks. At the moment, the buck is giving little indication that a countertrend move is about to begin.

dollar chart

So a panic sell to a lower pivot remains viable. The situation may change any day, but since I am taking the stance of an observer until something more definitive develops, the timing of the swings does not concern me. The sole caveat here is that if the DX does suffer a panic sell to a lower pivot, I may take advantage of any spike in mining shares to sell near-term calls against a portion of my GDX position. At that point, I would expect a countertrend rally to be imminent, and even if the trade began against me, time would work in my favor.

There are other indications that we may see the DX begin higher without a panic. First, the SPX posted a swing high:

s&p 500 daily chart

Many major world markets are sporting swing highs with ugly candlesticks, as well. I'm going to be lazy and not post the charts, but I would like to highlight one market in particular. China.

chinese stock market

I suspect China will lead the globe out of its funk... a few years down the road, mind you... and so its stock market is an important indicator. Another break lower here is going to be a troublesome sign.

And the BKX has posted another failed attempt to hold an important pivot:

bank stock index

All this hypothecation centers around trading gold and silver. For the time being, we take our guesses at what will unfold, but wait until the market betrays its hand to make the big moves.


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