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September 13, 2009

Dollar Intervention

It's going to be a late and brief weekend post. Nothing has changed as far as the game plan, but I'd like to share a few thoughts. Obviously, the dollar is still front-and-center for triggering my next moves. I am expecting the 5th wave of the decline off the March high to complete... perhaps dramatically... in coming days. Afterward, a consolidative rally should unfold over a 6 to 10-week period. I expect the counter-trend rally to be weak, probably carrying the DX back to its 200DMA before it starts another impulsive move lower.

I expect the stock market to run into enough trouble to at least scare the bejeebies out of the burgeoning hoards of bulls. Precious metals will likely hold up well, moving sideways at worst. After the DX tags its 200DMA, it will roll over into its next impulsive move lower, and this phase will find the sharpest and swiftest profits for precious metals bulls. Depending on what type of news serves as the catalyst for the buck's next freefall, stocks may rocket higher or continue to languish. Can't say I really care which as long as I get the PM story correct.

Now, there are some who believe the dollar has no bottom in sight at this point. Perhaps the action will prove them correct. I will not claim to have any special insight... I am just writing it as I see it. However, my case has one major factor in its favor: politics. Governments of developed economies simply cannot tolerate a rapid devaluation of their currency. If the decline accelerates as some believe, our politicians are almost certain to intervene. Whether or not the intervention works and how long it works is unknowable, but they are almost sure to try. Perhaps their efforts are what kicks off the counter-trend wave. Who knows?

As for stocks, one would be wise to let the action in the dollar lead the way. Technicals are not working well, and I believe that goes for bullish readings as well as bearish. This market could roll over any day, especially if our miscreant leaders try a dollar intervention. They may believe they have some capital to burn after a 60% rally.

Well, that's my four bits. On to a new week...


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