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September 29, 2009

Indeterminate Action

Markets did little to support or dispel either the bullish or bearish cases today. The marginal cross of 77 by the DX is unconvincing. Technical analysis is an inexact science and therefore slicing pennies is a futile practice. We still await a convincing break higher in the buck and a convincing break lower in equities. Until then, seeing a short squeeze in stocks and/or an extended 5th wave move lower in the dollar remains a viable scenario. Given that tomorrow represents not only EOM, but also EOQ, any amount of tape-painting antics could influence action. We will likely have to twiddle our thumbs until Thursday or Friday to get resolution.

My complaint from yesterday regarding the failure of mining shares to bounce out of oversold conditions was negated today. Nearly every mining share I own was up multiple percents. Although volume was paltry, we have to respect the possibility that the miners may be leading the metals higher. The fact that gold and silver have held their own while the dollar has edged higher also supports the case for impending strength. Even so, I'm not ready to re-apply leverage to the Docfolio simply because I also have to respect the continued possibility for the development of a counter-trend move in the buck.

I'm also keeping an eye on oil for clues to which scenario is going to win.

oil chart

Oil is highly correlated with the SPX, and so its action is an important tell. Given that price has lost a support level, the Baltic Dry Index has been declining for nearly 4 months, and the clowns on CNBC were today calling oil a "buy" because it is down 9%, I'd say bets that it will continue lower carry better than even odds.

Unless something more material develops during tomorrow's session, I will likely wait until Thursday for the next post. Until then...

 

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