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September 27, 2009

Interesting Juncture

By now I'm sure you all are quite familiar with my views regarding a dollar counter-trend rally and how it pertains to various markets. The action this past week certainly swung probabilities in favor of this outlook. However, there are still a few lines that need to be crossed in order to boost the odds to a point where I'm willing to make larger commitments to the idea. Let's begin with a view of the dollar:

dollar index

The case for a counter-trend rally will be much firmer if the buck can start taking out minor resistance levels like 77 and the pivot just above. Until then, the risk of seeing the swing low reversed is too great for me to risk cash betting on an intermediate dollar rally.

s7P 500 weekly chart

A swing high on the weekly chart would bolster our case, but there is a much more important level just below: the 75-week moving average. Until that MA is lost, we could just be looking at a back-test.

s&p 500 chart

If the near-term trend line is busted, the odds will increase greatly that price will retrace to a previous pivot. SPX 950 is the closest pivot of any meaning.

There are a couple of lines that have already been crossed. Oil, as pointed out in Thursday's post, has already broken down. I suspect price will make a trip to the 175WMA in the near future, and such action could help escort the SPX across the lines mentioned above. We also have a weekly swing high in gold, and so the market's efforts to shake off the plethora of bulls on the gold bandwagon continue.

gold prices

Silver, being a thinner market, does not conform to technical analysis as nicely as gold, so I will be using the dollar and gold charts to time my re-entry into a leveraged silver position.

By no means do I expected the buck to post the type of upside action we saw last fall. We should simply see a counter-trend move to the primary direction: down. The buck should form a very choppy A-B-C move up to its 200DMA and then begin another impulsive move lower. It would not be surprising to the precious metals set their lows for the move early in the cycle and then chop sideways until the dollar is ready to plunge again. Mining shares may be hit a little harder if the general stock market posts a serious correction, and for this reason I have re-hedged with a small equity index short. If our lines are crossed, I may short for a short trade rather than simply a hedge.

It is an interesting juncture, and the first couple of days this week should help define things.


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