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January 25, 2010

Mundane Monday

Monday's session was pretty much a non-event as far as our potential scenarios are concerned. The markets just drifted a bit in the wake of last week's volatility. The best takeaway we have for the first session of this week is that the swing high in the buck held. Once this swing high is confirmed with some downside follow-thru, precious metals prices should be off to the races.

dollar index daily chart

As I stated in last week's posts, as long as the action remains in line with expectations, there is no need for concern. One of my primary expectations called for the dollar rally to fail at the 200DMA, so I will be watching very closely for any significant break of this average.

Equities may be hinting at further downside, however. Today's gain did nothing but relieve some of the selling pressure as the S&P 500 posted a narrow-range consolidation contained by Friday's low and the 65DMA.

s&p 500 daily chart

The NRC implies further weakness within a couple of days which, of course, leans counter to our expectations for an imminent slump in the buck. The spyders also suffered some fairly large selling-on-strength today, implying big money expects further weakness.

It is possible for the SPX and the buck to diverge, as was frustratingly apparent last month. However, we should soon see another important clue if our line of thinking is correct. When markets turn higher out of corrections, leading sectors will turn higher ahead of the general market, and the leading sector of the rally out of May is none other than precious metals miners. Since I don't think this correction will last much longer time-wise (because the DX has already tagged its 200DMA), we should see mining shares gain a footing any day now. A healthy multi-percent rally for GDX would certainly play into our hand quite well. Let's see what Turnaround Tuesday can bring.


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