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November 25, 2009

The Stock Market Is Crashing

The stock market is crashing, though by looking at an SPX chart you would never see it. However, since September the stock market has cratered more than 15% in real terms. Enter, stage left, a chart of the SPX priced in real money... in terms of gold, that is.

spx gold ratio

Anyone who took the long gold/short SPX trade I mentioned last week is sitting pretty, and I expect this trend to continue. In the short term I suspect stocks will take a rapid fall while gold consolidates. After the consolidation period, gold should skyrocket, leaving any gains the SPX may post in the dust. By the time precious metals complete a parabolic move next spring, the SPX/GOLD ratio should be setting new bear market lows.

The timing of all these moves, of course, depends on the dollar (bet you haven't heard that tidbit of wisdom less than four score times recently), and the dollar just can't seem to find a bottom.

us dollar chart

Perhaps the buck will find support as the lower channel line converges with the pivot near 74. Then again, perhaps the buck sells off strongly for 3-4 days (a typical ending move), breaking support and scaring everyone into following it before lashing them with a reversal.

If the selling-on-strength data has anything to say about it... a whopping $675 million on the spyders this Wednesday... then the turn should be almost upon us... probably Monday or Tuesday since Friday's half session is most likely to be manipulated upward.

In any case, remember the temporal approach to trading described in the previous post. The timeline will give us a nice setup in the next month or so to ride one of the most enormous price surges since the end of the tech bubble. All one needs right now is patience and firing power.


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