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September 10, 2008

The World According to Plan

As expected, equities coasted into consolidative mode over today's session, and as all my short-term indicators drifted into overbought territory, which occurred as the SPX was up about a percent, I bumped up my short exposure. Since stocks sank into the close, I've got a little cushion to comfort me overnight. There is really not much else to say except that I saw nothing to dispel the notion that we are in the midst of another major bear leg. With the GSE bailout rally in failure mode, I suspect the indices will ride fear into a bearish finale for the week. The present lack of bearish sentiment supports the idea, but we'll just have to watch carefully.

Commodities, on the other hand, have given us a clue. Precious metals sank heavily once again, but against this backdrop, GDX posted a 3.5% gain.

stock chart

This relative strength could be a hint that a near-term bottom is forming for the sector. We lacked only a retreat by oil to $100 to complete the formula for jumping into a long play on commodities. I did take a timid stab at silver as it approached $11 with the thought the August 07 low may hold, but when it became apparent it would not, I bailed. The next support level for silver is $10.50, so if the metal can test that price in conjunction with $100 oil, I will get long. The dollar index is sitting right up against the historically important pivot point of 80, so the timing works all around.

dollar chart

Perhaps we'll see a quick head fake move above 80 before the dollar embarks on its first serious consolidation. This head fake could conceivable coincide with a final dip of commodity prices and provide an excellent entry point. Of course, I'm only hypothesizing here, but it certainly does not hurt to have contingency plans.

During the trading day, I frequently make observations that are blog worthy, but not significant enough to dedicate a post. I will begin noting such observations in the comments section below the most recent post. Perhaps doing so will not only be helpful to myself and readers, but with any luck, it will also jumpstart public dialogue, which can frequently be more useful to readers than the posts themselves.

 

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