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January 30, 2010

Waiting Game

My rear is sore from having kicked myself repeatedly over the last week. One of the most irritating experiences a trader can suffer is failing to take advantage of a market that does exactly what he expects. In my last post of 2009, I warned that the dollar was due for a quick test of the 76.5 pivot, that this test would juice precious metals enough to draw in impatient gold bugs, and finally that the dollar would then embark on the last leg of its counter-trend rally, bringing pain to both equity and precious metals bulls. Sound familiar?

us dollar index graph

gold daily chart

s&p 500 chart

Guess who fell into the trap, anyway? The good news is that if things continue to play out as expected, we will see the dollar roll over any day now, giving way to an incredible rally in precious metals and miners. The rally should start as soon as the DX prints a swing high. Since the dollar index has already eclipsed its 200DMA, we are now staring at the long-term pivot at 80 as the best contender for the turning point. Perhaps there will be some minor overthrow just to draw enough traders onto the wrong side of the trade.

So right now, it's pretty much a waiting game for us precious metals bulls. The only additional play I might take is to buy more silver futures if we see a big hit one morning. Multi-percent morning drops followed by a recovery by early afternnon tend to occur at the ends of silver corrections, though they more frequently terminate what Gary calls the "D" wave than in the middle of a "C" wave. In any case, the plan would be to buy a sharp morning drop and sell if price does not recover strongly. If price does reverse, I would hold the position with a stop near the day's low.

See you during the week....


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