Wednesday, September 22, 2010

9/22 pre-open

SP came close to breaking the important 30-minute, 92 unit M/A.  A break would be a 30-minute close .5% below this M/A.  Currently it would require a 30-minute close below 1129.50.  This is a trend change warning and, along with declining I1 and -14 Daily Technical Composite, is all I would ordinarily need to step in and increase shorts.  However, I stepped in and increased SDS from 15% to 27% yesterday on the Fed announcement.  This is a full position for me.  I still have room for increasing my futures' exposure.  Looking at the chart below the blue line is the 30-minute M/A adjusted for the hourly chart presentation.  I want to see the 125-hour (yellow line) below broken by 2 points before I increase my exposure any more.  This would also break the trendline coming up on 1128.
I've gotten questions concerning the dollar and thought I'd re-post something I put out on 8/6, updated the charts:

Dollar and Gold

The US dollar and gold live hybrid lives. One life is lived as a commodity that has a supply/demand cycle and normal sentiment behaviors (responding to trade fundamentals and risk appetite/avoidance). Another life is lived as a refuge in times of stress. This explains why the dollar inverts the world stock markets. Regardless of where you stand on the issue of systematic depreciation of the value of the dollar, there are many countries out there with more reckless policies that reflect the socialist attitude de jur. So,  risk avoidance will flock to the dollar and risk appetite will scorn it.

Gold operates inversely with the dollar. Gold is not primarily an inflation hedge. Inflation has been non-existent as the deleveraging of the world has progressed, yet gold has risen smartly since 2007, when the deleveraging kicked off. Gold is a risk asset when the world is in financial trouble. So, then the financial system is overleveraged and risk attitude is rising then gold rises. When the financial system is unleveraged (relatively speaking) gold goes nowhere, even if risk appetite is on the rise.

Both the dollar and gold have a relationship with the stock market, which is the ultimate risk machine. Risk appetite drives up stocks and risk avoidance drives them down. Even though the correlation at this time is strong, it is not perfect. Focusing on the risk machine (the stock market) means you are working on the dog, not the tail.

The dollar index has it's own life apart from the stock market. I have worked out a sentiment index for it that correlates rather well. It's indication is for a decline into November. This is contrary to what I would expect, in that the dollar should rally in the presence of a severe stock market decline. Bottom line: Currencies are not something that I want to trade during the upcoming stock market decline. The sentiment forward gauge is surprisingly negative.

Gold and silver are on a buy signal according to the PM1 sentiment gauge until November. The anticipated stock market decline will put a dent in the buy signal, so don't expect the peak to occur on time. If gold does not collapse by November then I'll want to short it.


  1. Arch Crawford says "SEP 22-23 = Fall Equinox –Five planets in Water signs.–PANIC! Emotions run high. Full Moon at Zero Aries re-ignites the Cardinal Climax!"

    I hope he is right because so far none of the stars have helped us out.

  2. Chart: SI
    Silver futures appear to be backtesting a Rising Wedge from which it has fallen. Perhaps the precious metals will see some profit taking at these elevated levels.