Saturday, February 28, 2009

Technical Update 7.09

I covered my outlook on equities already this week in Equities. Buy 'em or Run for the Hills? Friday's action only served to reinforce the divergences I pointed out. Stocks made lower lows on heavy volume, but volatility and option activity failed to produce any signal of fear or panic that would provide a lower-risk entry for longs. I did find it interesting that the close of the day, week and month was so decisive. Typically, monthly bars that close at their highs or lows have a high probability of follow-through in the next bar (although there is often a reversal during that bar). Take a look back at this monthly chart and you can see that quite clearly:

I have a suspicion that we see a wash-out low in the first half of this month. This would coincide quite well with a few of my sources that have been whispering for quite some time now to "beware the ides of March" based on the various time-span indicators they follow.

Elsewhere, I see the US Dollar flirting with it's November highs. Ultimately, I see the Greenback heading much higher. But I would like to see it consolidate a little from here. A multi-week correction back to it's 20 week EMA (blue line) would be ideal. This would allow for the other MAs to "catch-up" and provide a launching pad for a major move higher (major MAs in tight proximity commonly precede big moves).

Copper is paying no mind to the rapidly declining economy. It is still sitting 24% above it's December lows. Is "Dr. Copper" forecasting a little improvement?

Gold and Silver both appear to have finally made their tops and have begun falling. Both experienced overly optimistic treatment from speculators during this recent upleg. reported over 90% bulls for a multi-week period. Similar readings were had at every other major top in the PMs. Gold got unprecedented coverage in the media, even appearing during a SuperBowl ad. I fully believe the long-term gold bull is alive and well, but it needs to take a rest. My target remains between $550-650 at which point I suspect the bull market will be declared "dead." Only then will I buy.

I also expect the gold:silver ratio to continue its trend of expansion. That is, I expect silver to underperform. The ratio could top 100, in my opinion. For disclosure's sake, I am short silver.

I also wanted to remind readers about the dangers involved in the leveraged ETFs. They are trading vehicles only. Those with a longer time-frame should use more conventional, less exotic instruments. The leveraged funds do not necessarily achieve their stated missions over longer periods of time (ie. more than a few weeks). The same thing could be said about err, nevermind...

That's all for now.

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