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. Trade-futures.com 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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