Waiting on the G20?

Click on Chart to Enlarge

This chart here shows the VIX on the top and the NYSE down volume in the main pane. Both typically move inversely to stock prices. It is interesting to note that divergence appears at turning points in this chart. Even though volatility is languishing and the market is holding up or advancing, the down volume is starting to pick up. This likely indicates the early phase of selling into the highs by institutional players.

As a side note, the price range in the equity markets (and some others) was tiny today. It seems that the markets are awaiting something from the G20 meeting as far as currency policies go. Let me make it clear that the sentiment stage is set for a huge move up in the US Dollar relative to other currencies. So my assumption is that this will occur and use whatever spark necessary. I expect the US dollar to take off to the upside next week and stocks to start down. Keep in mind that the "currency wars" theme has been headline news everyday recently, it is the focus in the G20, and it made the cover of The Economist recently. Those are all signs that the current trend is ending. Think opposite the crowd.

Also, I will go into more detail on this later.......But if the market is topping out here and embarking on a significant decline, there should be high probability of large gap downs in this next leg down as it unfolds, and probably a swoon event more severe than any seen in the last couple years.

My suggestion on an investment basis is to be 100% out of stocks. The best buy opportunity I think is the US Dollar. I also believe natural gas will probably be a good investment play at these levels. It seems to me that the carry trade is largely responsible or at least correlated with the natural gas decline. So when the carry trade gets unwound and the US Dollar rises, I think natural gas will too. Stay away from gold now as well too. It is way overbought and may be set for a much larger decline than the recent pullbacks over the last year or two.