US Dollar (and Euro) Video Update

This video walks through possible price patterns that are forming in the US dollar and Euro, with the main focus on analysis of sentiment data related to the US dollar and Euro.

In sum, a strong case could be made for a dollar bottom (probably long-term) forming or already formed. If so that would almost certainly lead to lower commodity prices coming soon, and also that deflation is likely the coming economic reality, rather than inflation.....but only time will tell.

As the saying goes for deflation "Cash is King." This is said because the value of your cash/dollars are increasing, while almost every other asset class is declining in value. So for most investors, the best bet is to just hold on to cash, though speculators/traders would have ample opportunity to profit from shorter and intermediate term swings.

Pete

New SDS Trade

The technical divergence I was waiting for the other day has now occurred with this morning's gap up to new highs on the payroll report. The gap has failed miserably this morning, and if stocks continue lower this afternoon a bearish engulfing at major resistance could be formed.

I hope to get a video up before the close today, but for now, here is a new trade recommendation:


Buy SDS with a limit order of 54.00. Current price is 53.80 which I will use for blog entry price. This is strictly a short-term trade. No changes on the BGZ trade yet.


Pete

Price Levels to Beware on Several Markets

I am not going to post charts on these, but I am just going to give some price levels on several markets that should be watched. If price falls to or below the levels specified without making new highs, then that would be good indication of that market forming a significant top. Also, realize that stocks and commodities have been running up together, and if/when they top, they will likely be topping together.


S&P 500 cash value - 878.00

July Oil futures - 63.40

August Gold futures - 93.82

July Soybeans - 1110-00

July Corn - 442-00


I hope to get a video up tomorrow to show the importance of the location of Tuesday's high
in the S&P 500. Until 878 is exceeded on the downside, it is safest to assume the trend is still up. If new closing highs are made above Tuesday's high, there is no major chart resistance until the 1000 level, but from looking at several other related markets, I don't think that is most likely.

No Fill on SDS - Short Term Oversold

The limit order for SDS was not hit this morning so that trade did not trigger and I am suggesting cancelling that order after today/ASAP. If by chance anyone would have decided to get in the trade on the open today (or even during the last 2 days), I would exit that trade before the close today, as it looks like the short-term model will be oversold before day's end.

It will be key to watch how the indexes respond tomorrow and Friday. If they are able to accelerate down while short-term oversold, that would likely indicate that a top is finally in place. However, the S&P 500 really needs to drop below 880ish to put the nail in the coffin.

If price finds support above 900 and short-term technical indicators turn up, then I would almost expect one more push to a higher high before a top is made.

I will update on BGZ tomorrow, possibly suggesting an exit, but only if it really looks like another significant move up to a higher high is in store.


Pete

Investor's Intelligence Survey Update

Click on Chart to Enlarge

It's been about a month since I showed this survey, but on account of the continuing large drop in bearish opinion among investment advisors, I thought now would be a good time for an update. As of today's data release, the bearish % is only 25%. That is as low as it has been since late 2007, around New Year 2008.

Additionally, while not part of the chart above, there are a relatively large number of respondants expecting a correction in the market. While extremes in the bullish or bearish % are good contrary indicators, extremes in the % expecting a correction actually seem to be a non contrary indicator, as the market has had trouble making intermediate term gains in similar past instances.

So in summary, the bullish % is not back at bull market levels, but an extremely low % of advisors are bearish and many are expecting a pullback. If you were to give me this data and only told me that the 200 day MA is sloping down with no other price info, I would say that we should have a bearish bias in the intermediate term just due to past history of this survey.

Maybe later in the week I will talk more about a composite view of sentiment surveys that combines the 4 most popular surveys (II, AAII, Market Vane, Consensus Inc) into one reading. For now though, as of last weekend's data the composite was nearing a relative bullish extreme in opinion. Even in a bull market that correlates with sub par performance looking ahead several weeks. In a continuing bear market, these readings give way to very negative price action over the intermediate term typically.

Now as an aside and unofficial list of some trade ideas or at least watchlists for those interested......

TLT - long trade in bond ETF

UUP - long trade in US dollar ETF

DBA - short trade in grain + sugar ETF

XHB - short or put trade on home-builder ETF

ABX or GLD - short or put trade on gold ETF or ABX which appears to be a weak link in gold mining stocks

Pete

New SDS Trade Order

The short-term model hit overbought on Monday. Yesterday I wanted to give some time for technical divergence to form which it only did on some shorter time frames. With the market up 4 days in a row and SPY pushing right up under that 95.50 resistance area yesterday, there is both historical precendent for negative returns over the next week as well as technical resistance.

SPY is set to gap down this morning, and I don't want to chase the gap in this case. So I am going to suggest using a limit order that will require some move up from the open, but not a total retracement of the gap.


New Trade Recommendation:

Place a "day only" limit order to buy SDS for 53.44. This is strictly a short-term trade. There are no changes on the BGZ trade yet - just waiting to evaluate for an exit, a longer hold, or stop placement.


Pete

Video Update on Oil, US $, and S&P 500

Here is link to the January blog post regarding oil prices that I referenced in this video.

I may suggest a new short-term trade tomorrow because the short-term model became overbought today.

Pete