Saturday, March 7, 2009

Waiting for goldot...

Not convinced gold or gold stocks have completed their correction, so I am "sitting on my hands" waiting for a buying opportunity in both. Gold seasonals are such that a bottom is often seen in Mid-March or so before the final spring rally and I do not believe a spring top is in for gold or gold mining stock indices. Gold can move quickly and a rapid $100/oz price plunge would certainly not be unusual relative to gold's recent price action. I will not be buying more physical metal until gold gets under $880-900/oz. Gold stocks are also subject to fall quickly and I don't think yesterday's action (gold up, GDX and $HUI down) is encouraging.

I am being patient, something I am learning the importance of more and more when it comes to trading. Martin Armstrong's cycle work has always been interesting to me given some of its' uncanny turning point calls and he has an intermediate term cycle high/peak date of 3/19/09.

It is interesting to try to discern what the peak is in, since stock markets are nearer to a low than a high and I am starting to wonder if it's old Uncle Buck that's getting ready to head down. The dollar certainly looks as though it's near the end of it's strong rally and I think it needs a rest that may well start in the next few weeks:

So that we don't forget where we are in the forest because of the current 1 year "tree" the chart above presents, here's a 25-year monthly chart of the US Dollar Index:

This long-term chart is not bullish and the trend line break of 80 on this index was quite meaningful psychologically. Time will tell, but a high in the dollar would correspond nicely with a low in the stock market. In the global context of things/big picture, a long-term top in the U.S. Dollar would be quite a meaningful event and could cause quite a bit of trouble in various markets.

If the U.S. Dollar begins to deteriorate meaningfully, this would certainly begin to feed the gold price bull market and help keep its' nominal price afloat. A dollar decline would also help trigger an overdue commodities and U.S. stock market rally.

I still believe at least one major panic day with a $VIX spike at least to the 58-60 range is necessary before the S&P 500 can form a meaningful intermediate-term bottom here. I suspect it won't take more than 1-2 weeks to find the stock market bottom and the final rinse may be pretty ugly for a day or two. I remain short KSS and AZO. KSS is hanging onto the edge of a small cliff with one finger and AZO is proving to me that at times markets can remain irrational longer than an investor can remain solvent.

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