Friday, May 28, 2010

One More Push?

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I have moved my focus to shorting the stock market. I have been buying puts on the triple bullish commercial real estate ETF (ticker: DRN). I will buy more if we go higher in the $RMZ index (695 in this index is my next buy point). I may grab some puts on the triple bullish SP500 ETF (ticker: UPRO) if we get a little higher (at 1110 on the S&P 500, I'll be interested). I think we are in for a big move down here.

I have been following the copper:Gold ratio closely (using the copper ETF JJC and Gold ETF GLD as proxies for charting purposes). It helped me see a short-term bottom coming and I think it will help call the next turn down as well. It is one of only many indicators and cannot be used in a vacuum (man, don't we all wish it was that easy!). To me, one more short-term push in this ratio is needed before the correction "looks" complete. Here's an 8 month 60 minute intra-day chart of this ratio (i.e. JJC:GLD) thru part of today's action with my thoughts:

This would fit with the US Dollar heading quickly back towards its 50 day moving average and one last pop higher in Gold and Gold stocks. I don't think this calm/short-term uptrend is going to last much longer. I also don't anticipate a small drop lower once this very short-term uptrend completes. I wouldn't be playing with napalm (i.e. options on triple levered ETFs) if I didn't think this was a juicy risk to reward set-up.

I am looking to accumulate a boatload of puts on any further move higher in stocks and I am looking to get out of paper Gold and Yamana Gold (short-term trades) on the next short-term leg up. I won't touch my physical Gold until the Dow to Gold ratio gets to 2 (and we may well go below 1 this cycle) and I will be looking to buy more physical Gold if we have a decent correction into the summer.

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