Also, take a look at the price action and volume spike in the bullish dollar fund UUP.
Spikes in volume with these types of ETF often coincide with ST climaxes. In this case it's a buying climax. Notice the similar volume spike in UUP in early November which marked a ST top. So, we are seeing all this excitment in UUP and yet it is still in a well defined downtrend....this is a contrarian bearish sign. Thefore, the call premium to buy dollars and the price and volume behavior of UUP both suggest the same thing - the pop in the dollar was just a correction and is poised to resume it's downward trend.
I know I've been warning about the giddyness in gold which is hence a bullish sign for the dollar but in the ST the dollar looks like it's going to head down again which means gold should head up again. It seems despite the LT bearish omens for gold I've noted (and hence bullish omens for the dollar) it appears as though there's too much bottom picking still going on with the dollar. I made note of excessive dollar bottom picking back in the summer which made me go long puts on UUP which turned out to be a nice trade....I might very well do it agian or use some other veichle which benefits from a drop in the dollar.
Folks, we could very well be in the early part of the mania phase for gold which can carry on for the next 2-4 months. I know I've been warning about the end of the road for gold and I'm sure it will end badly for those who "buy and hold" at these prices, but if I'm right about the mania phase, we could still see gold go up another $200-300 in a short period (if not more) as the US dollar tanks even more.
Mabey I'm out to lunch on this, but I got to call it as I see it even if that means going against what I felt before. You see, when you have no ego to defend it's easy to be flexible and see things without being biased.
Bernie Schaeffer the chairman of Schaeffer's Investment Research seems like he got the same view on the market as you. As price increases so does the skeptism. And things are exactly the opposite from back in 2000.
ReplyDeleteMost of the guys on yahoo message board is calling for the opposite as usual lol.
I just read Schaeffers latest comments. I read one of his books when I first started investing and his contrarian way of thinking was a big influence on the way I read markets as you've noticed.
ReplyDeleteSeems like he's thinking the exact same way as me regarding the dollar right now. He hits it right on the head when he says this
"shorting gold involves the implicit assumption that the bulls have played themselves out and buying power has been exhausted, and this is one of the most difficult calls to make in the investment world."
Picking LT tops and bottoms is very, very difficult and is probably the number 1 money losing trade people make. A trend that's in place will likely continue to remain in place. This is why it's often better to wait for the turn to happen if you want to bet the other way. This takes a tremdous ammount of patience and disipline. You miss out on the intial move but there would still be plenty of money to be made and it would be done rather easily with the wind at your back.
Great post!
ReplyDelete