Market Update for the US Dollar, gold, and the stock market

I have mentioned various trends for the past several days on the Wall Street Shuffle and I wanted to spend some time updating these points of view.

Stock Market

In regards to the stock market, Dan and I mention warnings that appear from time to time that may change the longer term landscape in the investing environment next year. The current trend is unquestionably bullish and this trend must be respected. Investors may want to take some profits off the table, if they have any, but there is certainly no sign yet that the bullish trend has ended. Long positions are still paying off better than short positions. Once we see a change in that trend, we will let our listeners know the bullish trend may be ending. That is not what we see today.

US Dollar:

I recently mentioned that the dollar index (DXZ09) was holding above the 76.00 level very well and that traders or investors should be on the alert for the possibility that the index could rise simply because buy stops could be triggered by large quantitative funds getting out of short dollar positions. This buying frenzy is taking place today.

The main reason for my forecast was because the Japanese Yen had risen for three consecutive days and that this kept a small lid on the dollar index rally. Any reversal of the Yen’s rally could help the dollar index blast higher and trigger those nearby buy stops. This event began today as the Yen is down more than 150 points.

GOLD:

Dan loves gold from a longer term perspective and likes to hold physical gold. I prefer the futures market to trade the gold and silver markets. WHY? It is simple. Leverage. For less than $5,000 margin, I can control $112,000 amount of gold. If I am right about my market call, I obviously benefit from the use of the margin. If I am wrong, then I get hurt just as quickly. However, with training you can learn to control that risk and profit over time.

I have recently warned our audience about the price of gold. I saw the potential for a change in the dollar and I also was watching the energy market decline. Now for full disclosure. Did I go short gold futures? No I admit that I did not. However, as an advisor (I am a registered commodity trading advisor (CTA) I recommended clients to sell their gold coins, which were at a considerable premium to the spot gold price. Are they happy? A $100 decline in gold has them with a broad smile – at least at the moment. Clients are fickle beasts.

Trends are based upon perspective – not necessarily fundamentals

There are many times price trends make no “sense”. New traders must understand this. The trend of any market is based upon the current fundamentals of supply and demand and the perception of future supply and demand. The perception of the future is often more important than the current conditions. Keep this in mind as you analyze price trends in the future. If good news cannot drive prices higher, then the perception of the marketplace may be that all the good news is already priced into the market. The reverse is also true.

Sometimes a market can price in such bad news that a low is made simply because the news or perception cannot get any worse. This is what we saw in March of 2009. The market priced in the US economy going over the cliff.  A change in that perspective created the bottom. It was not a change in the fundamentals per se that was the critical factor. It was the change in perspective. 

The comments I make on the program are generally from a trader point of view. I have been a professional trader for 30 years, so that is my perspective obviously. However, I promise to do my best to teach our audience how they can begin to analyze the marekts themselves and become better investors and traders in 2010.

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