Wednesday, March 18, 2009

Stocks, Gold And The Dollar

What a day today! I don't think anybody anticipated that the Fed would pump more than $1 trillion into the economy to help revive the housing market. The plan includes buying up to $300 billion of long-term government bonds during the next six months.

As you can see in the above chart, the S&P is testing the level I posted about just yesterday. This level coincides with the 50 day moving average, a trendline and a significant resistance area. I personally would love to see the market pullback here so that I can get long. I think the stock market is moving higher over the next few weeks and I would like to be positioned to take advantage of such a move if it does develop.

Below is a chart of the dollar and as you know I am bearish on the dollar based on the technical patterns in momentum which I wrote about on Monday. As you can see the dollar had a sharp move down today in reaction to the Fed's announcement.

Today was a very powerful day in the gold market. For most of the day gold was down quite a bit breaking its uptrend line and forcing longs to exit their positions. I can't imagine anyone holding onto their long position with gold breaking down the way it did this morning especially going into a Fed meeting.

At 2:15 things changed dramatically as gold soared putting in a large key reversal day on heavy volume. I think today's action tilts the odds in favor of the bulls especially now that we see the dollar is selling off and appears to have made a top. Many of the gold stocks such as AU also did well today and are breaking out to new highs. AU has been the strongest gold stock over the past few weeks.

Looks like the bull is back in control once again in the gold market. Gold needed a catalyst for a rally and I think falling interest rates along with a falling dollar is just what the gold market needed to get this metal moving higher again.


Anonymous said...

what about oil with this dollar move?

Kevin said...

A falling dollar should help support oil prices.

Anonymous said...

You mentioned that you are sure the move below trendline forced many longs to close their position.

Isn't that the nature of the markets to take the most ammount of money from the most ammount of people in the least ammount of time. I would take it a step further and say not only it screwed up the longs but it also screwed up the shorts that enetered position on the break.

Anyway the 3% closing rule is a pretty good rule to avoid head fakes.

Kevin said...

I totally agree... Yesterday's price action in gold screwed both the longs and shorts. Now gold is free to make its move.

frank said...


What is your downside target for the USD?

Kevin said...

My target for the dollar is below the December 2008 low


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