Golden Cross signal on US Dollar

On Feb 18th the 50 day moving average signal for the US Dollar ($USD) crossed above the 200 day moving average. Historically this is a bullish signal for whatever equity is involved and in this case it’s the dollar. If the US Dollar does in fact continue to rally what does this mean for the price of Gold, Precious Metals, Commodities, and Stocks in general?

I first started looking at the dollar relationship in April of 2008 and then warned we would see a big correction in all the aforementioned sectors if the US Dollar rallied. Let’s look at Gold and Gold miners. GLD has a price objective of 94 and the probability of hitting it will be directly tied to the dollar pricing near term.

GDX (Gold Miners) has a positive price objective but must break above the red downtrend line if bullish momentum is to continue.

Let’s look at the VIX to see what measure of fear is in the market, as you can see it’s almost at the last low which is where the last 8% pullback was triggered.

What does this mean going forward, will the rally continue?

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Is the Stock Market Rally really over?

“The best strategy in my opinion in times of uncertainty or close to market peaks is to have 20-30% in Cash, 20-25% in ultrashorts, and 50-75% in Best of Breed stocks or bull ETF’s. Though my gains were limited when the DOW came up from 9800 my losses were controlled rather nicely on the way down using this strategy. When the DOW was below 10.2K we had no clue if lower lows were imminent or if the highs of this rally had been achieved. Prior to last week my drop dead warning level was DOW 10K, not it’s DOW 10.2K and hopefully I’ll get to raise it to 10.4K this week.”

I wrote the above in my last blog and the balance of bulls/bears has proven to work very well especially on news driven bearish pullbacks. Today was a perfect example of when to “Leaving Well Enough Alone” which I didn’t do. As the market tanked below DOW 10.2K, Conditional Sell Orders executed for all USD, UYM, EDC, and some FAS. Right before this happened I had a sneaky feeling it was a fake out and changed other CSO’s to DOW 10,150. In retrospect I wish I would have done it for all sell orders and not made any changes. Some days it goes like that and you just have to shake it off and go forward.

Looking at the DOW and SPX PnF charts shows a different story. If you change the box size to see a closer view of the action both of these indexes now have negative Price Objectives. That doesn’t mean the market won’t rally further but it does mean both have to break out to a higher high to regain positive direction on the charts. In the case of the DOW this means it must close at 10,380-10,400 to break the downtrend. The SPX must close around 1107 to do the same.

Today’s selling of some bulls and buying of some bears left me with this portfolio balance and bull/bear ratio.

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Stock Market near term predictions

The next 2 weeks promise to be very interesting with China on a holiday all next week. From what I’ve read the Chinese markets typically do well after this holiday. Stock market predictions range wildly in the near term.

Experts are all over the map on very near term predictions. Everything from a very near term test of 9800 and a huge rally, to a very near term test of the yearly highs followed by a huge crash. I’m sure the truth will be in the middle somewhere.

Richard Russell the famed DOW Theory expert is very BEARISH going forward the next couple of years as are several other economic experts and financial writers. Technical support levels seem to be where programmed trades are occurring each day, trade the tape and not your emotions.

Berkshire B shares (BRK/B) have done exceptional since I suggested them on our FREE discussion forum  http://bestofbreedinvesting.com/board/. This equity is joining the SP500, watch it for pullbacks as it’s a good long term investment.

Here are DOW 1 month and 3 month charts where you can clearly see the support/resistance levels I’m discussing. The SPX charts look similar.

So what can we expect this coming week?

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SPX 1000, Where do we go from here?

The charts say it all, the thesis for SPX 1000 was proven against many odds and patience paid off. We also hit my high term target of DOW 9400. I’m very dubious of another serious leg up in the rally at this point and now the Bullish Sentiment Indicator is peaking towards a high. With all of that and geo-politics in mind I’ve taken profits and implemented Plan C.

What is this infamous Plan C you may ask and those who regularly read our Forum know the answer?  It’s to sell 1/2 to most of the ultra leveraged Bull ETF’s and buy their opposite ultra Bear ETF’s to hedge remaining Best of Breed Stocks and ETF’s. Running about a 30% short hedge position now with about 45% in bulls and remainder in cash.

I’m hedging with EDZ, FAZ, SRS, FXP, TZA which are ultra shorts of Emerging markets, Financials, Real estate, China, Small caps. With the portfolio weighted in this manner I won’t get the huge 2-4% gains of late which is fine, my goal is wealth preservation till the direction is clear. We are very close to a near term top and if I can manage to gain .5% daily returns I will consider this successful. All of these bear ETF’s are at the BOTTOMS of major stem moves, they could go a little lower but the upside potential is huge on a pullback or correction.

Here are some eye opening  long and short term PnF charts to give perspective-

On Friday when the DOW broke above 9400 (which was my high end target) I sold a good chunk of bulls and bought more bears. These were either new or remaining shares and regular readers know almost all of these provided 100-300% profit coming off the March lows. Here’s the breakdown.

CIT- sold 1/2 of position at average profit of 120%
FSLR- sold 1/3rd at 28% profit
FAS- sold 1/3rd of minimal remaining position at 109% profit
URE- sold 2/5ths at 65% profit
TNA- sold 1/2 at 48% profit
UYG- sold 2/5th at 43% profit
UYM- sold 1/2 at 34% profit
USD- sold 1/2 at 32% profit

Still holding shares of the following Bulls-

AAPL, GS, X, FSLR, POT, CIT, FAS, UYG, URE, UYM, USD, TNA.

I’ll probably have to adjust my Bull/Bear ratio via weekly buying or selling to manage Plan C’s goal of wealth preservation with slight gains going forward the next few months. If there is a huge break to the upside I’ll dump a handful of shorts or conversely dump some longs if we in fact see a major pullback as I anticipate going into early November.

The daily/weekly data, volume, PnF charts, and Technical support/resistance levels  will be my guiding light.

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Stock Market Consolidation or Top?

During the latter part of last week we saw the DOW test 8700ish several times before heading higher and closing right at 8799. There is a lot of market moving news due out this week and it’s quadruple witching week for options. The trading range has tightened back to what is probably normal volatility but pro’s are expecting increased volatility this week and hopefully we’ll break out of this range to the upside.

Best of Breed stocks like GS, AAPL, X, etc….. all made new highs and pulled back slightly. All are close to filling the closest gaps and we could see 10% more additional upside according to Art Hogan with some experts calling for DOW 10-12K by end of year. My near term upside target is 9.5K +/-200 pts. When we see Financials rally again and a lot more side money come in the market it will be probably be time to look for the door and/or go short. The PnF charts are my guide.

http://stockcharts.com/def/servlet/SC.pnf?chart=gs,PLTADANRBO[PA][D][F1!3!!!2!20]&pref=G

The Nasdaq 50 day moving average crossed above the 200 day average with the DOW/SPX expected to do the same in a week or so. This is called the Golden Cross (thanks Smile) which is converse of the Death Cross seen in this indicator in late 2007. It’s not proven to be 100% accurate (like anything else is right) but should be given some credence in your investment decisions. The Bradley Charts show a MAJOR turn date rapidly approaching in mid-July. Though I’d love to see the DOW shoot up another 1000 pts I’m very cautious now especially due to the Bradley Charts and overall perceived oversold conditions.

I’ll be selling more long positions as the market moves up and I’d like to be 30-50% cash by the end of June UNLESS the PnF charts and technical indicators show more upside.  Look at the ultrashort charts for FAZ, SRS, EDZ, ERY, etc…….., they are ALL on the bottom of major downward stems. These will be GREAT trades when the market does correct.

http://stockcharts.com/def/servlet/SC.pnf?chart=faz,PLTADANRBO[PA][D][F1!3!!!2!20]&pref=G

Here’s the links to the current DOW and SPX charts.

http://stockcharts.com/def/servlet/SC.pnf?chart=$SPX,PLTADANRBO[PA][D][F1!3!!!2!20]&pref=G  The SPX looks like it’s in a consolidation pattern to me before moving upwards very near term.

http://stockcharts.com/def/servlet/SC.pnf?chart=$indu,PLTADANRBO[PA][D][F1!3!!!2!20]&pref=G  The DOW shows the same consolidation pattern before the late day breakout to 8799 on Friday. Target is mid 9000’s IMHO.

These are the equities I hold at present and percent returns as of last Friday 06/12/09.

USD	PROSHARES ULTRA SEMICONDUCTORS PROSHARES							46% Original shares up 73.8%
AAPL	APPLE INC							46.3% Original shares up 59%
MOS	MOSAIC CO							Sold ALL at 75% profit	closed
DXO	POWERSHARES DB CRUDE OIL DOUBLE LONG ETN							108%  Sold 1/2 at 125% profit
FSLR	FIRST SOLAR INC COM							62.9%
X	UNITED STATES STEEL CORP							117.5%  Original shares up 126%
GS	GOLDMAN SACHS GROUP INC							81%   Original shares up 96.1%
URE	PROSHARES ULTRA REAL ESTATE PROSHARES							46.8%  Original shares up 109.4%
ERX	DIREXION DAILY ENERGY BULL 3X SHS							66.5%  Original shares up 123.8%
UYM	PROSHARES ULTRA BASIC MATERIALS PROSHARES							48.8%  Original shares up 142.4%
BGU	DIREXION DAILY LARGE CAP BULL 3X SHARES							151.7%
TNA	DIREXION DAILY SML CAP BULL 3X SHS							79.2%   Original shares up 192.6%
FAS	DIREXION DAILY FINANCIAL BULL 3X SHARES							106.5% Original shares up 336.9%
UYG	PROSHARES ULTRA FINLS PROSHARES							46.6%   Original shares up 168%

Real Time Average portfolio gain at +76.3%  as of Friday’s close for a 1.8% gain week to week.

If you are a member of the Best of Breed Investing Discussion Board you can read the daily and intra-daily discussions to see my daily thoughts on market direction as well as information/opinion from quite a few other very experienced investors. 

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Questions/Comments email me at- patrick@bestofbreedinvesting.com

How High can we go?

As the market has continued to climb for 6 weeks in a row more and more bears are starting to wonder if we are in a “real” rally. More earnings reports this week should clarify direction and my personal plan is to limit exposure when the market starts showing LOWER LOWS on the PnF charts I frequently show.

Caught a little of CNBC yesterday early evening and heard discussion on whether this rally took a slight breather for another big leg up. The bullish conversion factor hasn’t switched over positively enough yet to indicate a high (yet), the VIX has dropped to the lows of Aug/Sept.

If the SPX breaks and holds above 880 that will be very bullish. If it drops below 835 CAUTION and profit taking might be warranted.

The DOW seems to have support at 7950-8000 level, we’ll see soon enough. The SPX hit the 870 level and is poised to breakout further. Eyeing 850 level as support for now.

http://stockcharts.com/def/servlet/SC.pnf?chart=$SPX,PLTADANRBO[PA][D][F1!3!!!2!20]&pref=G

http://stockcharts.com/def/servlet/SC.pnf?chart=$vix,PLTADANRBO[PA][D][F1!3!!!2!20]&pref=G

The VIX dropped to 33 (haven’t seen that in a long time), I still think if it drops below 30 we’ll see a wave of side money come in the market increasing upward momentum. When (and IF) everyone is giddy with the next 1000 pt rise it will be time to seriously take profits. A lot of people missed this bus and will be clamoring to get on if we see more upside this week.

Hope all invested folks are beating the market returns off the lows of ~+25%! A rise to DOW 9K is very possible near term.

Made another 5% week to week last Friday with 15% gain in 2 weeks. That’s a total average of 63.4% since the lows of March due to heavy exposure to ultra ETF’s.

Sold all GOOG at 399 Friday morning for a 30.3% profit. Looking at FSLR next, target is $150.

We are apparently going to rally some more unless earnings reports this week are incredibly bad. Looking at SKF, SRS, FAZ for short hedges when we do top out. All 3 are sitting on the bottom of stems at new lows and will probably go lower near term.