Trade In a Nutshell: Dump everything. Miners have lately seem to leverage PM losses and inch higher on gains. Metals are overextended/at estimated turning points. Go 70% cash, 30% SPXU (S&P500 3x Short) and scale in as necessary. Looking for at least a 10% correction.
Current Positions: I put my money where my mouth was on the 16th of March. Things did real well and peaked April 8th. CEF (close-end fund that holds REAL metal) has gone up. The remainder have been relatively flat since.
Cons: Counter-trend… a prediction… (one day I will listen to my own advice but I feel this in my gut)
Thoughts: It seems the markets are a little over extended. Not just one… just about EVERY one. Bernanke said QE2 will end in June. The Fed has pretty much kept the market propped up because of their quantative easing policies. The markets really didn’t react much. There’s still plenty of time until the end of June. The Fed will keep reinvesting the profits to continue the “easing.”
There’s quite a large drop in treasury purchases after QE2 ends. The absence of $75 billion in the auctions is going to be felt every month and obviously hasn’t been priced into the market yet. The reinvested dividends simply cannot make up for its absence. With two months to go I think we will start seeing declines sooner than later.
Other factors: SPX is approaching/in a price target determined by Elliott wave analysis. (Of course alternate counts can produce other targets.) The inverted head-and-shoulders price target is around 1,400. I feel we’re likely to see a decent pullback before then. Looking at the candles the upward momentum seems to be petering out… for the second time. Did I mention the MACD (and weak RSI) divergence?
QE2 has weakened the dollar a LOT. In fact we’re almost back to the levels just prior to the 2008 crash! Waves counts, S/R lines indicate a likely turn to dollar strengthening… at least before it resumes its downtrend. A strengthening dollar is negative for equities/commodities although it may take some time before their price changes as a result of a change in the ^USD.
The VIX is at a 46-month low. As we can see low levels of volatility don’t last forever and frequently result in corrections…. especially when volatility tanks. In addition, a sell signal was generated by the VIX when a candle formed outside the lower boilinger band and the next returned inside last week.
PM analysts have been calling for $1550-$1600 gold. Their wish has been granted, gold reached $1,569.80 on Friday. Silver is on a tear and FINALLY met a smidge of resistance at $50.00 causing a sharp correction (and pullback) after it hit $49.80 on the 25th. Time to start wave 4 in silver?
The seasons even speak to down trends. The summer months are not the friendliest to FOREX, equities, precious metals… and probably more.
Just Remember: The trend is your friend… But let’s face it, these rallies need a correction. It’s just a matter how soon. I’m voting for mid-May. I’ll be waiting to stack up SPXU.