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Tuesday, October 6, 2009

Final Spasms of a Reckless Rally

A while back I posted that Gold was in a triangle and would eventually break out.

It did. And because I assumed P2 was over the breakout in gold was over with only smallish upside. (Wrong about gold - time will tell on P2.)

However now gold appears to be in its Minute [iii] of C of (B). I originally had a 1085 triangle upside target and I suppose that may still be valid.

The dollar reached a point where I speculated last night "something has to give" and it the downside. The dollar could break under its recent low and if you look at the chart, the next support is in the 74 range.

One thing I did expect a while back is that the dollar would not bottom until every last dollar bull was broken. I assumed using contrarian psychology that the dollar would start to dominate financial news stories with the general theme of about "the end of the $$" and now finally that is happening. A few more violent bear pushes on the dollar and the dollar news will wind up on the nightly news and a 60 minutes special will lament its "final days" or some such stuff as that. The public itself may be self aware which is a rare thing.

The VIX is not terribly breaking down too hard and I would assume it maintains its long term weekly strength. There is real fear out there and its justified.

The bulls are starting to sell. The insiders are selling....the bears are showing life and worse yet for the bulls, fear is creeping back. In 2004, the VIX was already under 15 and slowly heading down to a sub 10 years later. The 7 month P2 rally they only managed to spike the VIX a few times to sub 23 so far....


If you were watching the advance/decline volume ratio as I was today you see it open and stay at strength and peak over 15 and then on the market move down of the afternoon it went under 4 and then promptly reversed yet again! (I now keep these market internals on my 1 and 5 minute charts as an indicator which is a useful indicator for squiggle charts I think).

(Fair use mention: EWI tonight mentioned the same type of internal market behavior but the indicator they mentioned was the gyrations of the daily tick chart)

So the dollar will indeed bottom...sometime. Gold will run its course. And stocks will too.


I simplified my count tonight because it makes sense and the market may or may not (truncation?) make a new high sometime this month. The market internals were just too bullish at times to say we are in P3 for sure just yet. Yet at the same time they betray their weakness...

A new high will surely result in weekly negative divergences on any stock or index that can manage it.

I think we are seeing the final spasms of a reckless P2 rally. And I am sure my buddy at work will finally jump back in on the very day it tops.

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