Short-Term Reprieve From Selling?

So we have had four days of selling with out significant volume but investor confidence has been shaken but not enough to cause panic selling. I think there is still much complacency regarding the turmoil at home and abroad as the media continues to dumb down the public. My general observation is that people are very matter of fact about the situation. Euro-zone is on the brink of collapse and this failed German Bond auction is a SIGNIFICANT event that has gotten little or no attention. It show extreme lack of confidence in resolving euromess. Some people feel this will cause the ECB to start printing money. Mike Pento, "It is either assent to printing trillions of Euros or watch the Eurozone crumble into the dustbin of history".

You would think that with all this selling that there would be more fear, but the VIX though elevated in term of historical price has not reached the fear of the August through September period. We would have to see it rise dramatically before calling a bottom is this new range what I think will form.

Now lets look at the charts that show investor confidence or bullishness:

These four charts show that over the last 5 days or so bullishness is starting to come down but still way to high. The only conflict I note in the charts is that the RSI has entered oversold in most cases while the MACD is still at the upper range. We must remember that things can stay overbought or over sold for long periods of time so we don't want to jump back in to early. In this case with all the uncertainty out there I prefer to be late than early and would like to see price and MACD at the bottom end of the range, always keeping in mind Quantitative Easing and US intervention into Europe's banking system trumps all charting.

This next few charts show the S&P 500 and some key indicators:

As I have mentioned in earlier posts the S&P 50 has violated supported and is clearly headed to 1100, the ADX or advance decline line has not reached its 5 year support level, the MSI is not giving an oversold signal and has further to fall, the only contradicting signal is being given by the McClellan Oscillator.

Now lets look at Banks, Oil, Gold and Silver:

The banks are in real trouble at home and abroad, and if the governments do not intervene a cascade of events, ones like we have ever seen will take place making 2008 meltdown look like a bad night at the craps table. The Germans are beginning to or for all intense and purposes turned their back on the eurozone and with their bond yeilds climbing, meaning their borrowing costs are rising, how can they loan PIIGS et al money. Its just a matter of time before the Euro fails. And we should care not only as investors but as concerned citizens. Paul Krugman a Nobel Prize winning economist has been quoted as saying "the ECB could be in the process of destroying not just the euro, but the world".

Oil has held up very well due to rumors of Iran being attacked by Israel, but now that too is started to roll over, and from this point has the farthest to fall.

Here is the 5 year monthly Gold chart that reveals a possible double top which will be most assuredly confirmed this month as you can see an inverted hammer printed. This would lead me to believe we are entering a deflationary environment much like 08, that could accelerate to something far worse given the scenarios play out as I have previously spoken about. 

Silver is in big trouble, its floundering like a wounded animal and the only thing that will save it money printing and that ain't happening even though there  people out there that contend there will be a QE3 and more but when and how long can you hold is the question. For those that have been stacking the metals, they are not worried about the fluctuations because the fundamentals will win out in the end. But right now we are on the roller coaster on the way down and it doesn't feel good.

The dollar looks like its going to breakout and the euro looks like "impending doom".


FXY looks like its done going up: I'll leave the reasons for this major reversal in the yen to economists. The strong yen is heavy burden for Japanese exporters, and Japan's government debt has swollen to nearly twice its gross domestic product, but neither has deterred the yen's ascent until recently. The charts showing a shift to a weaker yen suggest capital could start exiting, magnifying the currency's decline.

In addition, a clear weakening of the yen could ignite the so-called carry trade, in which traders borrow yen to buy assets with higher return potential elsewhere. That borrowing of yen effectively is a short sale of the currency, which could further add to the pressure on it.

I'm keeping an eye on this development as these trends when they reverse in currencies lasts for months at a time. There are leveraged inverse ETF's to take advantage of this. 

Assessment and Strategy: Short Euro, Short equities (banks and energy), Long PM's.

Caveat: If there is a QE announcement out of Europe or US then cover all shorts immeadiately regardless of the technicals.