Monday, October 3, 2011

BUY/SELL DUST $38.13/$39.13 - US Dollar and Stock Market

In this morning's pre-market I did not see much hope for the positive divergence trades I posted over the weekend, but it appeared to me the Direxion Gold Miner Bear 2X ETF (DUST) was about to change direction from down to up, so I bought shares at $38.13. At my lunch break it seemed that DUST was acting iffy and as I knew I would not be able to watch it for the rest of the day, I sold at $39.13 for a modest 2.6% gain.

Sure enough, within 45 minutes DUST was back down to $38.24 and my profit would have evaporated had I decided to hold that long. Over the next three hours DUST climbed steadily to reach $40.75 before settling down to close this day at $40.52.

Today the U.S. Dollar Index did what I said in my weekend post it had to do - it had to rally sharply higher to keep it's prospects alive within a wedge formed by the True Strength Index (TSI) indicator on it's daily chart. If the U.S. Dollar Index now breaks up through that wedge I can guarantee you all kinds of (bearish) hell is going to break out in the stock market. My hunch is that is exactly what is going to happen.

This is a daily chart of the E-Mini S+P 500 Index Futures (ES) snapped just after today's session on the NYSE concluded. Unlike the U.S. Dollar Index that is awaiting a trend line break of the TSI indicator, the S+P 500 price movement today has already yielded a trend line break signal - SELL.

My TSI Trading record has been updated.


  1. Nice trade!

    Btw is that a TSI trend line break on the GLD with a 0 cross over on the 4 hour?

    Is that trade worthy or is the US dollar index looking too strong?

  2. Thanks Spidey.

    Yes, the 4 hr of GLD looks very promising. But look at the 1 hour and you will see the other shoe drop.

    I am at the point with these trades I have done lately of sizing up the near term direction of the dollar, gold and the stock market before I take a position. I have not talked about that in my posts, but that is what I am really doing.

    For example if the dollar has been rocketing higher but now I see it has made a negative divergence, I assume it will be just a matter of time before the dollar starts to fall. I expect to find some corroberating evidence when I look at the S+P - that is the likelihood that it is about to turn north.

    Gold has kinda been doing its own thing, but I know it will likely have the strongest effect on the near term direction of NUGT or DUST. If gold looks OK for more strength, then my game plan is good to buy NUGT. Of course the whole parade is reversed to buy DUST.

    It may sound complicated, but actually I know what I am looking for and can assess the stock market, dollar and gold rather quickly. A lot of times the whole setup is not ready - so I try to patiently wait until it is. I get it in my head which way each of the various major players are likely to turn next, then wait for the TSI signal - usually - before I take a crack at a live position.

  3. Too bad I don't trade after hours since that seems to be where you trade now.

  4. John ,

    you think the USD will be topping soon or going higher?

  5. ILUVPMS - not sure how to answer your question. Do you have a specific timeframe in mind - like by tomorrow, the end of the week, month, or 6 months from now?

  6. OK - I suppose the US Dollar could take a little breather for a week or two, but I think it's direction continues to be up.

  7. How well does the current gold action match previous intermediate declines?

  8. Hi John
    Can you take a look ABX for next 2 weeks
    I'm still hanging on my Oct put,

  9. Jeff - in term of the TSI, it matches very well. That is, the degree to which the indicator is below ZERO now on the weekly chart is about the same as all previous intermediate declines. The oddity is that if this is the bottom it has occurred just 3 months after the last intermediate cycle bottom. That is quite short. Usually expect something like 5 months. But who knows?

    Hi Norman - you are always at the right place at the right time my friend. I don't know how you do it!

    ABX.....hummmm...... well, my thought is that it does not go much lower, if lower at all. I think we are near or at the end of the line for stocks going down for now and that probably includes the miners. I would be inclined to take my money off the table and find something else that is going to move sharply. But of course, that's just me. lol

    Please keep in touch Norman!

  10. john, are we out of the woods yet ? or there is still more to come in terms price fall and deflation ?

  11. Anon - gold just retested $1600 successfully and is rebounding. Yeah, I tend to think the downside is over for now.

  12. JOHN,

    has your view on the miners changed lately.. or do you still see a bloodbath taking place similar to 2008...

    good trading the SP for a 700 dollar lunch!

  13. ILUVPMS - well, miners will go up now with the stock market bear rally, but after that - yes, I expect them to take a bloodbath.

  14. got it! thanks. how long do you expect the bear rally to last... what is your dow price target.. cheers,

  15. ILUVPMS - I expect the bear rally to last until most believe (sentiment) that the good times are here again and there is complacency/lack of fear. Should take several more weeks I guess. I never follow the DJIA - so idea on a price target.