Thursday, July 29, 2010

Three Charts to Ponder

U.S. Dollar Index
The USDX is approaching the 50% retracement of the Nov. 2009 -- June 2010 rally. Momentum indicators are entering oversold status and sentiment is becoming decidedly bearish--a perfect time to consider a contrarian strategy. A case can be made for a rally into the low Nineties before the longer term trend becomes mature.

Stock market bears would be wise to heed the action of the king of industrial metals. Prices are in the area of the 38.2-61.8% harmonics and the technical indicators are edging closer to over-bought status. If the advance since early June is seen as an A-B-C structure--C = A at 3.2585 which is near current price levels. Watch this market for clues as to where the stock market might be headed. A dramatic reversal--something copper likes to do--would be a warning of pending weakness in equities and signal a realization that the 'recovery' is not all that it is touted to be by the talking heads in the financial media. However, on the other hand it would not be wise to dismiss the rather bullish price action since mid-month.

Gold is approaching the 50% retracement of the Feb-June advance. Both the RSI and MACD are entering oversold territory which suggests that nimble traders may want to consider a short term highly-speculative long position with a tight stop in place for protection. The market should find support at the 200 day moving average which is at 1145-1146. The fact that Gold is holding near the May lows of 1157.60 and 1166.50 suggests that some form of low might be happening.

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