Summer Comes To An End

I haven't been posting lately simply because nothing changed from the last outlook. This time I'd like to take a look on dollar first. For four months the buck has been in a no man's land and it was everyone's guess whether another leg up or a rally out of the three year cycle low will follow. I'm pretty sure we have an answer now. A monster five day rally pushed dollar through the MA200 and left little doubt that dollar should now enter an uptrend for at least a couple of months.

What does this mean for stocks and gold? Well, first of all, it should be noted that US stock market and gold price in US dollars tend to be in reverse correlation with the dollar. If dollar rallies, stocks and commodities fall and vice versa. Don't take this too seriously as there were and will be occasions when this pattern does not hold, but in the long term trends, the inverse correlation is pretty accurate.

So, now as dollar probably entered a new uptrend we should expect both stocks and gold fall? In the intermediate term yes, but not necessarily in the short term. The fact that both stocks and gold held support levels while dollar was rallying suggests that in the short term one final push higher may follow for both issues before a serious plunge happens. If this prediction is correct, gold should complete its cyclical bull market top and stocks should rally up to MA200 during pullback in the dollar.

Of course, all my prophecies may change in one single sell-off day. But, the point is that at the moment I see absolutely no reason why one should sell gold. I don't really recommend buying now as the risk with the dollar rallying seems to be pretty high. But until I see sings of topping I will hold my GLD in RGLD shares.

Similar concept applies for stocks. Shorting is out of the question right now as indices seem to be consolidating. But on the other hand, no obvious accumulation, no leadership and no momentum suggest that every rally should be short lived and a fake out.

For now my market signals stay as they are as we wait for more evidence to confirm or reject my expectations.