Category Archives: us dollar

Long Term Analysis of Gold, Silver, and Currencies

Below is a an article from Chris Vermeulen that takes a longer term look at gold, a Gold Investment, silver, stocks (SPY) and currencies like the US Dollar:

The Currency War Big Picture Analysis for Gold, Silver & Stocks

Disclaimer: No current positions in stocks mentioned. Please note that Scott’s Investments and its author is not a financial adviser. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of Scott’s Investments.

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Is This December Similar to 2007 & 2008 for Gold & Stocks?

Chris Vermeulen just posted a new, free article Is This December Similar to 2007 & 2008 for Gold & Stocks?  He is watching the US Dollar closely for keys on where gold (GLD) and US equities (SPY) may be headed.  Below is an excerpt from his article:

In short, we are entering a tough time to trade the market. Volatility is low, there are a few holidays and typically we see volume thin out as December unfolds. Light volume generally favors higher prices for stocks and commodities which is one of the reasons we get the holiday lift in prices. 
The recent selloff in stocks is looking overdone to the down side and ready to bounce any day. So I am looking for signals to get long the SP500. Overall risk remains very high as sellers are still in control of the market and because we are looking to put on a trade against the intermediate trend which is down. 
On Friday morning myself and my followers exited our short position on the SP500 at the open locking in 13.5% profit. We exited the position because the intraday charts are showing signs of a potential bottom and we want to avoid the tear your face off short covering rally that I feel is just around the corner. Now we are waiting for a another low risk setup and will take action to go long or short depending how things unfold in Europe.

Disclaimer: No current positions in stocks mentioned. Please note that Scott’s Investments and its author is not a financial adviser. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of Scott’s Investments.

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Update on the Dollar/S&P 500

I featured an interesting piece yesterday by Tom McClellan regarding real yields and the dollar.  His analysis indicated a dollar bottom later this year followed by a significant rally in 2011 followed by a further low. 

Recently, the dollar and equity markets have shown a strong tendency to remain inversely correlated.  As the dollar falls, equity markets rally and vice versa.  If we assume McClellan’s long term projections hold true and the relationship between the dollar and equities holds, then we could project further equity strength this year, followed by a significant decline in 2011.

However, I personally wouldn’t bet my portfolio on the ‘carry trade’ continuing to predict future equity returns over the long term. When the Fed raise rates to more significant levels, the cost of borrowing dollars to bet on riskier assets such as equities will increase.  This will discourage the carry trade as it becomes more expensive and could weaken the inverse relationship that has existed between the dollar and equities. 

Perhaps the simplest option is to keep an eye on both the dollar and equities, watch the ‘tape’ and protect yourself with some basic trend analysis and stop losses such as those I featured in-depth here.

Below is a 1 year daily chart of the US Dollar Index and the S&P 500 Index with a 200 day moving average:

In the short run, it could still pay to watch the dollar and its relation to equities.  Currently UUP (US Dollar Bullish Index ETF) has a perfect trend score of 100, meaning a strong uptrend is intact. Meanwhile, SPY also has a strong bullish trend score of 90.  However, until SPY clears 115 in the short-term my money would be on the US Dollar.

No positions in equities mentioned

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