Double Top?

Wanted to take a few minutes and share a chart with you.  As you all know I am not much of a T/A guy.  However, over the longer term,  I do watch them from time to time.
I often watch the Russell 2000 when I am looking for a trend change because it's usually the first sector that rolls over during bear markets. 

After taking a peak at the monthly of the Russell I couldn't help but take notice of an almost perfect double top:

My Take:

The Russell is much more sensitive than the rest of the market because it is comprised of smaller companies with matching smaller balance sheets.  Therefore, they are much more susceptible to a weakening economy versus a huge company like Apple that sits on tens of billion in cash.

As a result, when things start to head south as a result of things like $4 gas the market tends to sell these names first.  The fact that it couldn't hold the trendline after breaking through the 2007 highs is something to take note of.

The Bottom Line:

So are we due for a major correction?  Hard to tell.  The Fed seems obsessed with taking the market higher, and it has decided to destroy our currency in order to due so in the process. 

The reality here is no one wins this game if the dollar loses because stocks that are priced in dollars, and if the currency cracks it's not going to matter where the market is.

The market IMO seems to be struggling with the colossal battle between the powerful forces of debt deflation and deleveraging versus the equally powerful forces of inflation via currency debasing courtesy of the easy money Fed.

This battle has become a personal struggle for myself which is why I haven't had much to say recently.  Part of me believes that debt deflation is inevitable as the world realizes the trillions of digital dollars that people moronically borrowed over the past decade will never be paid back.

However, at the same time, you also have extremely powerful inflationary forces that are being created by the Fed as they continue money printing and keeping rates low at the same time the rest of the world takes rates higher.  India just raised rates by .50 basis points yesterday.

Who will win this battle?  Hard to say.  I am positioning myself for both.

What I can tell you is what I have done with my positions recently: 

I sold out of 50% of my silver at around $45.  Things got a little too bubbly for me here.  I will look for cheaper prices.

I shorted the Russell last week via TWM.  I also continue holding some small short positions in SDS and QID.  On the long side I bought the nuclear stock EXC when it got oversold following the Japanese nuclear disaster and I also added the titanium stock TIE.

I still hold the majority of my money in cash which at any moment could become worthless.  This is a scary proposition to me but the way I see it the dollar should rise before it tanks because I think Europe is going to go down before we do.

Greece will default by the end of the year.  The market has already priced it in.  The rippling effects of this in terms of the rest of the PIIGS are flat out frightening to me but there is nothing I can do to control it.

All I can do here is stick to the fundamentals and the most important one to remember is risk is relative!  As a result, I don't believe the dollar is toast just yet because the bond market continues to tell us that we are the best looking horse in the glue factory of bankrupt countries.

I write this post as a warning that something big could be coming.  Please play defense and be safe.

THTB Warning: Keep Your Eyes on the US Dollar

I came out of hibernation tonight because I am extremely concerned about the markets right now. 
I know I know, why be worried some may ask?  Many will say Apple just reported record earnings and Intel hit it out of the park yesterday!

My response to this is kudos to these companies for banking so much coin in such a crappy economy.  Steve Jobs is a frickin god IMO after seeing their earnings today.

That being said, let's get real about what's really going on here.  I'll start with a little video from Steve Wynn.  He get's it:



My Take:

Couldn't have said it better myself.  Folks, the dollar is in deep trouble.  Let's take a look at the recent $DXY action from a longer term perspective:

As you can see above we have now broken the 2009 lows on the dollar that haven't been seen since the 2008 inflationary/credit market crash.

This recent price action has been reflected in commodities.  Oil has surged to over $112 per barrell.  Silver's reaction says it all:

Take Continued:

Silver has surged over $46 tonight as investors continue to worry about the US dollar and fiat currencies in general.

The Bottom Line

The market futures are up but I can't see the market ignoring the USD problems for much longer. 

Now that the dollar has broken it's late 2009 lows it could very well hone in on the 2008 levels that blessed us with $140 oil.  The consumer is tapped out and can ill afford to return to these levels so the economy is in serious trouble as a result.

I wanted to write this piece because I see many investors getting complacent with the rising stock market.  The VIX is nearing all time lows and indicating all is well.

I am hear to tell you that all is not well and I would advise people to sell into this rally because the dollar is on the verge of melting down(this is my opinion of course).

It's time to stop looking at prices and start focusing on what's really valuable at this point.  Our interpretation of "wealth" is about to dramatically change in the near future IMO.

Wealth in the future may not be about how many US dollars that you hold.   What will determine wealth in the future?  That's the million dollar question.  Right now the silver market is telling you that it's the place to be for value.

I am sure the gold market will say the same thing at some point.  Holding metals as a hedge to currency is a must in my point of view.

That being said, the metals aren't necessarily the answer as all fiat currencies face collapse.  After all, you can't eat gold and you currently can't trade it for food right now if the world goes "Mad Max".

Farmland might prove to be as valuable as gold or silver at some point. 

The bottom line is there are no answers right now folks which is why the metals are surging to 30 year highs.  The one thing I can tell you is the market is not healthy when the metals are acting like this two days after the S&P downgraded their US debt watch to "negative".

Be careful out there when it comes to buying stocks.  The FOMC will be out a week from now explaining their exit strategy from QE2.  I don't see how this will end well because I am very confident that the Fed will stop buying bonds on June 30th because the dollar is selling off so hard.

The Fed will also want to see how the market reacts after they stop the QE printing presses.  They would LOVE to bail on this printing program if the markets allow it. 

IMO there will be no QE3 until the Fed tests the waters by ending QE2.  This will likely be a gigantic failure if history repeats itself.  When QE1 ended last August the market dropped 16% and didn't reverse itself until QE2 came to fruition.

A surge to 1400 on the S&P would not be out of the question from here as the dollar devalues.  The market likes it...FOR NOW.

Longer term a collapsing dollar is catastrophic for the US economy and stocks will eventually react negatively to it.  We may need $140 oil before the market wakes up.

Alrighty, it's time for me to go back into hibernation.  I will be back as needed. 

Be safe.

Why we are screwed...

In a nutshell here is where we are folks:



My Take:

Scary times.  The US dollar and bonds are getting hammered.  Oil, silver, and gold are soaring as the Fed remains the only game in town that refuses to fight inflation by raising interest rates.

The ECB assured this last week with their rate hike.   The obvious concern here is how long can the consumer hang in there as oil rises to $113 a barrel?

Things are really unstable at this point.  I currently sit here mainly in cash and metals with a few short hedges.

I continue to believe that the ending (or extension) of QE2 is the next real inflection point for the markets.  The last few weeks of price action have been nothing but a bunch of black box trading among the robots on Wall St. 

There is nothing really to analyze when 70% of stocks are being held for seconds by the HFT guys.  IMO, throw out the old T/A analysis for the most part because things have changed.  The market is now a different animal.

Focus on bonds here.  The 10 year is once again nearing 4%.  If we hop over that level look out.  If this happens than I expect that the Fed will pull liquidity and create a sell off in order to keep the bond market solvent.  As a result, be careful shorting treasuries here.  I will be increasing my short on treasuries on any hard sell off in stocks which artificially raises bond prices. 

Also, if we get over 4% on treasuries and oil rises to $120 a barrel then its time to short the market.  For now I sit on my hands.

Hope all is well with everyone and be careful out there!