The dollar has failed to begin its bounce, while the stock market is likely to sustain the first important breakdown today on the close (see below!).  But there are false starts. The last time we had a great US dollar index (USDX) trade going long the US dollar, there was also a false start.  The market likes to test us.  To see if we are convicted in our investment or trade.  If so, the market often rewards you more than if you go in and out of a trade at the very first blip in the wrong direction.  Still, set a mental stop and exit the dollar trade if we make new lows.  For the UUP for example, 21.90 should hold at least on a closing basis. If you trade currencies, you’ll be able to react a lot sooner if the trade fails.  These currency trades are higher in risk in general than buying Intel at current prices.  Most of you will want to stick with investing in and trading the other indices (other than UUP and the double inverse Euro, EUO etc.), but that is up to you!

Turning to gold, and the gold ETFs GLD, IAU etc., gold has topped and is falling from the top.  If you simply read this blog here, you were out of all your trades before it fell much at all.  That is the beauty of my approach.  You stay conscious and see the tops being formed and get ready to take action when the markets start to fall apart, preserving profits and maximizing gains.

My subscribers were out of Japanese stocks based on the Nikkei 225 close on Friday which gave us a good deal of time to exit before the US close of ETF trading. Since then the EWJ for example is down 7.96% as I type this.  It has bounced from earlier lows today.  We will re-enter on either strength or on more weakness.  It is not likely that today is the end of the selling given the structural problems in Japan.  The EWJ is now at 9.95 which on the 15 min chart looks like a good place for it to break down again.  It may not.   There could be a bounce, but we’re likely to still see lower lows before the pullback is over.

We already have gotten our first SP500 sell signal – read my free newsletter (see below) NOW and you will be better prepared to handle this decline. You will likely want to move out in scale rather than all at once.  You’ll have to decide what works for you.  I have some advice that you may find of interest in how to go about the selling.  Since stocks are likely to move in the opposite direction as the dollar moves up, take a look at my free SP500Tracker™ newsletter. It will be out this weekend (and you can catch up with this week’s copy today – link to it sent to you by email) and again, it’s FREE, so please subscribe below if you are concerned about where the stock market may go from here:

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© 2011 David B. Durand, M.D. All rights reserved.