Market Timing Brief™ for Stocks, Gold and the US dollar: Gold Breakout. Silver Breakout. Stock Sell-off

Market Timing Brief™

for 7-14-2011

1. The SP500 index (SPX; SPY) must stay below 1313.33 on the close to stay completely Bearish. That is 131.36 for the SPY. Otherwise, there is potential for a bounce. I’ll have a full SP500Tracker ™ video out for free subscribers this weekend.

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We are in a downtrend and you must understand that markets do not go straight down. They go down in steps except in a state of complete panic as we had in 2008 when the market completed a multi-day cascading sort of crash. Also realize the volume does NOT have to be big as markets fall. That is a common misconception. Volume picks up dramatically on declines only when there is outright panic and when the decline is ending.

2. Gold (GLD, IAU) and silver (SLV) are in a nice rally. Gold has broken to brand new highs this week and is at the moment consolidating above the breakout point. At times, an index or commodity will fall slightly below the breakout and a bunch of trader stops get picked off by the market makers. Then the market recovers. It is not really a conspiracy. That is simply what markets do as they move forward. They move forward and often then back to test their resolve. So with gold it is “so far so good” on the breakout.

Same with silver. Silver as represented by SLV managed a nice breakout today above 37.72 and is now trading at 37.91. It could continue on here having already tested the breakout point a couple of times earlier today.

The one thing to watch for is dollar strength (UUP, USDX, DXY). As long as the dollar is moving up slowly AND there is concern over Europe, the metals will do well. The metals WON’T do well if 1) the dollar gets very strong, very fast or 2) if Europe settles down and looks like it is coming under control. That could stimulate a sharp correction in the metals. There is a #3: if the US debt ceiling is resolved, I think that might cause the dollar to strengthen somewhat and that would temporarily make gold and silver swim uphill. The progress will be blunted for both gold and silver. But as long as Europe remains in the financial toilet, gold and silver AND the dollar will hold up and will likely rally further.

3. Speaking of the dollar, the US dollar index has been plugging along and is at the dead center of the pennant formation in the case of the UUP or for the dollar index itself (USDX; DXY – note these are not ETF symbols, they are indices), it is below the lid of an ascending triangle and needs to move up. The US dollar index made a triple top on the daily chart, which you can see here on MarketWatch: US Dollar Index Chart

Do you see the series of higher highs on the 6 month chart? Click “6m” on the chart to see it. Now notice the tops at around 76. That is the lid and that lid must be broken to the upside for the US dollar rally to be taken seriously. The dollar is now at on the uptrend line and needs to move up from there.

But it is still a Bullish situation and as mentioned, a threat to the price of gold and silver if it rises too fast. There is a link that I posted yesterday, that explains this and you can read it here now or save it for later: Gold Trading Signals: Don’t Be Fooled!

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