Market Timing Brief for 7-27-2011
1. The SP500 index (SPX; SPY) has cleanly broken the Feb. 2011 high of 1344.07 and is back in decline. Even tech is wounded and today’s close may determine the near term trade for the big tech represented by the NDX (QQQ tracks it). Watch 2403.52, which was the Feb. 2011 high. If we close below there, this would be the fourth failure to top that number. That close alone, I believe will be enough to bring us back at least far enough to test the 50 day moving average which now lies at 2318. That would be a 3.6% drop from here.
Tech does not do well typically in the 3rd quarter. It is the weakest quarter. That may conveniently coincide with this looming correction in the tech indices (NDX and NASDAQ). The NASDAQ did not recover quite as much as the NDX because it contains a lot of financial stocks that have done poorly lately, which the NDX does not include.
Practical Investing/Trading Pointers: No need to buy here for sure in a falling market, but it may be a place to lighten up if you have big gains. You can rebuy lower as described in my article on passive shorting: Passive Shorting: Selling Near a Top
Busy? Bookmark the link above and read it when you have time. The principle described could both save and make you money over time.
2. Gold (GLD, IAU) and silver (SLV): Gold and silver are both maintaining and extending their breakouts. There is a risk of a correction once Congress gets its act together and raises the debt ceiling.
There is also now risk of a loss of the US triple A credit rating. Did you know Japan is rated AA? We’ve been warned and are not heeding the warnings, so the S&P or other ratings agencies may downgrade our debt. This could give gold and silver more strength at least for a while. Remember that despite the lowered credit rating, Japan is still able to borrow at very low rates.
UPDATE @ 12:34 pm ET: the correction of the metals has begun it seems. This is very news driven, but there is little time left for Congress to make a deal, so that may have been a short term top in the metals that we just saw.
If you don’t know where the gold breakout occurred, you can find the numbers here: Other GLD ETF Pointers
3. The U.S. dollar index (ETF: UUP; U.S. dollar index USDX; DXY) has tested the June low and has bounced so far. UUP is below the June low, but remember that it has carrying costs, so the chart does not give a clear picture of the behavior of the US dollar index over the longer term. You can see the US dollar index chart here: US Dollar Index Chart
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