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Posts Tagged ‘UUP Dollar ETF’

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Treasuries Collapse On Caution Over Quantitative Easing Policies

In Market Analysis on October 15, 2010 at 8:16 pm

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Last week before the jobs report on Friday I wrote an article that concluded, “The weakness in the dollar will also put hawkish pressures on the Fed. Many are expecting more quantitative easing but the market may have a surprise if the Fed changes its language to support the dollar and curb the speculation into gold and silver.” (See Will Tomorrow’s Job Report Be Bullish for the Dollar?) Today, one week later, Ben Bernanke said, “…factors have dictated that the FOMC proceed with some caution in deciding whether to engage in further purchases of longer-term securities.”

This was a major change in the language and came in at a crucial time to support the US dollar from entering new all-time lows. Pressure from the rapidly declining dollar led Ben Bernanke to also speak today about not knowing the economic effects of these policies. This sent long-term treasuries lower along with housing and financials. The dollar gained some strength over the cautious statement.

I believe he’s well aware of the economic effects which are clearly being felt in the markets, a deteriorating dollar, higher prices of commodities, and an extremely weak recovery with high unemployment. Now I’m also seeing signs of a collapse in long-term Treasuries through two factors — less demand from foreign buyers and less purchasing power by the Fed. One of the actions the Fed has been doing to keep interest rates low to stimulate growth is buying long-term Treasuries. However, the market is nervous that the Fed may be cautious of the extent of those purchases.

Although Bernanke indicated there are some very large deflationary pressures, the long-term Treasuries are indicating that it will be much harder for the Fed to raise its debt at these low rates. The long-term Treasury market is indicating that the spending and deficits the US is getting itself into may demand higher interest rates. The US is selling a huge supply of Treasuries to finance the debt it’s using to spur economic growth. This is creating an artificial glut and demand seems to be decreasing — especially since many investors are moving into precious metals and natural resources as the safe haven at the moment. Long-term Treasuries were a safe-haven asset during the credit crisis of 2008 and the recent European sovereign debt crisis. However, the long-term Treasuries are showing signs of weakness as investors are losing faith in the financing of record deficits and a pullback of purchase by the Fed.

We may be approaching a significant decline in long-term Treasuries which could send long-term rates higher. These higher rates could continue to put pressure on the housing market. Many homeowners are unable to take advantage of record low interest rates to refinance due to negative equity. Now with higher rates this will continue to put pressure on the housing market and bank stocks which haven’t confirmed this recent rally in the equity. Please see Treasuries Break Long Term Trend Support as Gold, Silver Rush Continues where I discussed the potential breakdown of US Treasuries. Their recent lack of participation in the market rally indicates that the housing and financial crisis isn’t over yet. Defaults are expected to rise with higher interest rates on adjustable loans.


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I believe that interest rates will start moving higher and we may see a major collapse in Treasuries, housing, and financials over the next couple of weeks. The long-term Treasuries have broken trend support and the 50-day moving average is on high volume. Now is an important time to prepare for a rise in interest rates during a weak economy.

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Look For Pullback In Gold and Silver As A Buy Point

In Market Analysis on October 13, 2010 at 7:59 pm

These past few weeks, as the equity markets rallied based on the belief of further quantitative easing by the Fed in November’s meeting, the dollar has collapsed, which I warned readers about a couple of weeks ago. Since that time, gold and silver have had a historic and parabolic rise as investors feel the Fed will continue to ease through the end of the year. Investor sentiment has reversed completely over the last eight to 12 weeks, since I signaled a buy on gold. There are no concerns as bullish sentiment on equities and precious metals reaches record levels. Investors feel the Fed will solve everyone’s problem by devaluing the US dollar. The temporary Band-Aid isn’t fixing any of the core problems. Unemployment is still high and housing is weak. Neither the financials nor the homebuilders are participating in this rally, which leads me to suspect this entire rise in the markets isn’t sustainable as it’s been on low volume and key sectors haven’t yet participated.

In countries where there’s a huge deficit, the only solution to pay back debts is through a devalued currency. Japan has recently intervened to try to devalue the strengthening yen. A strengthening currency to countries with huge obligations can heighten the risk of default, which many countries are facing. Also, a strong currency puts pressure on international corporations that export products abroad. A weak dollar will cause the products to be more expensive to American consumers, hurting demand and growth. More sovereign debt defaults in emerging markets are expected. It appears that many investors ran to the dollar from the euro after the European Debt Crisis. I expect something similar to occur now. The euro is reaching a key resistance level and is overbought. This means a pullback should occur. The US Dollar is extremely oversold and at long-term support. The bearish sentiment on the US dollar is extremely bearish, which indicates a reversal should occur.

As global economies feel the consequences of the United States’ actions, I expect further fallout from weak economic growth and the sovereign debt burdens in Europe. Many investors are pricing in a major move from the Fed. I’m not so convinced, as equity markets are higher and the dollar has moved significantly lower. Investors should realize that unless we see another sovereign debt issue or another bank failure, another major round of easing is unlikely at this point. I believe the investment community is expecting too much from the Fed and it appears the Fed is doing an excellent job stimulating the markets just through speculation of a move rather than the actual move itself.

This last easing from the Fed has met with some more critics and it has definitely increased international tensions. The US dollar has collapsed and is now testing long-term support. I don’t know at this point if the Fed will be so quick to act the next time around unless there’s another deflationary crisis.


Technically the dollar is due for a bounce and investors should look for any pullbacks in gold and silver as a buy point. Instead of the risk associated with buying bullion at these extended prices, many juniors that would be extremely profitable at lower gold and silver prices haven’t broken out yet.

I believe these junior mining companies are presenting a great buying opportunity. Remember on these recent parabolic moves, the faster it goes up, the faster and harder the correction. Last Thursday showed a huge volume reversal day. This indicates to me that some of the smart money are hedging their long gold and silver bullion positions for a correction. Although we may see further upside, the move is about to get exhausted as it has taken out many technical targets and measured moves. Be careful of getting caught up in the hysteria.

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Miners And Base Metals About To Break Out

In Market Analysis on October 6, 2010 at 5:16 pm

We have all heard the saying “buy low-sell high” as the mantra of making money in the market.  To apply this cliche is much easier said than done.  Adhering to this rule is not an easy task and without the use of technical tools to determine buy points and targets, an investor can get caught up with the hysteria of a parabolic move.  Now gold and silver is making huge advances as it continues the trend into new record territory.  I wrote an article that discussed the original buy on gold as it came to long term support and also wrote articles discussing the coming break out in gold and silver from the cup and handle pattern.  Since these moves gold and silver have made historic and powerful moves.

As prices rise in precious metals so does confidence.  All over the news I am hearing how the world banks are printing money and that gold and silver could move exponentially higher.  Positive news for hard assets including yesterdays massive quantitative easing by Japan and the United States commitment to keep on flooding the markets with cheap dollars is making gold and silver investors very comfortable.  Whenever confidence increases like this it is time to prepare for profit taking.  Risk is being increased and “Johnny Come Lately” analysts are advising to jump on the bandwagon.  I refuse to follow this mad crowd at this time.  A successful speculator knows when to enter a trade when at the time the investment is unpopular.  Don’t follow the crowd and be prepared for exit signals as we are reaching technical targets.

Unfortunately the majority of investors tend to follow the crowd and do not have technical targets that will take profits after a reasonable move.  Just like in popular culture there are fads that come and go, so too in asset classes.  Be careful of the hype that is accompanying the trade now.

As gold and silver reach overbought territory, I am providing detailed targets to my readers on where to take profits from our buy points at the end of July.  I have recently been focused on some miners which have pulled back and ready to outperform even if gold and silver have a pullback.  These miners will be extremely profitable at significantly lower gold and silver prices.  Miners are just beginning their break outs and many have not caught up with the bullion price yet.

The movement in gold and silver bullion is getting extremely emotional.  Yesterday’s gap up after a significant move signals we may be close to the coming pullback in gold and silver bullion.  Make sure to check out my free newsletter at http://goldstocktrades.com to find out key technical signals.  Don’t get comfortable now if you have considerable profits and be alert for any reversals.

Even though gold and silver have broken into new 52 week highs platinum, copper and other base metals have not broken into new territory.  If one is looking into dollar diversification at the moment I would look into other hard assets that have not moved as  parabolically as silver and gold has.  Platinum and copper are showing strength signaling that the massive printing will encourage the global economy to gather steam.   Although gold and silver are en vogue now from a technical standpoint other commodities which should also benefit from quantitative easing should be considered as they should catch up with gold and silver.  Platinum and copper are about to make the golden cross, which is the 50 day crossing the 200 day moving average to the upside.  These two metals may break out and catch up to the other hard assets in performance.  As gold and silver reach parabolic levels other hard assets which are not overextended may provide a better risk to reward investment.

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Watch Out For Dollar Dead Cat Bounce

In Market Analysis on October 4, 2010 at 7:24 pm

A couple of weeks ago I mentioned the the dollar was on the verge of a collapse. The dollar has significantly fallen since that time and is now reaching extremely oversold levels evidenced by the stochastics and RSI. So a dead-cat bounce may be beginning in the dollar, which may put short-term pressure on equities and miners.

Could we be on the verge of the next deflationary crisis? Ben Bernanke said he’s still concerned about deflation. The financial system is still under pressure with high unemployment, foreclosures, and defaulting credit. There will be further sovereign debt issues from Europe and further weakening in real estate as defaults continue to rise. This tug of war between deflation versus inflation seems to be an ongoing cycle and we may have further news out of Europe surface soon.

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You can observe the chart of the dollar the cycles of deflationary periods versus inflationary periods. The dollar is reaching extremely oversold levels and a price floor, which means we may see a dead-cat bounce. This may put pressure on gold and silver temporarily. It will provide further market entry points for precious metal investors who enter the trend when gold and silver is on sale and oversold, reaching long-term trend support.

There may be further dissent from central bankers to complete a new round of asset purchases unless we see further debt issues from Europe. Many are concerned about the deteriorating dollar and the rise in gold and silver. This indicates investors are concerned about the stability of the US currency. This lack of confidence in a sustainable recovery will put into question the past monetary easing of the Fed. The quantitative easing isn’t making a sustainable recovery and producing any real economic growth. Although the equity markets have recovered, it’s been a direct result of the dollar collapse. The housing market isn’t showing signs of any improvement from the record low interest rates and still hasn’t been able to penetrate its 200-day moving average.The unemployment rate is still high and the devalued dollar is putting further pressure on wage earners.

The falling dollar also has hurt emerging markets that rely on a favorable exchange rate in order to export goods. Recently the Bank of Japan had to intervene to push the yen lower. However that was short-lived as the market shrugged off that news item and reversed higher. Although the Fed’s monetary policies may be good for the equity markets, they’re not making a significant impact on the average American. The rapid decline in the dollar will spark further pressure on emerging economies especially in Asia. This decline in the dollar will increase merger and acquisitions in the natural-resource sector as many Asian nations who are becoming net importers of certain commodities are trying to increase their supply. Although the downtrend in the dollar is confirmed a short-term bounce from these oversold levels may occur, which may provide further buying opportunities in gold and silver.


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The S&P 500 is appearing to show signs that the rally is losing steam. The MACD is making a bearish crossover and the significant rise without any pullbacks shows an extremely volatile move that could see a nasty pullback. The breakout of $114 — which I didn’t expect to occur — seems to be a fake breakout. The breakout occurred without forming any real base. Thursday appeared to be an outside bar day, indicating that the uptrend of September is losing strength. The price volume action is bearish and now the MACD has made a bearish crossover. Stochastic indicators have also signaled a sell signal from extremely overbought levels. Caution needs to be exercised.

Although gold and silver may be under pressure from a weak equity market and dollar dead cat bounce, I believe it will provide another opportunity for precious metal investors to enter the trade at a more reasonable level.

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Dollar Slices Through 200 Day Moving Average After Bank Of Japan Announcement

In Market Analysis on September 15, 2010 at 5:42 pm

Gold broke out of a classic cup and handle pattern yesterday right before the Bank of Japan announcement.  The Yen has significantly strengthened since June as this is extremely difficult for the Japanese export companies.  The economy in Japan is weakening and they are facing their own sovereign debt issues which have not yet surfaced.  However, what is more important is how the markets are reacting.  This reaction in the yen may be short lived.  Although it might be a short term bandaid the intervention efforts may be too little for the global forces of supply and demand.  There is little support for the dollar as evidenced by the U.S. Dollar Chart.

Today the selling in the yen did not transfer to purchasing U.S. Dollars.  It seems as though yesterday and the past several weeks there has been a major rush into precious metals.  The dollar’s chart is giving warning signs of an imminent collapse. Certainly the dollar has not reacted positively to this announcement.

The dollar is slicing through its 200 day moving average and the 50 day clearly has acted as resistance.  A major transfer of dollars into precious metals are occurring.  A death cross is imminent on the dollar and this is occurring simultaneously to a new high breakouts on silver and gold.

Usually a weak dollar has been bullish for stock markets as investors were less risk averse.  However, this is not the case this time.  Even though the dollar has fallen since June the markets have failed to rally significantly.  Instead precious metals and mining companies have broken out of key resistance.

The S&P 500 has been in a sloppy and volatile base for four and half months.  The poor price volume action tells me a breakout above $114 is highly unlikely.  A third failure may be imminent as overbought conditions are combining with previous resistance.

This cup and handle pattern in gold is extremely bullish and could be the beginning of a next leg higher.  It is a sign of a major consolidation and this recent breakout may bring in more investment interest by institutions who are concerned about currency and sovereign debt issues.  A major transfer of capital is moving from currencies, bonds and equities into precious metals.

To see my recent prediction of this breakout move click here.

Gold’s (GLD) pattern is very rare and this setup tends to indicate a major move into hard assets.

If we see a decoupling of the dollar versus gold continuing, expect to see more buyouts of resource companies from Asia.  Right now we are seeing a massive transition of wealth from the dollar to silver and gold.

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Gold At Long Term Trend Support, Key Level Highlighted

In Market Analysis on July 27, 2010 at 8:08 pm

Gold is now reaching long term trend support after falling the last few weeks as investors returned to bid up the Euro and equities.  The bounce in equities, especially financial, retail and real estate may be short lived as volume indicates that there is not much conviction from major investors on the upside.  Gold has recently been the safe haven as investors sought shelter away from the Euro when it was having the sovereign debt issues.  Now that those issues have been quelled, gold has had some selling and it has now reached an oversold  condition and a long term trendline which is acting as major support.

Stock prices move in trends.  In a bull market, it is quite often easy to identify the ascending bottoms.  Being familiar with trendlines allows the investor to enter long term bull markets when they are oversold and at key support.  An investor must always be aware of a stock’s underlying long term trend. This can be counter-intuitive and awkward, as most times when it comes down to support you have to think against the market herd and buy when others are selling.  It’s like buying a winter coat in the heat of summer. Gold is on sale, and presenting a low risk, high reward trade, but it requires non conformity with the crowd which is not an easy task for anyone.  Many of us like to be in what’s hot now situations, rather than seeing the bigger picture and entering into a trade when it is uncomfortable.

Gold is now at my buy point of the rising long term trend support line.  GLD touched that line 6 times, which signifies that this trendline is a reliable point of support.  The significance of this line is that it is not steep, which also brings a higher probability that GLD will find support here.   It is also oversold.  Continued weakness here and a break below this long term trend would be troubling and highly unlikely.  If there is a break most likely it would be exhaustive, meaning that it will shake out a lot of shares before the next move higher.  I do not see $1200 as a top in gold as there are no technical signs of a major top.

On the other hand, financial stocks may be finding key resistance here following a low volume rally.  As investors are digesting earnings reports that claim credit is improving and lending is increasing, consumer confidence is weakening and the unemployment rate is still very high.  A jobless recovery is what many are considering we are experiencing.  It seems that this recovery has been good for wall street while main street has not seen an improvement. The financials have found resistance at the 200 day moving average and have now failed four times, significantly breaking through this point of resistance.  Historically speaking, after a few failed rallies a major drop could occur.

At the writing of this article, housing has also had a significant reversal after recent data showing an increase in pricing in some metropolitan areas.  Investors are selling home building stocks on positive news, which  indicates that there is some caution over what the real estate market will resemble after the home buyer tax credit expires.  The chart shows a clear reversal and I expect that the rally in equities will be coming to an end and that gold’s poor summer performance will be different this fall as many weak hands were shaken out.  An explosive fall rally into new highs is expected as I still have a target of $1400 by year end.

Disclosure: I own shares in gold and silver mining stocks.