Stocks Selloff, Dollar Rally Imminent

I rarely make such pronouncements, but I think the evidence points to a substantial selloff in stocks and a very large rally in the USD commencing immediately. Commodities, including precious metals, should also participate in the downside.

I have been reluctant to counter trend trade since March, but since the uptrend is violated and there is a short term downtrend we can go ahead and put on a reasonable short position. My target is the 200 EMA on the SPX.

If you are short USD I think you'd better cover because you have a lot of company. When the entire planet hits the buy button at the same time it's called a short covering PANIC.

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Comment by BullBearGirl on November 8, 2009 at 5:51pm: Just to clarify things - I didn't sell my PMs because of anything you said, Steven. I sold them a good month or more ago because I figured the dollar might rally.

Comment by BullBearGirl on November 8, 2009 at 5:41pm: So many pivotal moments right now. This should be an interesting period of time.

Comment by Steven Vincent on November 8, 2009 at 4:28pm: BBG I am not so sure about gold...it has been defying expectations. I have not called it as a trade in the room because there has not been a good setup since the breakout...which I missed and was wrong about. I SUSPECT that a big correction could be in the cards but we shall see. Commodities look a lot stronger than stocks at this juncture. Will they correct as the dollar rallies? Logically they should, but...

Comment by Steven Vincent on November 8, 2009 at 4:01pm: Peter I think what you are seeing there is a double top and not a head and shoulders on RUT. Nonetheless is is one damn ugly chart. You have a double top, a trend break, increasing volume on the decline, decreasing volume on a bounce to moving average resistance, a 20/50 bearish cross pending with both turning down sharply, and RSI in a clear downtrend. All of this from a sector that was previously a clear upside leader. This is one of the factors that has turned me intermediate term bearish and looking to get short.

PS choose the camera button to embed a pic in a post.

Comment by BullBearGirl on November 8, 2009 at 3:59pm: Hi Bob from Buffalo - I hear you on hyper-inflation. That frightens me more than deflation, but neither one sounds great to me. We are trying to sell our house and move back to the US, which is why I'm currently worried about the SM going really low as I'd imagine that could make getting a buyer harder. I'd be equally or even more worried about hyper-inflation. There are some posts at this blog about gold. Steven explains what is going on with it, why it is currently rising even as the dollar goes up, and that he believes it will soon have a correction or worse. I tend to agree with him and have sold mine. When it starts to look like the correction is starting, I might short it. When it is down and looks like it might turn up again, I'll be a buyer. I just worried that I wouldn't be able to stomach the decline, even if it is only temporary.

Comment by Bob from Buffalo on November 8, 2009 at 1:44pm: BullBearGirl i'm not so sure that a drop below the march low would be the worst thing in the world. I would much rather see deflation before a hyper-inflation. If equities head back up to 2007 highs I have a feeling commodities across the board will be much higher than their 2008 highs and the dollar index in the 60's or maybe high 50's. This move in gold is getting me a little worried. I covered some short positions i had on the NDX because of it. Though i'm still leaning towards the idea that we'll have another period of deflation along with a strengthening dollar. We shall see. Should be interesting.

Comment by pm on November 8, 2009 at 1:26am: PS See my blog a few weeks ago of E/Wave showing potential ending of this current wave. Under E/W theory if a turn comes soon it could be very signicant

Comment by pm on November 8, 2009 at 1:22am: RUT Hand S 6 Nov09.bmp
There's a perfect head and shoulders on the daily RUT (attached) with Friday just holding above neckline.
Options are good when trading the downside, not only leverage, but great advantage from increasing volatility. ATM is good I think.

Comment by BullBearGirl on November 7, 2009 at 10:53pm: Christopher - me again. I think Steven's USD/CAD trade is a bearish trade for oil. You can see his trades in the Bull Bear Trading section of this website.

Comment by BullBearGirl on November 7, 2009 at 10:51pm: Steven - I should have figured you'd give us a good shorting entry point. Too bad I didn't wait for it. Next time I'll know better.