Wednesday, September 16, 2009

The Towel

In a post a couple of weeks ago I posted:
4) USD bottomed in early August?
5) Credit market topped in early August?
6) Gold/Silver doing a double bottom in late August?

Oil and commodities did a double top in early/mid August?
Stock market topped late August?
We need confirmation from the USD (rally to 80+), gold/silver to take out 70/72 and credit markets to tank.

This would likely confirm a top in commodities and stocks and allow for a substantial correction at a minimum and even possible a break/test of the March lows. To this list, I would also watch:

A) Financials
B) Yen
C) TLT (proxy for long term treasuries)

We know know that

4) USD headed lower and still sinking
5) Credit markets are doing just fine (for now)
6) Gold/silver ratio is heading to new lows

Financials are behaving fine (for now), TLT is doing OK and the Yen is soaring (normally a warning, but may be simply a reflection of every currency up vs the dollar).

All, in all, I have to respect what I wrote that day:

If we rally back over S&P 1040 right now after today's move to 998, then the bearish case may have to wait until 2010.

We got no confirmations from any of that list.

S&P hit 1068 today. I closed out almost all of my shorts around 1030ish, and I am in wait and see mode. I don't think the bearish case will wait until 2010, but anything is possible here as the bulls are in the driver seat. It remains to be seen if the car is heading off a cliff, though. Almost all major asset classes are at critical levels (gold, USD, Euro, stocks, etc...) and I believe the reversal will be incredible. However, for the short term, I need some sign of a reversal. Thus far in 2009, I have either been wrong or very early. I still believe that I am just early, but once again, I will wait for confirmation. A blow off move has ensued and a move to 1100-1120 is very possible. I still believe that new lows are coming and that this depression is a multi-year process. For now though, discipline must trump conviction.

The position that has caused me the greatest problem this year has been holding too much US cash.

Disclosure: Positions in USD, Euro, Cdn cash, positions in select SPY puts, JPM puts, IBM, CM.TO, BMO.TO, TCK-B.TO

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