Tuesday, November 22, 2011
It's a schizophrenic stock market.
The trend shifts from bullish to bearish to bullish and then back to bearish – all within just a few days. My personal perspective is changing just as fast. I was buying in October... selling last week... and now I'm buying again.
This is a chart of the U.S. dollar.
The greenback is tracing out a "bearish rising-wedge" pattern similar to what we saw in August and September – just before the dollar collapsed 6% in one month.
For most of this year, the dollar has traded opposite of everything else. When the dollar rallies, everything else falls. When the dollar falls, everything else rallies. A falling dollar has been bullish for the stock market. In fact, when the dollar broke to the downside of its rising-wedge pattern in early October, the S&P 500 exploded 16% higher in just four weeks.
There's still room inside the current "rising-wedge" pattern for the dollar to push higher one more time. But after that, the rally is over. If the dollar falls like it did in October, the rally in the stock market should be sudden and severe.
Of course, it's hard to go from bearish to bullish after only one week. But the circumstances are changing fast. Good traders need to change direction just as quickly. The bearish pattern I showed you last Thursday took only two trading days to play out to the downside. Now it's time to look for other clues to the market's future direction.
Beginning with the dollar, those clues are starting to point to a rally.
Best regards and good trading,
Last week, Jeff was betting on a quick dip in the market. Just two trading days later, the market is down more than 2%. Learn more here: The Market's Next Big Move All Depends on This Chart.
Jeff also nailed a correction in silver earlier this month when he took notice of a bearish sign on the precious metal's chart. "No one noticed it," he writes. "That makes me want to pay attention." Silver is down 5%-plus in less than two weeks. Read more here: A Deadly Sign for Silver.
Silver prices plunge 12% in just two weeks after "death cross."
Big drugmakers Pfizer and Abbott Labs are both up more than 10% this year, including dividends.
Copper downtrend continues... the "everything" metal is down more than 25% this year, including a 17% drop in the past three months.