Saturday, October 13, 2007

The Sinking Dollar

In bull markets you get abrupt nasty sell offs. We had one in Mar. and Aug. as an example. On the flip side in bear markets you get violent rallies when the market gets too oversold. We had several of those kind of rallies during the bursting of the Nasdaq bubble. The object is to figure out when we should be looking for one of these powerful rallies. In the S&P that level was 20% below the 200 DMA. Once that level was reached it was a good idea to cover shorts and wait for the inevitable rally before selling again. Well since I'm heavily invested in PM and they're influenced by the action in the dollar I want to know when I should be looking for a powerful rally in the buck. So far during this bear market that level has been around 8.5-10% below the 200 DMA. At the moment the dollar is about 5% below the 200 DMA. That would suggest that the dollar has a ways to go yet before we should look for a powerful rally. My guess earlier this month using other bear markets as an example was that the dollar could possibly sink to the 72-75 area in this second leg down. That should just about give us that 8-10% below the 200 DMA that I'm looking for before I want to sell any of my gold or silver positions.