In my last blog, 4/26/11, I talked about the short-term market conditions and how it is weak. Because QE2 is not over yet (this is due to end at the end of June) the buying continues and because others see the market as topping out and are selling the net result has been that the market has become trendless.
In the mean time my major long-term indicator has flashed a sell signal. This signal, which is not based on trends, can be one to two months ahead of the trend. When the trend signals a sell this will be a confirmation that the sell has started.
Because the QE2 buying will end the only defense the government has is to raise short-term interest rates. This will have a powerful deflationary effect on the economy which will have a selloff in commodities and a strengthening of the dollar. At some point in the future the government will have to step back in with another round of QE3.
So what can an investor do with this situation? For the short to intermediate-term buy the US Dollar; I use the ETF UUP. And because the EU is in terrible shape and will go down with the strong Dollar buy the ETF ultra-short EUO. To take advantage of the weak market buy the ultra-short S&P 500 SDS and ETF VXX when the market trend signals a sell. Also as the market trends down buy VXX. At sometime in the future because of inflationary pressures interest rates will start to go up and we’ll buy short bond ETF’s. I’ll let you know when the timing presents itself for these trades.
So what happens to gold and silver with the changes going on? They will start to climb again when the dollar weakens. I don’t expect this to occur until we get out of our dollar position. Again, I’ll let you know when the timing is right. So, right now I wouldn’t add to your metals position; hold your bars and coins and sell your stock positions as stops are hit.
In general there will be stocks that go up, but choose these carefully and tighten up your stops. Look at TTWO, its way under priced.
