Just a quick note I wanted to make about what I am thinking in preparation for October -- a month notorious for volatility and market crashes.
- Currently, I'm still long gold, silver, and the Australian dollar against the USD (trades documented in my trade journal). These trades have been working out very well for me. Regardless of what happens in October, I'm confident about them.
- We're coming up on the 50% retracement level from the US equities crash in October 2008 (as noted in this recommended video and dicussion). This will be a key break or bounce level, in my opinion. Look for the 50% level on both the S&P 500 and the DJIA.
- Non-US equities, in my opinion, remain safer than US equities. Many non-US equities have rallied more so than US equities.
- If the market crashes, which I think is more likely than a break above the 50% level (of course we would want to look at other technical indicators if/when the market reaches the 50% level), will the dollar rally as well? That is what we saw in 2008. However at some point the market will not be able to buy US dollars, especially with the Fed continuing to print more money. So, if US equities crash, we will see a flight to safety -- though I think it's still unclear whether safety means US dollars (like it did in 2008) or if it means something else, particularly gold and silver.
- I'm long gold and silver, but I will be looking to exit some of my positions if gold breaks below $980/oz (see previous analysis of gold).
- MZM, one of my favorite money supply indicators, turned deflationary this past month (meaning it declined). The last time this occurred was right before the crash of '08. MZM tends to be very well-correlated with the US dollar over the long run. The trend on MZM is still upwards, but the recent dip suggests we may get a dollar rally of some kind.
- Conclusion: $980 is a key level on gold that I'm watching. At this point I think a dollar rally in October is a bit more likely, but of course I will let the charts tell me what is happening. Overall I remain quite confident that the major trends in the marketplace continue to exist and so I will be looking at a potential rally in the US dollar as an opportunity to short it from a higher level.
Disclosure: Long gold, silver, Australian dollar. Short US dollar.
