Simit Patel's  Instablog

I've been playing AUDUSD a lot this year, as I'm bullish on it on a three year outlook, and looking to ride an upwards trend.

I entered a long position at 8827 with a stop 300 pips out. Profit target is about 1,000 pips. This is based on the weekly AUDUSD chart.

The rationale here is that price has broken above the double doji on the weeklies. Moving averages are still aligned and "big picture" fundamentals remain supportive, further indicative that the bull trend is still in tact. 

I'm only half in, as I'm still waiting for a pullback, which I think is quite likely. If/when it occurs, I'll put the remaining half in. However I wanted to get half in now in the event a pullback does not occur.

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.

1. 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.

2. 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.

3. Non-US equities, in my opinion, remain safer than US equities. Many non-US equities have rallied more so than US equities.

4. 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 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.

5. 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).

6. 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.

7. 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.

Tenet Healthcare (THC), a publicly traded company focused on providing quality healthcare via hospitals, has been on a tear this year. Its stock price has risen by over 300%, and the trend is clearly upwards. The rise in price may be partially attributable to improvement's in the company's financials: while the company did post a loss in the second quarter of 2009, its revenue continues to grow. Moreover, if discontinued operations were excluded from financials, the company would be profitable. This suggests the company may be on the right track.

Economic woes, however, affect all industries -- including healthcare. Will the Obama plan for creating more health insurance options help companies like THC? Perhaps, although government handouts typically come at the expense of greater regulatory scrutiny. Government handouts also increase the likelihood that political connections will impact how regulations are structured. Given that Tenet Healthcare has not been the best friend of the US government -- in 2006, the company settled on charges that it was overcharging the US federal government for Medicare expenses, paying $725 million in cash to the government while foregoing an additional $175 million in fees -- the company may not have the political connections needed to get the most out of proposed government-led healthcare reforms. Moreover, Trevor Fetter, CEO of THC, has expressed skepticism towards the Obama administration's healthcare plans, suggesting that hospitals will be forced to bear too much of the burden.

Fundamentally, I think the picture is a bit mixed, and is dependent much upon pending government legislation. Technically, however, I think THC, which has been on a strong uptrend, is due for a correction. The chart below, a weekly chart of THC, shows RSI overbought and declining, the price near the upper Bollinger band, and a doji as the most recent candlestick. With this in mind, this may be an opportunity for short-term short sellers. Alternatively, those bullish on THC may benefit from waiting for a pullback before going long.

Disclosure: No position.


Simit Patel
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