Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

We Broke the 50% Retracement. A New Bubble Forming?

|Includes: GLD, SLV, PowerShares DB USD Bear ETF (UDN), UUP

Well permabears like myself certainly have some explaining to do, as the DJIA is now trading at 10,400 -- above the 50% retracement level of the move down from the all time high above 14,000 to the March 2009 lows around 6500. To break above the 50% retracement makes it hard to argue that this is simply a pullback in a bear trend; now it seems more like it may actually be a bull trend.

Well, in the nominal sense, that is. Of course with the dollar continuing to fall and gold and silver continuing to rise, this is still an inflationary rally, not a rally driven by real growth. From an economics perspective, all that's happened is a wealth from everyone who uses US dollars to those who hold US equities and/or precious metals.

US Dollar Index has broken below 75 at the time of this writing. If we can break the 2008 lows (also the all-time lows) of around 71.50, it will be interesting to see what happens. If the dollar continues to slide, at some point the risk of dollar devaluation will lead to a run on the dollar, which will send all dollar-denominated assets down in value -- both in real value and in nominal value.

Simit Patel
Learn to Trade