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Dollar Continues To Advance As Equities Retreat

May 11, 2011 8:44 PM ETGLD, SLV, FXE, CVX, XOM
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The dollar index gained 1% on the day which collapsed the equity markets and sent commodities tumbling yet again after a bounce that has turned out to be short lived. All commodities but gold have been extremely weak which is the opposite of the price action over the last 8 to 9 months where gold had been the laggard. Conversely, as the dollar rose, the SPY fell over 1% and the Euro crashed through support at $1.42.

The SPY had an awful open and an even worse morning session. It managed to find support at the 26 MA and regain bits and pieces of the losses from earlier trading but it still lost 1.05% on the day after another flood into the dollar. The action in today’s trading is somewhat unprecedented and though no trendlines were broken, the equity markets were unusually weak and it is now a possibility that a top has already been put in at 1370 on the S&P 500.

The Euro lost 1.36% today and broke through support at $1.42. Support that was at the 50 MA gave way without so much as a one day bounce. The next target for FXE would be $140 before any kind of significant move to the upside.

The UUP found resistance at the 50 MA but the fact that it closed convincingly above $21.50 assures me that it is headed for $22 in no time. There may be a brief consolidation before it can close above the 50 MA, but there is a legitimate chance that it closes at or near $22 by options friday if it keeps up the momentum it has had for the last 5 trading sessions.

The move in silver turned out to be more than a dead cat bounce as it has played out into a bear flag pattern. Two days ago I gave the alert that we would reach and find resistance at the 50 MA on SLV. Today we hit the 50 MA in both silver while yesterday SLV made a run at its own 50 MA. Both charts have since reversed and spot silver closed down 8.6% on the day. The recent rejection of a bounce in silver is why I have been cautious to get back into the market. Many others jumped in at $40, $37, and $35, but only now am I considering opening long term positions within the next week or two. The steepness in which the price fell should have telegraphed an equally steep bounce off of support and it was clear that the 3 day rally was nothing more than a backlash from the original selloff.

Moving on, I am going to briefly recap my short picks XOM and CVX from Monday. The bear pennant that I called for XOM played out exactly as planned. It rallied the day after I made the call then lost all gains from the last 3 sessions in today’s trading. To add to that, it also closed below it’s 100 MA which means it could reach the $80 short term target sooner than expected.

As for the other oil short alert given on Monday, CVX like Exxon also played out according to plan. The bear flag broke down as expected and CVX lost 2% and closed below support which had been at $102.50. It is still a good percentage point away from its 100 MA and there isn’t any support levels between its current price of $102.26 and $100, where the 100 MA is currently resting.

MCP is another play I can say that I timed well and am happy to see it trading lower. MCP is 14% lower than when I warned of a top and sold my own holdings. Today it broke through support at $66 and formed a shooting star candle to finish off with losses of 5.73%. There will be support at the 50 MA plus there is a gap between $61 and $63 that needs to be filled so expect a rally after those levels are tested. The next levels of support after that are $60 and $55 though I would be surprised to see it trade as low as $55 unless there is a news-driven scare regarding China or rare earths. If MCP does reach $60, I will buy out of the money LEAP options and reload common shares as well.

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