US Dollar Pounded

The Wall Street Journal finally came out and called the “Stress Test” a sham. They detail how in the last few weeks, banks have been lobbying the government to lower the amount of “Losses” they have and how much “Equity” they must raise. Apparently, Citigroup was originally supposed to raise $35 billion, but the final verdict was that they needed to raise $5.5 billion. You know my thoughts...

http://online.wsj.com/article/SB124182311010302297.html

We had a choice to do the hard thing and Nationalize the banks to purge the system of their bad debt, but instead our Government continues to try and Inflate the problem away.

So what does the market think of the “Stress Test” and hyper-inflation?

The Dollar Crashed Today
A crashing Dollar is what is going to be required to prop up asset prices via the printing of money – instead of working, then saving, then investing to build up prices via real equity.

Foreigners know this, so they sold off the Dollar hard and bought Real Assets with abandon. Virtually anything related to Real Assets went vertical Friday and made back the losses of Thursday. On Friday, the Dollar broke below its 200-day Moving Average for the first time since August 2008!

I have big positions in The Euro (FXE) and will add to it on pullbacks into the 20-day.
I also have a ton of money in CDs linked to the CPI. I will buy as many of these as I can get going forward.
I am starting to buy Gold and will buy Gold and Silver stocks on pullbacks into the 20-day.
I will also continue to build holdings in Commodity stocks as they pull back. This rally is not about “Growth”, it is about the devaluation of Paper Money and the race to buy Real Assets before the real Inflation wave hits. THE BOTTOM appears to be in for Commodities - therefore, errors should be bailed out, instead of pounded. But massive price volatility can still lead to substantial short-term pain.

I expect the Fed to announce an additional commitment to the purchasing of US Treasuries in the very near future and when they do, that could light up Gold light a Christmas Tree (unless it gets built in before hand and it becomes a “sell the news” event – I will keep you posted).

Sector Rotation?
The question for the markets is will money rotate out of Commodities and Financials and into other sectors or will it just go to cash? Money now appears to be rotating out of Retail, Technology and Consumer Staples into Commodities and Financials. When the rallies in Commods and Financials run out of steam, will the money flow back into other areas?

If money does not get put back into Technology, then the areas that are now set up best are Fertilizers, Gold and REITs (Commercial Real Estate).

If they rally any or all of these groups, then once price breaks above resistance, action is Bullish and I need to be buying. That is the lesson of this rally – pullbacks into the 10-day and 20-day are being bought with abandon. It is very reminiscent of Technology in 1998 – 2000 (the heyidiot.com rally).

Secondary Bases
This is what I am looking for when I start to commit money. I want to see something that has pulled back in an orderly manner and is now sitting at either critical support or at a level where I can put in a Stop Buy and have a close Stop Loss if the breakout fails.

Technology
Agilent (A) has now been sitting in a tight trading range for 5 days. If buyers show up, it will break out. If they do not, then it will pull back toward the rising 20-day at $18 or the now rising 50-day at $16.

Sohu (SOHU) has pulled back about 10% this week to set up another leg higher. Its breakout point was $55, so there is potentially another 10% of risk in this name, but the potential is there if buyers show up.

AsiaInfo Holdings (ASIA) is set up in a high-level, 1-month base. A breakout takes ASIA to multi-year new highs! Internet Security has been doing very well, and ASIA has been a leader and has not seen the ugly breakdown of a leader like Netflix (NFLX). ASIA stays at the top of my list, with stops in place to buy it.

Cisco Systems (CSCO) had an ugly reversal on earnings and is now pulling back into its breakout point at $18. Cisco has pulled back 7.5% in two days (get used to that type of volatility).

MEMC Electronics Materials (WFR) is sitting at the top of its 7-month base. It has failed on the last two breakout attempts, but WFR makes glass – the kind of glass that goes into Solar Panels. Therefore, WFR is my way of participating in Solar.

Fertilizers
Monsanto (MON) broke out of a 7-month base and has now pulled back to the breakout point ($85). The pullback was -9% in about one day (ugh). Potash (POT), CF Industries (CF) and Agruim (AGU) have similar patterns above the breakout levels.

Mosaic (MOS) is similar, but has not yet broken out of its trading range.

When you get most of the leaders in a sector all setting up in the same patterns, you know that something big is coming. The setup is there for Big Money to launch or tank this group. I have stops in to buy if buyers show up. Don’t be surprised to see some knucklehead analyst upgrade the group before the markets open tomorrow and ramp prices up +5 or 10% before the open (I would be pissed)…

Precious Metals
You have already seen my charts on Gold (GLD) and know the potential in this Asset Class for a significant move out of a multi-year base.

Pan American Silver (PAAS) has broken out of its base and is now sitting around. It is high on my list.

My shopping list is long and potentially huge, as long as the Market doesn’t come unglued under heavy selling. At some point the heavy selling will come in and this rally will fail, but until then I am looking for charts exactly like the ones I have listed. For me it is all about price and volume.