Wednesday, September 16, 2009

Party Like It's 1970-Something...

The Dollar keeps falling and risky assets keep rising
The Dollar broke key support at 78.25 and has imploded over the past week. It sure looks like the lows of 2008 will be at least tested. The rally part II continues…

Commodities have been sitting in bases for 11 to 17 months and I have been patiently accumulating them. The big boys broke them out of these bases this week!

Energy (XLE) has broken out and there is not much volume until $70.
Oil Services (OIH) broke out and there isn’t much volume until $160. Wow…
Of course these breakouts can fail at any time and you need to know how to protect your money. I am just showing pictures.

Normally the stocks lead the underlying commodity. Crude Oil (USO) is in a nice base and I am hoping for a breakout. The Commodities Index ETF (DBC) broke out today. A big breakout would be above $24.5. Read William O’Neil’s books if you want an idea of when to commit capital.

Agriculture (MOO) broke out today. Do you see any similarities between the charts of MOO and XME (Metals)?

Gold (GLD) has broken out of a 17-month trading range. The longer the trading range (base), the more power there is for the eventual breakout.

Royal Gold (RGLD) has been sitting around for a year now and has finally broken out.

Financials also broke out of trading ranges today. I prefer the chart of the Regional Bank ETF (RKH).
There are many charts still in bases, but there are fewer to find than a few weeks ago. Take a look at how some of the high growth and high relative strength Stocks, Indexes and Sectors have traded over the last few weeks –

South Korea (EWY), Taiwan (EWT), Real Estate (IYR), Materials (IYM) (I wanted to buy this one and IYT last Monday but had technology issues – s***), Metals (XME), Transports (IYT), (CRM), Redhat (RHT), BIDU, SOHU, FUQI, EMC, Teekay (TK)

All of these have ripped to the upside the last 2 weeks.

I think things are getting extended in here and we may pull back soon. My trading account is up over 7% for September. It is very aggressive and rarely has more than 6 positions, but it shows how powerfully things can move when the buyers show up. My holdings were EMC, MTL, TK, XME, EWT, EWY and RIMM. I got stopped out of UNG or I would have had a ridiculous two weeks…

My account is at its absolute high, but did suffer a nasty draw down of about 4% in August. And that is the whole point to this – you need to take small losses in order to be around for the big rallies. You need to be able to stomach the pullbacks in order to be in for the rallies. You personally need to be able to measure how much risk you want to take.

I will be looking to sell some extended stuff in the next few days. I feel like I am playing a game of Chicken right now, but that is always how it feels when you are invested and things are working in your favor.

There was a rumor today that the Fed will raise rates at its meeting next week. The only reason for a rate increase would be to rescue the Dollar. I think the Markets would hit an air pocket if rates were increased. A Rate increase would cause me a lot of pain!