Monday, December 7, 2009

US Dollar is Key, Precious Metals Probably Topped, Stock Market Should Follow Soon

Just a quick update this morning on a few things I think are significant. As I've said many times, the US dollar is key to the stock market's movement. A dollar bottom and rally should result in a stock market top and reversal. You can see from my primary wave count on the attached chart of the 4hr USD/CHF that it's possible to count the rally from the lows as impulsive. But as you can also see from my alternate count chart below it is that it's also possible to count the rally as just an A-B-C correction which will most likely lead to lower prices soon. This should clear up as time goes by and wave structure unfolds. But now that we have the two top wave counts, we can watch the action from now on and see what fits best. The bullish count does remain my primary count right now though.

The reason the bullish dollar count is my primary count though is because of the action in precious metals. Gold has been in a blowoff top for a few weeks now but appears to have made its top. Last Friday, and halfway into today's US session, gold has dropped $83, or 6.8%. You can also see from my attached gold futures weekly chart that in addition to this, gold made a bearish weekly reversal candlestick. If gold topped, it will be hard for the dollar to make a new low, which means the current dollar count should be bullish as of right now.

The stock market is struggling to find direction, but the indications in the US dollar, precious metals, and several of the smaller indices indicate that a major top is forming and can give way at any time to a major sell off. Until the stock market gives us clear signs of that top occuring, I have to remain neutral in the short term, and of course I'm still very bearish in the long term.

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