Posts Tagged ‘50-day’

What does the dollar rally mean to investors?

When I used to date (before I got engaged), I never tried to kiss a girl unless she confirmed her interest in me.

A first date was never enough. People date all the time and it leads nowhere.

But if the girl was fiddling with her hair, touching my arms and telling me how I was a “strong and powerful Puerto Rican”, well, I would definitely kiss her by the end of the date.

Other guys I know aren’t as conservative. They try and kiss a girl whether she shows interest or not.

These are the same guys that spend money that they don’t yet have. Or that put all of their money on one big bet. And the same ones that try and predict tops and bottoms before they ever happen.

Their success in the stock market – as with the ladies – was limited.

I guess you can say I’m on the safer side of things. I like to wait for confirmation before I act. With the girls, as I explained above, I like them to show an interest in me. I don’t like to spend money I’m not holding in my hand. And I definitely don’t try and pick tops and bottoms in the market before they happen.

Rather, I ride out the trends and look for predictable buying or selling opportunities to take advantage.

In yesterday’s issue, I told you that I wouldn’t become a bear until the 50-day moving average was breached on the major indexes.

One thing I didn’t cover though was the dollar.

Careful observers have noted that the buck is now above its 50-day moving average. On Friday, I explained the relationship between the dollar and the stock market. Suffice it to say, a rallying dollar is bearish for the stock market.

But just because the buck is above its 50-day doesn’t mean I’ve become a bear. As I said before, I like to see confirmation first. In this case, confirmation would only happen if the major indexes drop under their 50-day moving averages (10,076 on the Dow Jones).

In the end, you have to stay realistic. Don’t let ideology drive your actions in the stock market. Instead let the market guide you.

Even though the dollar broke through a major resistance point, the trend is still up for the stock market.

Act accordingly.

The Bear Market We’ve All Been Waiting For?

Bears are dancing in the streets, biting the heads off of random bulls they see.

The Dow Jones, Nasdaq, and S&P all broke under the 20-day moving average. The 50-day is in the line of sight. Will all three indexes plunge below the 50-day? I may not have a crystal ball, but I do have technical analysis.

Dow Jones Industrial Average

This is what the chart is telling me right now

• The Dow Jones saw significant resistance at 10,500. It even tried six times to break above 10,500 with no success.
• Huge spike in buying volume followed by selling might indicate a blow-off top.
• The RSI and Slow Stochastic are both in neutral territory. This signals more downside left (I’d like to see these two oversold before buying).
• The Dow broke under its 20-day average but is still above its 50-day.

It looks like we might have a few more days of selling. But I expect buyers to come back in as soon as the major averages hit their 50-day moving averages. If we see a decisive break UNDER this average, it could signal a change in trend.

In other words, buying now might be a bit silly. But getting heavily short right now is equally as silly. It’s kind of like betting against the Yankee’s in the first inning because the Red Sox barely hit a home run. It’s just too soon to make that bet.

In times like these, you want to use these small downturns to hedge your portfolio.

Yesterday I recommended you get into January VIX out of the money call options to hedge your portfolio. If you had done what I said, you would probably be in the green (the VIX is up over 6% today!).

Until the trend becomes bearish, I simply won’t get heavily short this market. And that won’t happen until the 50-day is breached on all three indexes.