The Summer blahs are surely upon us. As an investor, the "sell in May and go away" has been really good advice this year with the turbulence in the financial markets, a highly schizophrenic Congress, a Federal Reserve that has empty clips for few effective weapons and an Executive Branch of Government that is intent on being all things to all people and two-faced to boot, far more interested in putting "face" on problems rather than fix them.
Except for very short term trades, there is no shade out there and no where to hide. Let's look at medium term market charts for a start because that provides us with some overall guidance for medium term movements even though in the past few months, whip-saws and zig-zags have been the rule.
First we look at SPY and see a broad market that broke out to the upside last December, only to waffle, whip-saw and fizzle within five months. The MRO has reversed to the downside, usually signaling a BUY point, but the other keys to a valid buy, the 5 period MA and the smoothed Williams %R have not followed through. So we are in limbo with the last signal a Valid Sell back in May still in force. Be advised, this can change in a few days positive trading and we are due for some strength in the general markets - although I look for no enthusiastic stampedes in the up direction. My long term indicators still show a general downward trend in the general markets. For a different look at the S&P, check Chart of the Day <https://www.chartoftheday.com/20100723.htm?T> for in inflation adjusted S&P chart that shows the S&P drifting lower from about mid-range between support and resistance channels.
SH, below, is the inverse SPY ETF which I use as a SPY-short. It doesn't look very enthusiastic about a trading move either.
A Valid BUY is in force going back to the May SELL point in SPY but it remains to be seen if it holds for more than a short term trade. The MRO has reversed to the upside which may, within days, signal a valid SELL but we have to wait and see on that one. Right now, the position in SH is a hold and be ready to add more if further weakness in SPY developes.
On the Gold and dollar fronts, things are no better as far as a good solid trend is concerned. This is good for short term market trend trading and lousy for those who like to sleep peacefully from trading day to trading day!
GDX, our gold bug ETF is under a valid SELL after making a nice profit over the past four months. I'd stand aside or go long on DGZ (NYSE ETN) or GLL which is a double short ETF for gold. These ETN/ETF's deal in futures rather than the hard stuff and as such offer only to modestly accurate inverse of the metal. I would have to caution anyone on shorting gold or silver in these days of financial turmoil. You can make profits betting to the downside on gold or silver at this point but set it firmly in your mind that it is a speculator/trader game and not for the normal investor.
Now we look at the used to be "good as gold" dollar. what a sad sight.
While putting in a decent rally from December 2009 to June of this year, it looks very like the dollar run may be over for the time being - and, in my opinion, for probably - at a minimum - for a while longer. We turned a good profit on this trade from last December thru early June of 2010, and in June, positioned ourselves in a dollar short ETF such as UDN and there are more inverse dollar ETF's coming on line as this is written. There are several which will offer a short dollar position again a basket of other currencies which would be nice and has a good opportunity to more accurately express the inverse dollar than UDN does.
Again, as caution, going short against the dollar is a bet against U.S. Government monetary policies and direction can change at the stroke of the pen or a positive movement in interest rates. These days, betting against the U.S. Government has been a winner in almost every way you can do it and I see no end in sight to the stupidity exhibited from the exotic creatures who live in the swamp on the Potomac. The problem here is that when the foreign sovereign funds and central banks balk at buying further debt instruments of the U.S. Government, interest rates will likely rise rapidly regardless of any effort made by Helicopter Ben to the contrary. That's the short term end of the party as far as betting against the $$ is concerned unless, by that time, it is clear to the street sweeper in downtown Delhi that we will never repay those debts. Then, regardless of interest rates, the only buyer of Treasury debt will be the Federal Reserve and our country, as we know it, will be no more in mere months, not years.
Also remember, all ETF's are not created equal.
For example compare the two popular silver ETF's SLV and SIL. You will find that SLV follows the metal much more accurately than SIL. Lesson? When you wish to go long silver, use SLV and leave SIL to someone else who doesn't do his homework..
I'll leave you on that cheerful note and advise you to keep your powder dry and redouble your efforts to diversify your investment funds into some overseas growth ETF securities - just in case... We'll look at some of these later.
