Everyone is talking about the strength in the dollar now and reflecting on what it means for gold. Many are expressing surprise at how fast it jumped up. That is why I try to convey to you a sense of urgency when I speak of stop loss orders. When the Fat boys pull their nets in, they don't want any fish getting out. Always have a stop loss order in place, I put my stop loss in before I place my buy order. Think back to about two weeks ago. Do you remember how the media and every analyst was talking about the demise of the dollar. It is easy to succumb to that drum beat and join the lemmings on their march over the cliff. Remember how strong the pull was, it is a good lesson.

I just posted the latest Commitment of traders report on my blog . Amazingly the short position grew. hmmmm.

North Americans tend to be a little myopic when it comes to world markets. The Euro for instance has some major problems of its own, it may not even survive. Greece, Spain, Ireland, not to mention the former iron curtain countries that all borrowed heavily from the Swiss and German banks are insolvent and their currencies have collapsed. Kiss the money in those loans goodbye.

We have a carry trade in the US$ where money is borrow in the U.S.A. and invested elsewhere or kept in the United States and invested in higher yielding instruments such as bonds, notes and equities. When we get a situation such as what has happened in Dubai and Greece a couple of things happen at once. Some of the money destroyed in Dubai and Greece was borrowed from the U.S.A. where rates are the lowest in the world. So there is a liquidity squeeze as those dollars go up in smoke. At the same time confidence in the E.U. is undermined and traders switch out of Euros.

The world is on thin economic ice and fear can quickly replace greed in the minds of over-invested traders.

The Federal Reserve is holding huge amounts of mortgage related debt which they off loaded from the failing banks last year, plus all the Agency paper from Fannie and Freddie. A large drop in house prices could bankrupt the Fed. The Federal and State pension systems require strong equity markets. A sustained drop in equity prices will bankrupt the pension system. So any time there is an increased demand for dollars like right now, expect the Treasury and the Fed to use that opportunity to pump in more of them to try and maintain the over priced housing and equity markets they have no other choice.

My point is that now there is talk of another melt down in gold and equities similar to the last time the dollar bolted higher. I don't expect the same outcome. I am not saying there won't be pull backs, just not a wipe out like last year.

When the the pull backs do happen the Fed will do God's work and print even more money to save the world from a strong dollar and another collapse in asset prices. This rally was planned and expected. Who do you think was buying from the 97% of traders who were bearish on the U.S. dollar?

US$...should find sellers in this area...this should give a day or 2 of kick back which may help the other markets..this up run may not be over but a breather is likely....I don't use moving averages but notice on this 3 year chart that price has never hit the 200 day M.A. on retraces unless it was being broken..that suggests we are getting to a good level for profit taking.

SPY...We continue to hop over and under the 110.50 level (as seen in the 20 day chart)...which we have done for the last month.. we should get a little follow through from the buying on Friday then watch what happens at the 110.50-110.70 line... right now we are seeing selling on every try of the highs as fund managers close the books on the year...there could be some more selling this week as fund manager finish up before Christmas and also due to the storm that hit the east coast this weekend killing the last big shopping sprees...then after Christmas a swing back up on end of quarter window dressing....so far December is shaping up to be a very narrow range month.

XIU...no chart..back under the 17.30 level similar to the SPY... it may continue to under perform until Christmas has passed.

GLD...As I suggested Thursday we did find buyers in sympathy to the buying in the indexes...notice the island and gap which have formed on the chart...as I said above, I am not as bearish on gold as many seem to have become... this could be the bottom..however I would like to see one more low before the end of the year..$104 is still possible...

the big question now is, can gold, the indexes and the dollar move together... at the end of the year anything is possible.

SLV...Notice the potential coil as the 2 trend lines intersect..there is also an island and gap here as well...I can see a move back to that gap and trend line on Monday.. a break of Friday's low should be lights out for this attempt at a bottom...the lack of short covering from the commercials is unusual and worry some, they did do a little buying but not what I expected. I have a chart posted on my blog.

GDX...I have inserted the gdxj (in blue)which is the new junior index in the same E.T.F. family as the GDX...I have highlighted the spread between the two...as you can see the Junior index is starting to hold up better than the majors... so far this is a good sign if it continues...on the other hand the metals stocks themselves have under performed the metal on the down side which can be an indication of lower prices for the metals.

To sum up..watch the 200 day moving average on the dollar over the next few days. Expect a year end rally after Christmas in the indexes which should spill over into the metals. Don't put too much faith in any trend that starts in this time frame.

Have a safe and happy holiday everyone.

All the best in 2010.

Copyright © 2009 Bob Clark

Bob Clark is a professional trader with over twenty years experience, he also provides real time online trading instruction, publishes a daily email trading advisory and maintains a web blog at www.winningtradingtactics.blogspot.com  his email is This e-mail address is being protected from spambots. You need JavaScript enabled to view it .