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Revealed: The Keys That Told Of A Market Drop



September 22, 2010 – Comments (0)

In general, the markets soar on a big drop in the dollar. Over the last couple days, that has not been happening. Today the SPDR S&P 500 ETF (NYSE:SPY) is dropping sharply to $113.25, -$0.73 into the 200 moving average on the 10 minute chart. In many previous articles, I have noted how there were many disconnects in the market. Bonds were soaring, the dollar collapsing, gold jumping to new all time highs and the market was holding steady.  This is not usual, in fact, it is extremely unusual.  In my previous articles I pointed to this as a main negative divergence that would most likely see a drop in the markets shortly. A drop in the markets? But every analyst, media mogul and market guru has been calling for a continued rally? Well if you do not know by now, I could not care less about what everyone else is saying, I speak my mind and continue to be right a majority of the time.

If bond prices are spiking, big money is running for cover. That is the first signal that must be noted. In addition, the last two days, the dollar has been smoked to the downside. The PowerShares DB US Dollar Index Bullish (NYSE:UUP) is trading at $23.12, -$0.19 (-0.82%) on the day. The dollar and the markets have an inverse relationship.  When the dollar falls, the markets are supposed to go higher. Yesterday, the markets remained flat with a huge fall and today, the dollar is getting smoked again, and the markets are lower.  The next signal of a market pull back has been gold. Gold has been charging higher, hitting new all time highs day after day.  Spot gold is approaching $1,300 per ounce. The SPDR Gold Trust (ETF) (NYSE:GLD) hit an all time high today of $126.63. Gold has always been a safety play and a place where traders stash cash when fear starts to rise. According to the media, there is no fear whatsoever. This can also be looked at as a psychology play, going the opposite way of the crowd.  Bottom line is this, the signals have been there and continue to be there. I have pointed them out in the previous days and with the market dropping today, it looks more clear than ever. 

Gareth Soloway
Chief Market Strategist

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