Tonight’s post will be text only. The trading plan remains unchanged. I’m following my three indicators which include the dollar (via UDN), the Ted spread (3 month LIBOR less three month T-Bills) and LQD (high quality bonds).
Since March, we have seen a weakened dollar, a declining TED spread and a bull run in bonds. My plan is to stay long until I see these trends fail. I will only start to look at getting short when these trends breakdown.
With that in mind, I’m looking at these indicators first this week just like I did last Sunday.
Let’s look at the US Dollar first. The breakout on UDN over the $27.60 must hold. I mentioned on Friday that I closed out my long UDN position because I see the potential for a bounce in the dollar. I will have to see how things are trading if the dollar does show strength this week, but for now I’m looking to be a buyer on a retest of the breakout and the trendline (see my prior UDN charts).
I mentioned on Friday that the TED spread was up last week but it is still within a very normal range. Until we see this push to 40 or 50 basis points, this just remains an item to watch.
LQD continued to follow its trendline last week. No sign of any weakness on that one yet.
My plan of action is a very simple one. When I look at SPY, IWM and DIA, I see indexes that are all at resistance and close to breaking out over the October 2008 gap but have yet to do so. I also see UDN (short dollar) looking like it is ready for a breather. Momentum (viewed through RSI) rolled over on Friday. If the dollar rallies some this week, I would expect a pullback in the market.
If the market goes lower but my indicators hold up, my plan is to enter a long position in SPY and IWM without a hard stop. Instead, I will hold those positions until such time as my indicators breakdown.
On the flip side, if the indicators breakdown, I will start to look at shorting the market.
As you can see, this week I am very much focused on the market indexes and I have little interest in specific sectors or stocks. The one exception is that I am watching gold like everyone else. I’m only interested in the long side at these levels. If GLD has a breakout over $100, I’ll start looking at this as a long term trend trade.
