To OTC Journal Members:
 

The FED Love Fest

Wednesday's FED decision was exactly what the market wanted. One and done. The FED lowered the discount rate 1/4 point, and stated it would probably be the last interest rate cut. The market is now expecting the FED to start raising interest rates in December.

I know many of you will argue with this comment, nevertheless the market is doing what it's doing regardless of what you think. The International markets are rewarding Bernanke's policies by bidding up the dollar, which at this point is very good for our economy.

The market is bidding up the dollar because it perceives the US is pretty much done printing money. Remember, the market is a forward looking mechanism. Today's price movement reflects what the market believes will become reality in six months.

Six months ago the dollar was simply getting whacked. Why? Because oil was cranking up the charts, the US residential real estate market was absolutely cratering, and the sub prime mortgage crises was starting to get publicity.

Wednesday, the FED has made it clear the "stimulus" series has come to an end, the sub prime mortgage mess has been written down to the tune of billions of dollars on the financial statements of institutions, and tech stocks are breaking out again.

There are two charts I want to show, and they are the same charts I wrote about last week. The first is a chart of the dollar:

The dollar's demise is directly related to the rise in commodities. As the dollar fell, oil prices rose, along with gold. The dollar is now clearly firming. It has risen just under 2% in the last five trading days. That's a monster move in fairly short order for the greenback.

After months of decline, the initial rebound is impressive. However, there is something far more impressive about this chart. UUP is the ETF which represents the dollar. Look at the volume surge in this ETF over the last six trading days. The volume is massive compared to the last several months. Fund managers are piling into this security.

I'm pretty sure the dollar is not going to come roaring back overnight. However, I do believe it has bottomed and will slowly start working its way back up.

So, is oil destined to fall apart? I don't know. I have read predictions from some pretty smart people that oil will be back to $70 by November. I'm not sure I believe that forecast as International demand is definitely growing.

However, I do strongly believe the dollar's rebound will be at the expense of Gold. Gold is not consumed. It is employed in some industrial processes, but it is not vaporized the same way oil is.

The dollar's good fortune is Gold's demise. After making a parabolic move to the upside in the second half of 2007 and early 2008, Gold is giving ground rapidly.

This is the chart of a security that is falling apart. It made a parabolic peak, made two attempts to rebound in a double top, and then promptly began falling apart again. I believe Gold is destined to head back to about $650 per ounce. 

If you are long a lot of gold in any of a variety of different ways, I strongly recommend you reduce your exposure. That's just my opinion. I could be wrong. A month ago I heard anecdotal stories about the gold craze. Gold mining permits applications in Alaska were at an all time high, and you couldn't buy a metal detector in Florida. When everyone piles in to this extent, it's usually the sign of a top.

Unfortunately, gold's demise won't be the kind of positive for the US economy that oil would be, but I'll take it. It will bring money back into growth stocks, which is just fine with me.

I think the BEAR market has about run its course. Summer is ahead, so there will be listless trading, However, growth stocks are starting to show signs of life again. Equity markets are breaking through some key resistance levels.

There will be hiccups along the way. The market is complacent now. The VIX is below 20, which is a good indication it's time to go short for a trade. Shorting the QQQs might be a good trade right now. 

Today, I bought more puts on RIMM- the May 130's. Call me a glutton for punishment. We're due to cool off for a couple of days, so I like the trade. However, I believe the bias will be to the upside from here on out.

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