8/8T10:24 Notes from the Edge

Everything that could go wrong is going wrong. Gold plummets, oil continues to decline, the US$ has become the darling of Wall st. and all the while we fight the trend and relinquish all of our gains for the year. The only good news is that we have done this so many times over the last 3 years that this is nothing new to us. It's old hat, albeit a wool hat in summer.

Let's try and take off the hat and focus on the saying that it is always darkest before the dawn. Wishfull thinking? Maybe, but here are some of the facts:

There is no end in sight the the housing problems
Subprime problems continue but now Alt-A and even prime are beginning to show serious cracks in the wall.
Major frauds and lawsiuts still to be forthcomming in the Banking space
Credit cards defaults on the rise

This list could go on. So, why is the US$ ralling and why are the markets going up?

Answer: the markets rally because thats what markets do. They never go in a straight line and we are only in the 4th week of the bear market rally. The previous rallies have lasted 7 - 9 weeks and have run up above the 50 day ma before reversing back to trend. So, I would expect one more attempt by the averages to breach the 50 day over the next 3 weeks and on that rally I would look to reestablish shorts.

As for the US$ and gold all I can say is that it is tough to figure a market that is manipulated by central banks. Fighting the manipulation is like banging your head against the wall. We need to remember that every time there is a crescendo of news highlighting the impending demise of the US$ there will be intervention of one kind or another. Believing in the pipedream that the world will stop buying our debt and the US$ will collapse is detrimental to managing the portfolio successfully. That dream may be reality at some unknown point in the future which does nothing for us manageing money today. We need to use the charts and identify the channels and trade based on these obvious trends.

Today I would say that the obvious trend calls for gold to find support and the US$ to find resistance. All that has occured in the last 4 weeks is a move to the extremes of the channels for both commodities and the US$. So the real question is: Can the US$ break out of the down trend it has been in for years and will Oil and Gold break down from the long term uptrends they have been in for years. What has really changed over the last 4 weeks that could have such an impact on all the current trends? I can not find any real fundamental changes.

The US$ is strong today because the EU central bank has hinted at rate cuts so the Euro has sold off hard and the US$ is strong because of the RIDICULOUS belief that the Fed will raise rates by 75 basis points this year. HOW STUPID CAN PEOPLE BE?!!? We are in the midst of a major banking crisis and a world wide ression!!! But the markets can for a short period of time be as stupid as they want to be. So we must endure, keep our eye on the ball and look for the inevitable turn in our favor. Be patient.