Oct 15th, 2012

The dollar had another indecisive day today, the third in a row. It's action is very similar to what we saw the last couple of weeks in it's bear flag. I expect a continued trend higher within the channel, until we break.

Here's a longer term view of the dollar. I believe in pattern recognition. While they obviously will not play out exactly the same, there can be similarities. The last long bear moved down in 5 waves. The current downtrend is already displaying a lot of similarities. The initial break to $76 should be what pushes gold over the $1800 mark. I'm not sure it'll test $1900 at this mark, but it definitely will on the final push down into yearly lows. Notice the 50 DMA as the heavy indicator of the longer term Bear. Also note the important levels of support/resistance as indicated by the horizontal lines from previous highs. Those served as very important levels in the last run and there's no reason to expect any difference in this one.

I fully expect metals and especially the miners to reflect the waves down in the dollar. The miners because they were so beaten down after the 16 months consolidation in metals. They are still grossly undervalued. I'm placing my bets on a test of all time highs in Gold Miners Index GDX. Take note of the 50 DMA crossover signaling a longer term bullish trend. For the immediate term, I expect some downside as the dollar consolidates higher. A final low for this immediate term should come around $49 as the MACD finds a resting place on it's trend line which it set back in July. As outlined by the horizontal lines, previous highs will serve as profit taking points to provide rest, consolidation, and pullbacks before moving higher.

Silver looks to still move lower. I believe it atleast needs to find support down to the 50 DMA and possibly the strong fibo support there at appx $31.89. In the short term, since it has moved down so fast in the last 24 hours, I expect silver to have a bounce higher for a couple of days. Profit taking works both ways, so there's always a need for a breather. Notice the sell signal given by the RSI last week. Anyone that was still long should have exited here. Once again, the 50 DMA cross is a very strong signal of a longer term Bull. I expect the next run up to test the last highs around $37.50. Once over $35.50 there are no levels of resistance until that point. It's a logical area for profit taking.

I do not plan to trade anymore of the short term (2-4 week) moves. The risk/reward profile of these types of trades is too great and have cost me capital. My plan now is to trade these longer multi month swings by buying further out calls. The time value of buying further out helps to weather any immediate downturns in underlying price. I'll be looking specifically for a topping pattern in the dollar as well as a resting place for GDX.. aided by the MACD. For this trade, I already have entry points nailed down, exit points nailed down, and a risk/capital preservation plan in place. I feel that being a better risk manager and money manager lends itself to creating more wealth than being a trader.