Technical Analysis Predictions For Q4 (SPY, UUP, UDN, GLD, TLT, TBT)

Maybe it is time after a 50%+ gain in the major equity indexes, or maybe it is just everyone getting into the October bearish mode.  We are hearing more and more calls for a very weak equities market ahead.  One of our affiliates just ran a detailed audio/video presentation showing what the charts are expecting for Q4-2009 in the S&P 500, the US Dollar Index, Gold, and even bond yields.  Unfortunately this is a bad prediction for stocks and can be tracked directly by the SPDR (NYSE: SPY), or Spyders.  This prediction also has some gloom forecast for the US Dollar Index, which can be tracked in the PowerShares DB US Dollar Index Bullish (NYSE: UUP) and in the PowerShares DB US Dollar Index Bearish (NYSE: UDN). That is partly for the call for much higher Gold, which can be tracked most easily in the SPDR Gold Shares (NYSE: GLD).  The prediction for bonds was not as finite, but at record lows we can’t really argue with the logic that yields can only go one way unless sideways is considered a directional change.
This is on the heels of Nouriel Roubini calling for stocks and asset prices being very much ahead of themselves last night and this morning.  Unfortunately, Adam Hewison in this audio/video presentation actually makes the case that the old lows of March could be retested.  Our own take is that this would only be the case under an extreme scenario because that was when there was becoming a perceived risk to much of the entire financial system collapsing at the darkest days of March.  Even a double-dip recession on a static basis would be enough to test those lows, but again that is on a static basis and does not account for any “too big to fail” institutions actually biting the bullet.

The call for the US Dollar Index is for it to continue heading south in Q4.  This is based upon multiple time frames on the charts.  About the only logic at all for calling this a false prediction would be pointing out that everyone in the world is bearish against the US Dollar and if short-term rates are finally normalized and not kept artificially low then that could stabilize the Dollar.  And for gold, that is likely to be just the inverse of the US Dollar Index.

On the yields rising front, two liquid and active bond ETF products we use to track the longer-term yields are the iShares Barclays 20+ Year Treasury Bond (NYSE: TLT) and the UltraShort 20+ Year Treasury ProShares (NYSE: TBT).  If short-term rates begin to rise, the that will stabilize the US Dollar as long as it is not a greater than expected inflationary scenario that runs rates through the roof.

With the Ghosts of Octobers Past upon us, it is a safe bet that more and more bearish predictions will be made by market pundits.   You can join our open email distribution list which goes out several times per week for reminders of information like this, top day trader alerts, analyst upgrades and downgrades, IPO’s, key secondary offerings, guru investor data on Buffett and others, mergers, and more.

JON C. OGG
OCTOBER 5, 2009