I say “contrarian” because several weeks ago they were, but maybe not so now.

Then again, I’m sure there are many out there who feel inflation and the ever increasing (or should I say “forever increasing”) government debt will continue to put pressure on the U.S. Dollar.

This post, along with the recent one’s, concentrate on a potential move lower in Gold and higher in the U.S. Dollar, some of which are:

• U.S. Dollar Update 12/02/2009
• U.S. Dollar Update 12/06/2009
• Gold Update 12/07/2009
• U.S. Dollar Update 12/29/2009

You can see on the first chart below of DZZ (Double Short Gold ETN) has made 2 attempts to move higher that coincide with the 50 day Moving average near the end of December, 2009.

Since then, prices have pulled back a bit. For any swing traders who believe Gold has further to decline in the coming weeks/months, this pullback may be just what you have been waiting for.

If in fact the downtrend in DZZ has reversed and an uptrend has begun, the current levels could provide a low risk entry while being able to keep a relatively close stop loss in place in case the downtrend has not reversed.

The next chart is of UUP (U.S. Dollar Index Bullish Fund) and shows a similar situation:

You can see that after the recent run up towards the end of December, 2009, prices have pulled back and recently bounced off the 50 day moving average.

Whether this initial test of the average holds or not, and if you haven’t caught this already over the last few days, now would be a good time to consider potential long entry points. That is of course, if you feel the U.S. Dollar has more room to go on the upside, against the mainstream.

Just as in DZZ above, UUP has pulled back nicely which is what a swing trader would want to look for when considering entry points.

Please do your own research and make your own decision on these potential securities. My comments above are based on my observations and I do not have a position in either of them at this time. I do on occasion use DZZ as an intraday and/or multi-day trade.

Feel free to add your thoughts on potential price movements from here on either of these below in the comments section.

I posted a few charts in early December to consider as contrarian plays because at the time, everyone was short the U.S. Dollar and long Gold.

Everywhere you turned, people were talking about how high Gold could go, inflation and how low the U.S. Dollar would go.

For contrarian traders, that early December post proved to be the turning point. Here is a link to that original post: U.S. Dollar Trade Update 12-02-2009 and a few follow up posts I’ve added since then: U.S. Dollar Trade Update 12-06-2009 and Gold Trade Update 12-07-2009.

The first chart below is of the U.S. Dollar Index. You can see the nice reversal from the multi month decline that has occurred since the early December post I alerted readers. Prices have moved strongly higher, through the 50 Day MA. The RSI has since become a bit over bought and prices appear to be in a normal pullback from the recent run. Also notice the 50 Day MA has now turned up for the first time in several months.

The next chart is of GLD. After a near vertical hyped ascent, Gold, and GLD, appear to have come back to earth so to speak. Prices here have also breached the 50 Day MA, but lower in this case.

Prices do not appear to be near term oversold yet, but with the recent decline, there is room to go either way in the short term. Any upward move in the near term may provide additional short entry levels for those who missed the potential first leg down here. This is of course, if you feel contrarian in that Gold has lower to go.

The next chart is of DZZ, which is a possible security to trade taking advantage of a decline in Gold.

This chart also has provided a nice monthly return for those who took advantage of the early December post. A 20-27% move higher has occurred since then in DZZ.

You can see prices have moved up to the 50 Day MA, which is also near the Gap that was left on the recent decline in November. What would be nice to see here is a normal type of pullback, and then a continuation move higher. If this appears to be happening, a large leg upwards could be underway bringing prices much higher from here.

The final chart below is of UUP for those who like a little less risk. It has made a respectable 5+% move higher since the early December post. Not too bad for less than a month’s return.

Same situation here following the others above- a normal pullback could be in order, potentially moving to the 50 Day MA as a support level, which is now turning upward.

That’s about it for now. Please note that a “pullback” as I have mentioned above is not necessary to occur at this point. There is always the possibility that prices will continue in their current trend, especially since they appear to be coming off a multi-month trend reversal.

In the previous post I was writing about potential contrarian trades if the U.S. Dollar was possibly making major or minor lows.

For Gold trades, I had a chart of GLD and showed how prices had broken out of two pattern formations within the last several months, and that if the U.S. Dollar was over-extended to the downside, and Gold was over extended to the upside, looking at these with contrarian views were compelling.

Here’s the updated chart of GLD. I’ve added a Fibonacci retracement grid overlaid on the chart. You can see that the initial move lower Thursday and Friday from last week, declined to the first 38.2% Fibonacci price level and bounced a bit higher before ending the week.

As I mentioned in the U.S. Dollar Trade Update 12-06-2009 yesterday, a bounce higher before moving any further lower is possible. Although as I’m writing this, Gold is trading lower after rising briefly in the overnight session.

I still feel that with all of the people short the U.S. Dollar and long Gold, and continued pressure against these positions make cause a panic, or rush, to continue to reverse these same positions.

For stock traders, I included a chart of DZZ in previous posts, which can be traded easily in the typical stock traders brokerage account. Here’s the updated chart which shows the nice 10% – 15% move higher in less than two days since I posted last Wednesday evening about using this as a possible contrarian play:

Those of you that know a little bit about me, know that I am primarily a very short term trader. Having a 10% – 15% gain in two trading days would probably make me take my gains and wait for another entry point, or possibly be willing to raise a stop loss to break even here with such quick gains.

At the very least, raising a stop loss to break even after a 10% – 15% gain in two days would be wise.

While I can’t and don’t, recommend any stocks or specific trades, I do try and post my trading ideas on this website even if I don’t have any position in the trade mentioned. I usually get too tied up with other things and writing. I don’t have any position in any of the stocks mentioned in this post, nor have I over the last few days.

The previous post was here: U.S. Dollar Trade Update 12-02-2009, and worked out to be perfectly timed.

The last post showed how prices have been reacting and moving lower as well as the addition of support levels which I added to the charts.

Following up now, the first chart below is a current chart of the U.S. Dollar Index over a 3 month period, displaying daily price candles. You can see the index made a large move higher just up through the 50 day moving average line.

This was the biggest one day range in several months. From here, with so many traders short the U.S. Dollar, any continued move higher will likely cause a panic of shorts covering their positions. This should cause additional big range days ahead if the rally continues.

After the big range day Friday though, a pullback should be expected of some sort. While it’s not necessary for the rally to continue, having a pullback would be normal and not at all change the fact that a longer term trend change may indeed have begun.

The next chart is of UUP, the U.S. Dollar Bull Fund I displayed on the last update. I displayed this for any stock traders out there who wanted to trade something in correlation with a move in the U.S. Dollar as a contrarian play, but in their stock trading account.

You can see here the nice move higher since my last update as well. About a 1-1/2% move in 2 days without any draw down so far. Prices here are also at the 50 Day Moving Average line, which may coincide with a brief pullback before attempting another move higher.

In case a bottom is not in, a potential area for a stop loss would be just below the previous low set a few days ago. If that low is breached, the potential odds for another leg down would increase. Make sure you use some type of stop loss with your trading plan.

The big winner since the last update was the contrarian play against Gold. I had a chart displaying a potential trade using DZZ which worked out great. It moved up between 10% and 15% in the same 2 short days. I’ll be adding an update for that on a separate post shortly.

Prior to the last update I had written about a potential bullish move the dollar, with trading possibilities such as in DZZ and UUP. This was short lived.

Afterward, I posted the 08-23-2009 update with new levels to watch for a potential move either way.

I’ll post the updated charts in the same order in this post, along with the previous support and resistance lines I had drawn on them to watch for potential breakouts.

The first chart below is of the U.S. Dollar Index itself. The previous support level I had drawn was near $77.50. I mentioned to watch this level for any significant breach for a move lower.

You can see that the $77.50 level was in fact breached and also became resistance later in early October. Also notice how the price action has been contained by the 50 Day Moving Average (or at least it appears that way on the chart. In reality, the moving average itself cannot contain prices as it is a calculation based on past prices). The 50 Day Moving Average line can be a psychological level though. Causing reversals or breakthroughs to occur more violently in many cases.

The current level is a major support level going back to late 2007/early 2008. If this level is breached, the next lower support level is around $71.50. A contrarian view would be to be on alert NOW, not waiting to see if lower prices are ahead.

The next chart shows GLD. In the previous chart from 08-23-2009 I had a Symmetrical Triangle drawn on the chart and mentioned to watch for a potential breakout, either to the upside, or downside out of this pattern. I’ve drawn the same Symmetrical Triangle on the current chart below to show what happened.

You’ll notice at point 1), that prices broke out up out of the Symmetrical Triangle for a good momentum trade entry signal, at the beginning of September, 2009. Also, in early October, 2009 at point 2), you can see that prices broke out up thru previous highs, another momentum trade entry signal.

Now. For any contrarian traders out there:

The next chart is of DZZ- a double short Gold ETN. I’m not advocating the use of ETN’s of ETF’s, or any of these trades for that matter, only providing some idea’s. Leveraged ETF’s and ETN’s have been in the news over the last several months, in a negative way, so be sure to do your own research and keep an eye on them if you decide to use any of them.

Previously I had drawn a similar Symmetrical triangle pattern on the chart and I have included the same pattern drawn on this chart to show what has happened here also.

You can see once again, only the inverse of the GLD chart, that prices broke out of the Symmetrical Triangle pattern. This time to the downside as this is an inverse fund. This breakout point, along with the breakout point below previous support (the dotted line) both allowed for potential tradeable short entries.

With prices at new lows, corresponding with new highs in Gold, any reversal would provide an excellent entry point. Possibly for a long term contrarian trade.

Moving on, the next chart is of UUP, a U.S. Dollar Bullish Fund.

You can see that I added the support level at $23.00 my previous chart. Prices gapped down through this level in early September and it has pretty much been a significant resistance level so far.

You can see that prices broke up through the 50 Day Moving Average briefly in early November, but have since reversed and are near new lows. The next lower major support level is $21.50-$21.75 so we are very close to this at the current price level.

Using previous support and resistance levels for potential area’s for stop loss positions, the Risk:Reward ratio for some contrarian trades here, look pretty compelling.

After reaching a new high yesterday of $1153.90, the precious metal has pulled back some, albeit slightly so far.

The last few days have basically been in a sideways trading channel but prior to this, has been on such an optimistic rise that sooner or later a decline will ensue. Right?

If you took a look at a gold chart without knowing it was gold, it would look similar to previous market tops that were followed by a crash. Take a look at a housing price index chart, the 1999-200 Tech Bubble, the recent financial bubble or even an Oil chart when it was at $140.00 not too long ago.

I know what others are saying, that as long as the U.S. Fed keeps printing money, the value of the U.S. dollar will keep going down and people will continue to buy Gold. That may be, but I’m adding this post for those of you thinking things may just be getting to overly optimistic right now in Gold.

Just imagine looking at charts in a few months only to see that the U.S Dollar made a major bottom which just happened to coincide with a major S&P 500, DJIA and NASDAQ top, and Gold and other commodities made major tops as well.

I wonder what all those Meredith Whitney bashers would say then? Probably nothing at all. You wouldn’t hear a word from them then. Read more about what Meredith Whitney thinks here: Meredith Whitney Turns Bearish Again

For those who think a pullback of a considerable degree may be coming, or underway, here’s a way to try and take advantage of this using DZZ for a trading vehicle in a stock trading account. Here’s a chart to look over:

Looking at the chart of DZZ above, you can see several observations I noted: 1) the RSI above the main cahrt area has been oversold for about a week now and appears to be turning up. 2) The MACD on the bottom of the chart is in the perfect position to begin a reversal move higher. 3) The share price itself has dropped below the recent confining channel and has the potential to move back into this channel up towards the 50 day MA as it has on prior moves off the lower channel trend line.

What made me take a look at a potential trade to profit from a decline in Gold was that earlier this week Bob Pisani was shown on CNBC with a single Gold Bar that I believe was mentioned to be worth about $450,000. When something like this appears on mainstream television my friends, the end is quite possibly in sight.

This is not always the case though. The last time I mentioned I was concerned about any further upside in Gold was when I read that Gold was appearing in Vending Machines in Europe. That was back in June and we had a trade-able decline following that, but then Gold resumed its ascent. At the least, some sort of pullback may be in the cards near term.

Post your comments below to share what you think may be in store over the coming days and weeks ahead:

I thought now would be a good time to add a post comparing the VIX with the S&P 500 past performance as the VIX can be used as a good measure of the expected volatility of the stock market.

When market participants become fearful, they panic and sell, illustrated by a spike in the VIX.

On the opposite extreme, when participants are complacent, they typically have the majority of their funds at work in the market illustrated by a falling VIX.

Since the market has been on a roaring uptrend since March 2009, I’ll concentrate on looking for a sign of a top. Using the VIX again for the purpose of this post, if market participants are putting their money to work in the stock market buying many different stocks, we should be seeing a steady overall rise in the market with a falling VIX, or at least remaining low.

At or near a top in the stock market, I would expect to see a distribution process by market participants, selling more than they are buying and a rising VIX to illustrate some of this fear.

Since many individual investors continue to buy at the top of a market trend, some sort of plateau or gradual turning point, may be seen while looking at a chart over a longer time period. This is possibly due to larger traders and institutions beginning to unwind positions before the individual investors.

Once everyone catches on, look out below because that’s when all hell breaks loose and the VIX will display a spike on a chart.

Take a look at the charts I composed below for historical and current comparisons. The first chart is from the end of January 2009 thru yesterday November 11, 2009.

You can see on the chart above the clear uptrend in the S&P 500 with consistent higher lows in place. The VIX is displayed in blue on the chart. Noted on the chart from mid-April thru early August is a clear downtrend in the VIX with consistent lower highs made.

This goes along with what I mentioned at the beginning of this post that as more and more people put money to work and buy stocks, the stock market rises and the VIX declines as people become complacent.

From August thru today though, the VIX appears to be doing something different. As the stock market has continued to climb, the VIX has found a near term floor providing support and has been forming higher highs on pretty much each consecutive spike.

The VIX is showing how the Market is now climbing a wall of worry. People are getting fearful. Take a look at the next chart below now:

On this chart above I’ve added a few more observations.

• At areas (2) and (3), each time the VIX spiked, which also coincides with a sell off in the stock market on the chart, the spike in the VIX was followed up with a decline in it’s value as the S&P 500 resumed it’s uptrend.
• At areas (2) and (3), each time the S&P 500 made a new high, the VIX made a new low.
• At area (1), as the S&P 500 made a new high, the VIX did not make a new low. Instead, it made a higher low which was followed up with a spike in the VIX almost as if to relieve pressure that was building up.
• Area (4) is the current position. You can see that not only has the VIX made a higher low so far, the S&P 500 has not made a new high (worth mentioning here). The S&P 500 is currently showing a sign of possible distribution among larger investors/traders, being signaled by the pressure building up in the VIX.
• Notice the lower red dotted line which shows a relative base, or support level formed. Out of the last 4 lows to reach this level, only the most recent had fallen below this. Also notice the higher highs on each recent spike as mentioned on the previous chart also.

For some historical perspective, I added two more charts from prior time periods. The next chart below is from early March 2008 thru early June 2008.

You can see on the chart above that from late March thru mid-May, the S&P 500 made higher highs while the VIX made lower lows. Then, as the market started to roll over, the VIX began to rise as to be expected. This particular time was at the beginning of a major leg lower in the stock market.

The next chart is from early July 2008 thru early September 2008.

The same higher highs in the S&P 500 coincide with lower lows in the VIX. In this case though, the S&P 500 top flattened out and did not make a new high as the VIX began to rise, the same appearance as currently. This time period was also a major turning point that began a large leg down for the stock market.

The last chart above appears to be displaying a build up of pressure signaled by rising fear, as the S&P 500 tried but failed to make any significant new high.

Here’s a chart of the S&P 500 showing the two turning points coinciding with the last two charts above:

And here is a current chart of the VIX showing the base that appears to have formed with the recent spikes:

Based on my observations above, a trade using VIX CALL Options may be something to consider once you perform your own research and analysis. I’d be interested in what you think or have to say about this or other ideas. Let me know your thoughts below.

The stock started trading lower immediately after the results were released in pre-market trading this morning.

That’s not to say where it will end up by the time the end of the day comes around though. You never can tell with the stock market today.

Here’s a copy of a news release I read about Boeing today:

Boeing post $1.6B loss in 3Q, slashes outlook as 787, 747 plane charges undermine results

* By Daniel Lovering, AP Manufacturing Writer
* On 8:03 am EDT, Wednesday October 21, 2009

Airplane maker Boeing said Wednesday it lost $1.6 billion in its third quarter as charges from its delayed 787 and a new version of its 747 jumbo jet weighed down results. It also slashed its profit forecast for 2009.

Shares of the Chicago-based airplane maker fell $1.29, or 2.5 percent, to $50.60 in pre-market trade.

Weak demand for air travel and cargo services has undermined demand for Boeing’s jetliners since the global economy deteriorated late last year. Some customers have been forced to cancel or delay plans to buy new aircraft.

But Boeing, the world’s second-largest commercial plane maker after Europe’s Airbus, has had its own problems, too: production setbacks have delayed its eagerly awaited 787 and 747-8 jets, resulting in hefty charges.

The company said its quarterly loss amounted to $2.23 per share. During the same period last year, Boeing earned $695 million, or 96 cents per share. A labor strike and problems with suppliers reduced year-earlier profit by 60 cents per share and revenue by an estimated $2.1 billion.

Revenue rose 9 percent to $16.69 billion.

Analysts surveyed by Thomson Reuters, on average, expected a loss of $2.12 per share on revenue of $17.16 billion. Wall Street estimates typically exclude one-time charges.

Boeing (BA) has been plagued with problems for quite a while now. As the article above mentions, manufacturing delays from production setbacks, labor disputes and the accompanying slowing economy hasn’t helped.

On top of that, there may be concerns that the new 787 Jumbo Jet weighs so much that it may affect fuel conservation goals set in place at potential customers.

Taking a look at a 2 year weekly chart of Boeing (BA) below, you can see the the stock is at a major resistance level just below $55.00. Barring a war outbreak requiring an increase in airplane and parts orders, it appears BA may be headed lower. Notice the recent rise on lower volume on the chart.

The next chart is a 6 month daily chart of Boeing (BA). Take note of the 50 day Moving Average which was at $50.27 at the close of yesterdays trading. So far this morning, BA appears to be bouncing off this level so this will be a key level to watch.

Also notice the recent lower high that was made earlier this week just below $54.00. If this level holds as a high, the trend for BA will have switched to down. Any move up through $54.00 would need to be re-evaluated for further upside potential.