MLR - Q&A on recent market action

Published : September 12 2011 at 7:36 ET
Q: Why are the markets plunging? Why are the US dollar and US bonds such as TLT shooting higher?

A: Greece was bailed out. But problems with other European countries besides Greece are creating countries that are "too big to bail". Thus, the euro has begun to plunge. The Swiss franc was safe haven given that Switzerland is not part of the EU, but when the Swiss government intervened and pegged the Swiss franc to 0.83 euros, money fled both the euro and Swiss franc to the relative safety of the US dollar. The same applies to the relative safety of US Bonds. The US is the tallest standing midget.


Q: What about Obama's speech? Aren't both he and Bernanke working to restore order in the economy and in the markets?

A: The price/volume action seen in the markets in the days after both spoke shows the markets are putting little faith in their words. They both seem to be out of ideas. Quantitative easing 3 is a card Bernanke will play at some point, but will it have the uptrending effect on the general market that QE1 and QE2 had, both which were supposed to jump start the economy, but did not. If one drinks a lot of coffee, it stops having much of an effect. Ultimately, price/volume action of leading stocks and major indices will show the way, as the Market Direction Model puts much of its focus on this action. Price/volume represents facts, not opinions, thus the systematic nature of the model continues to well outperform the major indices from cycle to cycle. And with the advent of 3-times ETFs, many which came to life in 2010, serious gains can be made for the first time in market history.


Q: Despite gold's topping action seen in August, it seems to be resilient. Does this bode well for the future action of gold and silver?

A: Gold has many tailwinds. Silver tends to roughly correlate with gold. Here is an article we published recently on the matter:

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