Saturday, April 10, 2010

Market outlook: Correction ahead amid turbulence during Greek debt crisis

I had a close friend ask me my opinion of the markets last night. I gave it to him but thought I would use the opportunity and show a chart on my Blog. In the 5 year chart above of the Nikkei 225 versus the Dow, you will notice that the Dow appears ahead of itself compared to the Nikkei. The Dow has been behind the Dow for the past 3 out of 5 years but recently has gotten ahead of itself and risen too rapidly.

The Euro has hit an 11 month low on concern that the Greek debt crisis may not get resolved in time, as Germany shows concerns about the issue. Germany is showing reluctance to subsidizing emergency loans for Greece and this may hold up efforts by the European Union to reach agreement on terms of a proposed financial lifeline for Greece.

The Dow did hit 11,000 yesterday and looks as though it has petered out. The Volume for the past week is lower than it has been recently. When Volume is low and price increases, that is a bearish sign. However, I have been saying that since the Dow climbed back to 10,600 and here we are at near 11,000. As long as the government plays will the addition of more money into the economy through a variety of measures by the Fed and the Treasury, predictions are going to be impossible with any merit. As I have said many times before, the game is rigged and it is rigged more now than at any time in my lifetime.I continue to be cautious. Painfully, I still own my short positions even while I retain stocks and have benefited the ride up of the market with my long positions. This week I bought more shares of ZSL (a Silver ETF Ultra Short) at $3.78, as Silver climbed over $18/ounce again. ZSL correspondingly hit a new 52 week low of $3.65. As you can see from the 10 year Silver chart, we are at a high price for Silver comparing 10 years of data and I do believe this is a good reason for me to own ZSL, as we are bound to correct again back to $12-$13/ounce in my opinion. Time will tell. Stay tuned.

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