Short-term trades: Don’t buy gold. Prepare to go long stocks.
Posted By Mike On Oct 8, 2008 @ 11:04 am In bear markets, crash, gold, technicals | No Comments
When everyone has run to one side of the boat, stroll over to the other.
GLD in blue, S&P 500 in green, Nikkei red. 2-year chart:
[1] 
Source: Yahoo! Finance. Click image for sharper view.
I’m not calling a bottom in stocks ([2] I think the Dow is going below 3500), but nothing moves in a straight line, and it looks like the market is setting up for a bit of a clearing rally, although it might take a plunge below 9000 to really capitulate first. It actually feels relatively calm to me today, despite the panic conditions, so another deep plunge to finish things off wouldn’t surprise me from here.
Along the same vein, look above at the inverse correlation that gold has had with stocks during this bear market. Markets are all about mood, and lately when fear is high, stocks are down and gold is up. We are nearing the point at which everyone is already on board the panic express. From there, you can expect temporary relief. When the relief comes, gold will resume its own unfinished business of working off the manic top from 2005-2008:
[3] 
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Note: I’m not going long stocks. I’m still massively short with long-term puts, so short-term rally or not, it doesn’t matter to me. I’m also long gold, but holding a few puts on GLD right now.
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[2] I think the Dow is going below 3500: http://sovereignspeculator.com/2008/09/29/how-low-can-stocks-go-the-polite-version/
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