All of these charts are simply the 50 and 200 day exponential moving averages.

The long term trend of the first chart is clearly down. The 200 is declining sharply and the 50 is below the 200. Bear market!

The next chart, the dollar, looks to have entered a bull market. The 200 is advancing sharply and the 50 has crossed above the 200. The Fed is desperate to turn this chart bearish. Now maybe this is a brief move similar to the last bounce out of a 4 year cycle low in late 04 and early 05. I doubt it though because I don’t think this is a technical move like the last rally. I think this is a fundamental move reflecting deflation. So far all the Fed’s printing hasn’t been able to halt the deflationary wave. At some point the Fed will turn this chart bearish again but I have a feeling the specter of deflation is going to be with us for a while longer. If I remember correctly, every 4 year cycle in the dollar except one or two has seen at least two seasonal cycles advances before rolling over. We should be just starting the second seasonal cycle. That suggests the odds are that the dollar should continue to rise this year.

The next chart is clearly bullish. The 50 is above the 200 and both are still rising. Well if this is clearly a bull market one has to wonder why gold investors are so nervous. I suspect that most are nervous because Tim Woods is still predicting the 9 year cycle low is ahead for gold and that gold should still move to lower lows. Now Tim may ultimately be right on this one, he did get the stock market bear and commodities crash right on the money, but I have my doubts on the gold call. I think it’s more likely that the crash we saw last fall took gold down into the long term low just a little early. It doesn’t seem likely that gold will follow one devastating crash with another.

It certainly isn’t acting like it wants to crash again. It’s been 8 weeks and gold hasn’t been able to fall below the 1980 high of $850. Let me remind everyone that during the crash last fall that took gold down to $680, demand for physical metal became so great that you couldn’t buy gold … at any price. There wasn’t any to be had. Smart money took advantage of those irrational prices to stock pile gold. Does anyone really think that won’t happen again if price moves lower?

China has already made it known that they are buying gold. Chinese demand alone will probably put a floor under gold and I suspect that floor is probably at $850.

The next two charts are on the verge of turning bullish. It won’t take much strength to push the 50 above the 200 and turn the 200 up for silver and miners.

I also think silver has a pretty solid floor under it at about $12. At $12 the COT report is showing a Blees rating approaching 100.

Here is a chart of the last 7 similar bullish signals.

Every one of those turned out to be a pretty darn good time to be long silver. I don’t think I want to ignore this most recent signal based on past history.

Finally the miners. I’ve gone over repeatedly how cheap the miners are. I don’t think I need to beat on that horse again. If you don’t want to take advantage of a half price sale then there’s not much more I can say.

The next thing I want to look at is the stock market. I must say when I turn on the TV almost everyone is turning bullish. It seems like everyone has made up their mind that a close above 875 is somehow confirmation that the market is going much higher. Now that may end up being true but I can assure you that a close above resistance is by no means confirmation of anything. Most of the time it’s a fake out. Take a look at the last confirmation in Jan.

To many investors, especially retail investors, put way too much faith in chart patterns. Does anyone think that the traders at Goldman Sachs are basing their positions solely on chart patterns? Let’s just say I think it’s more likely that big money pushed the market through that resistance level back in Jan. so they could unload their positions on the dumb money trading that obvious breakout. I’ve got to say, trading the obvious is probably a futile endeavor.

Unfortunately that’s what most retail investors do. It’s easy to trade charts. You simply look at the thing and make a decision as to what you think is going to happen next based on what has happened in the past. The ole’ project the past into the future behavior. There’s virtually no due diligence involved. You don’t have to spend hours going over financials, talking to management, accessing the economic environment, or sizing up the competition. You just glance at a chart and make a decision. Does anyone honestly think that the toughest business in the world is really that easy? I can assure you it is not.

I suspect those traders at Goldman Sachs are doing their due diligence. As a matter of fact they have teams of support staff to give them an edge. That’s not to say they don’t use TA. I’m sure they do, but I’m also sure it’s just one tool in their trading arsenal.

I repeatedly see traders/bloggers claiming to score fortunes with technical analysis. However, strangely enough those traders all seem to have a day job. If they are making fortunes why would they need a job? I can guarantee you that for every pattern they post that made money there is at least one if not two that lost money. That doesn’t constitute an edge, that’s random. The fad right now is to post all these bullish patterns that are supposedly predicting that stocks will go up. Duh we are in the middle of the second most powerful bear market rally in history. What do you expect stocks to do in that kind of environment?

Like I always say, if it sounds too good to be true it is!

On Thursday I talked a bit about trading. As Richard Russell pointed out 90% of retail investors aren’t going to make any long term money by trying to trade the markets. However despite that fact I suspect that 90% of the readers of this newsletter are going to try and trade the market anyway. I suspect most of you would attempt to trade even if the odds were stacked against you by 99% J

So, today I’m going to go over just a few things that may help swing the odds a bit more in your favor. First off, and probably most important, is the realization that you don’t need to trade every day. I can tell you there is absolutely no way you are going to get favorable odds on a daily basis. Having the patience to wait till you have the odds in your favor is critical to making any long term gains trading the market. Unfortunately this is the one mistake that almost everyone makes and continues to make even though they know they are making it.

Don’t ask me why we do stupid things, we just do. Hell, I climb rocks for heavens sake. If that isn’t stupid I don’t know what is. Realistically, I could just walk around to the top. At least that’s what an old girlfriend once told me J

Everyday I end the newsletter by telling investors where the short term indicators are at. Unless they are overbought why in the world would you want to take a short position? Unless they are oversold why would you take a long position?

75% of all stocks are going to follow the market. By taking a short position when the market is rising and the short term indicators are oversold you are bucking the odds. That is no way to make money. Taking a short term trade with the short term indicators in neutral is just a crap shoot. Again, not a great way to make money.

Sometimes the best position is just to sit on your hands until you get an edge. Believe me there will be plenty of them. There’s really no need to try and force a trade when one clearly doesn’t have an edge.

The next thing I want to discuss is stops. Richard said it perfectly yesterday when he noted that the market almost always seems to hit one's stops. The reason is obvious. Your stops are too close! And they are too obvious! The pros know where most of the stops are and they are going to run those stops and relieve you of your money.

Why are your stops too close? Because you are most likely betting too big or counting on an obvious support level or trend line to act as resistance. You can’t use a realistic stop, one that will actually let your position work, because if it gets hit it will cause a major loss. They key here is to decrease your position size so you can set stops that are realistic and have a chance of allowing the trade to actually work for you. How many of you have experienced those trades that hit your stops and then reverse to become big winners. I dare say all of us have had this happen countless times. And then of course when we switch sides the trade reverses again. Can you say FRUSTRATING?

The next major mistake that most retail investors make is thinking they can pick a turning point. This kind of goes along with the too tight stops. Traders take a position expecting the trade to go in their direction and when it doesn’t do so immediately they freak out and sell for a loss.

I suspect this is happening right now to the shorts. Here’s what is, or is going to happen, to most of the bears as this rally progresses.

Any one of those entries will most likely end up being a great short entry by the time the next leg down hits bottom at the next 22 week cycle low. I see traders right now nervous about holding onto their shorts because the market may continue higher. I have to ask, so what if it does? At the moment this bear market rally is the second largest in history. Any entry at this price level should ultimately result in huge profits by the time the next leg down bottoms, regardless of what the market does in the interim.

What’s the point of taking multiple losses trying to time the exact top? I can guarantee you aren’t going to do it other than by sheer luck. Any spot in here is ultimately going to be a great entry if one will only let their trade work. Again I suspect it comes down to position size. Unfortunately most traders probably have way too large of a position and can’t weather the drawdown if the market continues higher for a while before rolling over.

Now let me show you what else is probably going to happen to the average retail investor.

He’s going to be so nervous from the multiple losses taken trying to pick the top that he won’t be able to hang on for the run down into the bottom. Every little pop higher is going to knock him out of his position. Ultimately I expect he will finally have the confidence to hold his position right about the time we get the next major low and then of course he will cover way too late and lose almost all of the profits (if he actually made any) on the way down.

This is where cycles can be very helpful. We know the weekly cycle averages roughly 22 weeks. So we really shouldn’t expect a final low until sometime around Aug or Sept. Anyone taking a short position right now should probably just take that position and put it away until we get near the timing band for the next major low. Doing so will put the odds heavily in your favor of making a very profitable trade. Trying to time a top will probably put the odds heavily in favor of some professional taking your money away.

Bottom line.

Trade sparingly and only when you have the odds in your favor.

Keep your position size small enough so that you can use realistic stops that will allow your positions to work.

Trading the obvious is probably only going to make money for your opponent.

Wait till the short term indicators are in your favor before taking short term trades.

And finally, use the daily and weekly cycles to time your entries and exits to maximize profits.

Short term indicators are still neutral. No edge for short term trades at this time.