DAILY REPORT (9/23/08)

The financial news networks met the day with cheer and promise but it turned out to be short lived. At 8 am EST everyone was extolling the virtues of Paulson’s bail out but by noon everyone had come out from under the ether and things took on a negative tone. In particular, the US Dollar Index looked terrible. There is no other word to describe today’s action other than terrible. It’s to be expected though; how can you create US $800 billion over one weekend and expect the greenback to rally? I suspect the market may be anticipating that we are only seeing the tip of the iceberg and the worst is yet to come. As bad as the US Dollar looked today, that’s how good the Swiss Franc looked (and in all fairness, just about every major currency). At 3 pm EST the December Swiss Franc futures contract was up 2.12 at 93.14 and had clearly broken out to the upside after a lengthy correction. The next step will be to see if the December Swiss Franc can move and close above good resistance at the 93.60 level. I

have no doubt that the Franc will move higher as people search for quality. No fiat currency is good but the Franc is the lesser of all evils. Take a look below:

It is now seven days off the low and that is too long to be a standard rally. Likewise the December US Dollar index has clearly broken down, is seven days off of the high, and is clearly looking like the dollar of old. I have posted the daily chart for the December US Dollar Index futures chart below:

Right about now any foreigners who are holding dollars must think that they’ve seen this movie before and already know how it ends.

Anyone who thinks that the share buybacks and the Paulson plan will save the day really needs to think again. Share buybacks are a waste of company money and are not productive. Paulson’s plan will not make things any better, not even over the short run. Turning Goldman Sachs into a bank does allow them access to depositor funds but cannot erase all of the sins of the past. Paulson is asking for complete and unrestricted power but he cannot be trusted and will not use it in the country’s best interest. There is no one in the political scene right now that can be trusted and almost no one who really understands what is transpiring right now and it is quite sad. That is why stocks, the dollar, and eventually bonds will all head south over time. Meanwhile commodities in general now look like they’ve put in a short term bottom, but I would be very careful because a slowing world economy will not allow them to gather a real head of steam. The one exception is gold and it is on the mend:

Today (09/22/08) the December gold rallied 36.50 to close at 901.50 and is now trending up for the first time since late July and is back above both the 50-dma as well as the 200-dma. Aside from that the RSI, MACD, and histogram are all headed up and the December contract closed above what was the 896 resistance level:

Likewise silver had a huge day as it closed up 1.04 at 13.51 and has also broken out to the upside as have the gold stocks but not to the extent of gold and silver:

Today (09/22/08) the HUI rallied in spite of the decline in the stocks and still has a long way to go before it’s overbought. And speaking about stocks the Dow looked like they were going to rally the market this morning but just couldn’t get the job done. In the end the December Dow fell 296 points to end the day at 11,063 and within striking distance of the 10,725 support:

I don’t think it was an accident that we closed below this support last week and I really don’t think it was a onetime thing. I think this market is shaping up for a crash and I don’t think you’ll have to wait too long to see if I am right. October is going to be a very, very difficult month for anyone who is long the Dow.

ebo@dtanalysis.com

Dow Theory Analysis SAC

Sept. 22, 2008