An Interesting Week

In my last post I suggested a pairs trade including SKF and DGP. Since that post, DGP has fallen 3%, and SKF has risen 10%, netting a handsome 7% in the last 4 days. While I firmly believe in the soundness of the fundamental logic (a move to hard assets over paper assets due to credit worries), the technical picture doesn't look good in the short term. Precious metals have found resistance at the nice round numbers, Gold just short of 1000, Silver ~20. Moreover, oil prices rose to a record high on Friday, but fell on high volume, signaling a short term turning point. Energy stocks in the OIH failed to make a new high in spite of crude oil's advance, and it showed great weakness on Friday, along with miners. More importantly, SKF closed down 1% on triple the average daily volume after reaching a new high. The last time this happened was ~the January 22nd lows, which leads me to believe that there will be a strong counter trend in the coming week. The market may continue lower, but unlike the last few weeks, it seems like energy is leading the way lower. There may even be a short squeeze in real estate, finance, consumer discretionary. If Asia can recover, then there will be strength in energy and commodities, but if China continues to swoon, then I suspect there will be further price pressure in the near term. Perhaps the new pairs trade is UYG (double long banks) and SMN (double short basic materials). Hard to tell without my charts spitting out new numbers. In any event, keep your hard hats on, I suspect we're in for increasing volatility and a VIX in the mid 30's.

Smooth Sailing

Today was perfect. Everything I'm dabbling in was on the up and up, except for the Swiss Franc FXF. SLV and IAU continue to make new highs, and I started a position in DGP. Even the double inverse funds made new short-term highs. DBA rebounded above 42, even though UDN failed to close higher after a very strong open. GDX, SLX and EEB recovered some of their losses, and remain technically sound, but close to danger.
The skinny of the story is, I'm having cake and eating it, and there is plenty more to go around if the trend towards hard assets remains intact. Financials took another step towards failure today, and if the home builders follow suit, this will be a panicky drop to the January lows.
Pairs idea: Double Gold w/ DGP (26.36) and Double Short Financials w/ SKF (121.50). Equal weight.

Doubling Up On Gold

Deutsche Bank is offering leveraged and inverse Gold ETN's DGP (+2x), DZZ (-2x), DGX (-1x). This is very exciting, but also quite scary. Looking at DB in the charts gives me little faith in the banks debt, but so long as the market believes in these awesome debt instruments, I will certainly go along for the ride. DGP is trading @ 25, so if gold moves to 2000, it should trade around 75.
Bond yields continue to move lower as BSV, TLT and TIP are trading at all time highs. Still no sign of a major financial collapse as bonds continue to offer safety.