US Dollar

Today's move of the US Dollar Index to 87.98 represents a fairly significant technical break down below the longer term Moving Averages on all three charts below (Courtesy DecisionPoint.com).

The Dow Jones is manifesting a chart pattern known as a megaphone - with rising tops and falling bottoms. This is often associated with emotive confusion; and usually has bearish connotations.

The chart that has been giving me the most reliable guidance over the past few months has been the goldollar index below.

The last time I looked at this chart, the level of 4,750 seemed to me to represent a significant pivotal point, and I also opined on the emergence of "gaps" in the gold chart.

Of significance in the above goldollar chart is the gap that manifested as the combined index gapped up through the 4,750 resistance level.

There will be many who will be pointing to a potential collapse of the Dow Jones following a breakdown from the megaphone (should it happen) and it will be difficult to fault their logic.

By contrast, there will also be many who will be calling for a "collapse" in the US Dollar but, arising from the monthly chart of the Dollar above, this may be a somewhat premature call.

If the Dow Jones "collapses", how far can it fall?

The monthly chart below appears to be pointing to a possible range of between 9000 and 10000, with 10000 at this point appearing more likely.

Conclusion

The Goldollar Index seems to be pointing to a rising gold price that will rise faster than the US Dollar may fall (if it falls). On a best case scenario, the gold price may rise against a background of a stable - or even moderately rising dollar.

Regardless of the outcome if, on a Worst Case scenario, the gold price rises at a faster pace than the US Dollar falls, then the "driver" of the gold price will not be a falling US Dollar.

At this point, it appears to this analyst that the Dow will remain in a trading range of between 9000 and 11000 for some time to come, and that the charts are notpointing to a broad based loss of confidence in the US Economy.

Post Script

Notwithstanding the recent weakness in bond yields, the following long term chart is indicating strong support against further significant falls, with the rising bottoms on the PMO indicating a slowing down in the rate of deterioration; and with a double bottom in the chart itself indicating the possibility of an ultimate support level.

Markets (except for gold) remain in homeostasis mode. The series of runaway gaps in the gold price (chart not shown) seems to indicate that the gap in the goldollar index chart above is a breakaway gap (which will not be covered for some time) but it's still too early to make that call.

Overall Conclusion

Sit tight on Precious Metal related investments and steer clear of listed Industrial equity investments. i.e. No change in long-term investment position.