Earlier this year, we took some positions in UUP (bullish dollar), as its price crossed its trend line to the upside (see arrow in chart). After the high was made in June, we subsequently got stopped out (at a small profit) as the dollar got clobbered and headed south again.

This reversal clearly supported the stock market as the dollar and the market, as represented by the S&P; 500, remain locked in an inverse relationship, as this 1-year chart shows:



Since the beginning of November, UUP has been in an upswing again causing weakness in the markets. The current momentum figures look as follows:

4-wk: +4.20%
8-wk: +2.96%
12-wk: -2.02%
YTD: +1.00%
%M/A: -2.09%

With its price is still hovering -2.09% below its long-term trend line, this is not considered a buy yet. But, as we’ve seen recently, sentiment can change in a hurry.

It only takes some more bad news in regards to the European debt saga, or a sudden act of madness by the North Koreans, and the dollar will surge, while the stock market will head the other way.

In that sense, watching the direction of UUP, will give you some idea as to what’s in store for stocks.

Disclosure: No positions

Once in a while you find a politician who actually says it like it is. While this is a rarity here in the U.S., with maybe the exception of New Jersey governor Chris Christie, you have to look to the other side of the Atlantic to find refreshing and brutal honesty.

While we’re stuck in this ridiculous trap called “political correctness,” some of our British counter parts have turned “outspokenness” and candor into a real art form. Here’s Nigel Farage in a speech before the European Parliament. Enjoy!

Hat tip goes to Mish at Global Economic Trends for this bon mot.

One of my favorite reads of the day is Dr. Housing Bubble. While he mainly focuses on real estate in general, he occasionally also comments on the economy.

Since the real estate crash has had such a negative impact on the lives of many investors, is there really a recovery in the cards next year? For one viewpoint, here are some highlights from “The long road to a housing recovery:”

The housing market has very little chance of maintaining a sustainable recovery until it clears out the immense amount of shadow inventory. This inventory cannot move without solid employment growth. The water cannot flow freely until we unclog the filth plugging the drain.

In the end, the housing market won’t improve until we clear out this enormous backlog. What is the ultimate goal about propping up home prices? Wouldn’t it be better for the overall nation to dedicate less disposable income to housing and shift this spending on to other goods?

There is much more to this article including charts and graphs; if this subject interests you, click on the above link.

For sure, without any major improvement in the employment area, real estate will not recover. After all, last time I checked, people do need an income in order to make their mortgage payments.

At the same time, the enormous backlog and shadow inventory will need to be cleared as well, before some pricing power can be restored.

To my way of thinking, attempting to prop up real estate prices with the creation of artificial demand via stimulus programs is doomed to fail, as we’ve seen in the past, and as a result has merely postponed the inevitable.

Prices need to fall to a level where genuine demand picks up; in other words, a point needs to be reached where homes become affordable again based on median incomes for a given area. Where that level will be, is anyone’s guess at this time, but I believe that we will not get there next year.

Of course, reaching that lower price point will inflict an enormous amount of financial pain on the banking sector as these accumulating and accelerating loan losses will need to be realized—eventually.

On other hand, as recent history has shown, the likelihood is great that the taxpayer will be on standby again to bail out whoever needs to be bailed out. I can only hope that next time around, other options will be considered.

My latest No Load Fund/ETF Tracker has been posted at:

http://www.successful-investment.com/newsletter-archive.php

A roller coaster ride caused by the European debt crisis and saber rattling in Korea pulled the major indexes lower by about 1%.

Our Trend Tracking Index (TTI) for domestic funds/ETFs has moved above its trend line (red) by +5.36% (last week +5.80%) and remains in bullish mode.



The international index has broken above its long-term trend line by +4.75% (last week +6.98%). A new Buy signal was triggered effective 9/7/10. If you decided to participate, be sure to use my recommended sell stop discipline.



[Click on charts to enlarge]

For more details, and the latest market commentary, as well as the updated No Load Fund/ETF Tracker StatSheet, please see the above link.

In an about face, the markets rallied right out of the starting gate yesterday and never looked back. In the end, all of Tuesday’s losses were made up, and the S&P; 500 closed at the exact number of last Monday.

Powering the rebound was a bullish report on jobless claims along with positive individual stock stories. Two other catalysts helped as well due to no new announcements: No shooting in Korea or any earth shattering news about the European debt crisis.

As I mentioned yesterday, several of our holdings were slated to be sold, unless a rebound materialized. Well, materialize it did and prices of the effected securities pulled back below their respective stop loss levels, so I did not execute any orders but one.

Friday will be a short trading session so I don’t expect much volatility, unless unexpected news events from the current world’s hotspots hit the news wires.

In the meantime, I wish you a very relaxing Thanksgiving Holiday.

Traders on Wall Street had to do an about face yesterday and take their focus off the European debt crisis for a while, as the shelling of a South Korean Island by the North Korean’s caught everyone off guard.

As if existing problems weren’t enough, the North Koreans decided it was time to get some attention and what better way than to lob a few explosives at an island that has been under dispute. I am not sure who else listened, but Wall Street certainly did, and the bears came out and pulled the markets lower. Surprisingly absent was the afternoon comeback we’ve seen so often as uncertainty kept the bulls on the sidelines.

The markets have been struggling for the past three weeks, and worries persist that the highs for the year have been made. Be that as it may, several of our positions have triggered their trailing sell stops and will be sold tomorrow.

These are obviously more volatile positions, like Country ETFs, and as announced during the pullback last week, I will watch market activity early today and, absent a nice rebound rally, I will pull the trigger on the selected holdings.

Not helping the market yesterday, were continued issues with the Irish bailout and the fear of the debt crisis not being contained. Domestically, last quarter’s GDP was revised and came in better than expected.

The Fed’s minutes from its last FOMC meeting trimmed the economic forecast for 2011 and beyond while unemployment is expected to remain stubbornly high.

Gold and bonds were two asset classes that moved higher yesterday offering a nice balance to our portfolios compared to the broad market selloff.

The U.S dollar rallied as the global investment community decided that, after the Korean story hit the wires, a flight to safety was in order. Apparently, whenever there is a major crisis and the heat is on, the dollar remains the currency to move into.

When things calm down again, I am sure sentiment will reverse, and it will become the whipping boy of choice again. Go figure…