Over the past couple months everyone seems to have been preparing for a sharp market correction. Crazy part is that the SP500 dropped about 10% from the high and that is a typical bull market correction. The thing is… the stock market has a way of slowly unfolding making it look and feel minor, then before you know it, the correction is over and it’s back to an uptrend. That is kind of how this one unfolded.

The good news is that we caught the low risk portion of the correction locking in a 4.5% drop, and we are now in a long trade and in the money by 2.5% with very little down side risk at this point. Time will tell if this up trend is sustainable or not…

Now, let’s take a look at the charts…

Dollar 60 minute intraday chart
As you can see below the dollar looks to have started a breakdown today. If there is continued selling pressure in the next couple days then expect to stocks and commodities to move higher as the US Dollar drops. It is important to know that when a bullish pattern fails we typically see a very strong reaction in the opposite direction (down) catching the majority off guard and they rush to the door.

SPY Broad Market ETF – Daily Chart
A couple weeks ago we watched the market go into a free fall creating a washout bottom. From there we saw prices bounce back and retake my key moving averages. This gave us a bullish bias and dips should be looked at as buying opportunities. I will admit that stocks still have a long way to go before the masses are convinced. I feel we need to see the February and March highs get taken out first. Once they get taken out there should be strong buying as short covering (protective stops from traders who are short) causes a surge in buying pressure sending stocks sharply higher yet again.

My trading buddy David Banister at Active Trading Partners is starting to see small cap stocks come back to life. Money is starting to flow into these lucrative areas of the market and he is on top of things… This week’s trade is up 20% in less than 24 hours which is very exciting.

Gold Daily Chart
Gold has been moving up this year but the current price action is not really getting me excited to buy just yet. Recently we have seen strong selling volume and very light buying volume. My bias still favors higher prices but there is still a good chance we get another dip in the coming sessions.

Mid-Week Trading Conclusion:
In short, I feel as though the dollar will trigger the next wave of buying in stocks and commodities for the next week or two… We should see the dollar make a clean moving in either direction shortly and that will help guide my analysis, positions and setups. I hope this analysis helps you to see the market from a different perspective.

6 months of detailed trading guidance, pre-market videos, low risk alerts, and trading education for less than 50 cents a day!

Chris Vermeulen

• The S&P 500 is up close to 5.3% for the first quarter of 2011 and stocks look to be stuck in a trading range for the foreseeable future…
• The Fed is behind the curve on raising interest rates – there will be no flight to safety in the dollar, but rather a sell-off and flight to the euro and the yen as others plan to raise rates.
• Slower economic growth means less demand for industrial commodities and precious metals.
• Real estate has gone from bad to worse…

Tim Iacono

The cost of David Rosenberg’s daily missives from Gluskin Sheff will rise infinitely in price in just two days (i.e., from zero to $1,000 a year – not the sort of thing you’d expect from someone whose been pitching the de-flation story), so, today seemed like a good opportunity to grab a chart while they can still be had, this one of the ECRI Weekly Index.

Recall that this index was cause for much gnashing of teeth last spring when it began to exhibit rather large and unprecented year-over-year changes that many thought foretold a new economic slowdown (or much worse). Well, that never came to pass as the 2010 summer lull turned into a veritable economic revival when Ben Bernanke and crew started talking about printing up another half trillion dollars or so for the greater good.

6 months of detailed trading guidance, pre-market videos, low risk alerts, and trading education for less than 50 cents a day!

Tim Iacono

If you haven’t already done so, you are encouraged to have a look at Friday’s New York Times report by Joe Nocera “In Prison for a Liar Loan”, the case of Charlie Engle who is now serving a 21-month sentence for lying on a mortgage application. If this case is in any way representative of how the government operates these days, it speaks volumes about how screwed up the current system is for prosecuting financial fraud in this country.

It’s not just the fact that some guy who lied on a mortgage application back in 2005 is spending time in jail – many more probably should – it’s how they went after one of these “little guys” when all of Wall Street either eludes scrutiny or simply pays multi-million dollar fines that, in some respects, are just another cost of doing business.

Mr. Engle’s tax records showed that while his actual income was substantial, his taxable income was quite small, in part because he had a large tax-loss carry forward, due to a business deal he’d been involved in several years earlier … Still convinced that Mr. Engle must be hiding income, Mr. Nordlander (an IRS special agent) did undercover surveillance and took “Dumpster dives” into Mr. Engle’s garbage. He mainly discovered that Mr. Engle lived modestly.

In March 2009, still unsatisfied, Mr. Nordlander persuaded his superiors to send an attractive female undercover agent, Ellen Burrows, to meet Mr. Engle and see if she could get him to say something incriminating. In the course of several flirtatious encounters, she asked him about his investments.

After acknowledging that he had been speculating in real estate during the bubble to help support his running, he said, according to Mr. Nordlander’s grand jury testimony, “I had a couple of good liar loans out there, you know, which my mortgage broker didn’t mind writing down, you know, that I was making four hundred thousand grand a year when he knew I wasn’t.”

Mr. Engle added, “Everybody was doing it because it was simply the way it was done. That doesn’t make me proud of the fact that I am at least a small part of the problem.”

Unbeknownst to Mr. Engle, Ms. Burrows was wearing a wire.

Not only should this serve as a valuable lesson about how much of your personal finances you should divulge while on a first date, it also serves as a reminder that the little guy always seems to lose in a world increasingly run by Wall Street and Washington.

6 months of detailed trading guidance, pre-market videos, low risk alerts, and trading education for less than 50 cents a day!

By Elliott Wave International

Below is an excerpt from the newest free Club EWI investor education resource, The Independent Investor eBook 2011. Inside are some of the most eye-opening research findings by EWI’s president Robert Prechter, as published in the recent issues of his monthlyElliott Wave Theorist.

Enjoy this short excerpt — and for details on how to read this eBook in full, free, look below.

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Club EWI’s Free Independent Investor eBook 2011 (excerpt)
Chapter 1: Quantitative Easing Has Not Brought Back the Old Inflationary Trend
(From Prechter’s January 2011 Elliott Wave Theorist)

While long terms rates are rising, Treasury bill rates are stuck near zero. How is it possible?

… During hyperinflation, rates typically rise to double digits per month. Inflationists find it difficult to reconcile the Fed’s massive balance sheet growth over three years beginning in August 2008 with short term rates at zero and long term rates only in the 2-5% range.

Deflationists (all ten of us) understand why investors are willing to hold government paper at such low returns: The total supply of debt is contracting. Most bonds won’t survive. The federal government’s bonds will survive the longest.

Figure 10 shows that the total supply of “money” plus debt (all of which is in fact debt) peaked in 2008. This decline in overall money and credit is the first on an annual basis since 1929-1933. It is a big deal.

… This graph explains why gold in 2010 was so much lonelier in making an all-time high than stocks, commodities and real estate were in 2006, when everything was making an all-time high simultaneously: The total money + credit supply is down and cannot support new highs in all markets at once.

The Fed’s QE programs are failing to re-ignite inflation. By mid-2011, the Fed will have monetized just over $2 trillion worth of debt since 2008 to bring the value of its total assets to about $3t. This does represent a huge amount of fiat money. But the overall debt load is $65 trillion. Thus, the Fed will have monetized only 5% of the total, meaning that 95% of the outstanding debt is still suffocating the economy like a giant pool of sludge. …The Fed’s degree of monetization in light of these debts is very small.

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For more of Robert Prechter’s insights on the markets, including why QE2 was a major tactical error, why rising oil prices are not bearish for stock, and why earnings don’t drive stock prices, read the rest of this FREE 51-page Independent Investor eBook. Download your free eBook NOW.