Outlook for Stocks, Gold, and the Dollar

12/22/2009 11:00 am EST

Focus: MARKETS

Mark Leibovit

Chief Market Strategist, VRTrader.com

Mark Leibovit, chief market strategist of VRTrader.com, says stocks are near a top, gold may correct a bit, and the dollar could rally more—at least in the short run.

Year-end crosscurrents, along with [the] current rally in the US dollar and the temptation on the part of money managers to close out their positions and lock-in profits by year-end have all apparently now congealed and the market has turned south.

I suspect that we're in a time zone of a potential market top, since we've been overall rallying into this time [period]. We're long overdue for a correction.

What's the bottom line? Depending on the index, I would like to see Thursday or Friday's lows hold and, hopefully, Positive Volume Reversals (tm) posted to reaffirm the up trend. Looking at the Standard & Poor’s 500, the next upside objective is 1,142; support is around the 1,075-1,085 range.

Bears are calling current technical action a “rolling top.” The bears are also calling for a 20% correction. If you look at the weekly charts, we are still in a “bull” phase, but at the same time, I sure don't wish to get caught up in a 20% correction before the “bull” phase resumes. It makes a lot of sense to sit on the sidelines for the time being.

The Dow Transports remain the market leader. Watch the iShares Dow Jones Transportation Average ETF (NYSEArca: IYT), the ETF for the Transports. Above $75.81 would be a new bull market high. (It closed just above $75 Monday—Editor.) 

Gold was up sharply Friday, though the other precious metals did not join in on the rally. Gold's surprising rally, considering the other metals and the Dollar is up, was attributed to quadruple witching and SPDR Gold Shares (NYSEArca: GLD) reclaiming its 50-day moving average.

Spot gold needs to clear the December 16th $1,142.10-an-ounce high to help reestablish an up trend. (It closed above $1,095 Monday—Editor.) $1,070 remains a down side risk number.

Overall, let me be clear: Whether you buy gold at $1,112, $1,070, or $1,025 [an ounce], it is irrelevant compared with where we're headed. I fully expect to see gold at $1,500+ in 2010. We may even see $2,500.

The US dollar index rallied to its highest level since September 8th as traders worried about prospects for the Federal Reserve to begin tightening US monetary policy and the ability of Greece to service its debt. (The index closed above $78 Monday—Editor.) 

Technically, look for a pullback to 77.00-77.15 here. The real question is, where are we headed? A ballpark target could be first 79.25 followed by 83.00-84.00.

[But] the US dollar is setting the stage for another significant wave lower. Also, don't be so sure the current inverse relationship between gold and the US dollar will stick. I am convinced through nearly 40 years of watching the markets that rules are made to be broken, and this will yet be another one.

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