Risk on or Risk Off Trade

gold-eagle.com / By Rambus Chartology / August 6, 2012

In this weekend report I would like to show you some charts that can tells us if we are in a risk off trade, DEFLATION, or risk on trade which would signal INFLATION. As most of you know I have been in the Deflation camp since the first of the year and up to a week or two ago that has been the best the safest place to invest. There is always an ebb and flow to markets which never go up or down in a straight line. In a bull market you have more ups than downs and in bear markets just the opposite happens. I think we are at one of those turning points in the markets where deflation, which has been in control for close to a year is now giving way to another inflationary move which would be good for the RISK ON type of trades.  We are still very early in this turn toward inflation which should give us some good buys.

Before you read any further I would like you to clear your minds of all the stuff you read in the papers, the internet or see on TV that that keeps enforcing how bad things are here and around the world right now. Remember the markets are always looking six months to a year out in the future. What you are seeing in the markets right now is what the stock markets were seeing many months ago. Just like right now the markets are looking ahead many months into the future and what some of the charts are saying is that now is not the time to be a hardcore bear. I know it flies in the face of reality of what we are seeing right now but I think things will be looking better for the stock markets, commodities and the precious metals six months from now. I know most of you have heard the expression, The Markets Climbs a Wall of Worry.  How many times have you seen the markets go up on bad news? You think to yourself, that doesn’t make any sense which of course it doesn’t if you are looking to the present to find your answers. So with that in mind and having your mind free and clear to look past the present and into the future, lets see what the charts are telling us as to the risk off or risk on trade.

The US dollar is the key to understanding the move in the risk off or risk on trades. When the dollar rallies the risk off or deflation trade is where you want to be and when the dollar is falling commodities or risk on trade is the place to be invested. I have been pretty bullish on the US dollar for some time now but there was a pattern that formed last week that says a top might be at hand in the dollar. The pattern didn’t really show itself until last Friday, August 3rd. On the chart below you can see a small H&S top with a steep falling neckline. The neckline hasn’t been broken yet on the bar chart but the line chart shows the neckline has already broken down. Also notice the big negative divergence on the RSI indicator at the top of the chart and the negative divergence on the MACD at the lower part of the chart.

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2012-08-07 15:37:47

Source: http://silveristhenew.com/2012/08/07/risk-on-or-risk-off-trade/