Here is a chart of the relative performance of the dollar index versus gold (USD:GOLD). It kept declining for almost a year now.

The interesting thing about this chart is the RSI. It is currently in the oversold zone, meaning that the dollar is overweak versus gold.

The last time it happened was in last june, gold reversed and fell from 980 to 910 and the dollar made a small short term counter trend rally from 78.5 to  81.

What really matters is that the dollar is too weak now versus gold and the RSI is telling us that probabilities are high that the strength of these two assets against each other is about to change soon.

In order to take out the RSI from its oversold zone and change the relationship, only three things can happen now:

(i)                  gold declines but dollar consolidates

(ii)                gold consolidates  and dollar strengthens

(iii)               gold declines and dollar strengthens

 In all cases, probabilities are low that

(i)                  gold has a lot of upside potential

(ii)                Dollar has a lot of downside potential

It is just another confirmation – through intermarket analysis- that an intermediate term bottom in the dollar is really about to be found soon.

Bottom line :

(i)                  Stocks are really near their top and reverse.

(ii)                Bonds are going to rally

(iii)               Euro is going to sell off

(iv)              Yen is going to rally vs. both the dollar and euro.

(v)                Gold and oil are going sideways or down ( I am tempted to say down)

I received a chart this morning in my email, symbol WYNN, which at first looked pretty appealing on the long side:

But when I took a look at the longer-term picture, a different impression emerged:

My point being – the more data, the better! I tend to use 10 year daily charts for my own analysis. A big screen helps too 🙂

I've got some catching up to do, so I'll see you in a while.