This week has been very profitable. I will be booking some profits by the end of today and keeping a very cautious eye on the markets for the next couple of weeks. Let’s see what is developing in the North American markets.

The Dow Jones: Notice the upward rising wedge that has been developing over the length of the current rally. This formation usually tends to end with a break below the support lines. This does not mean that this market cannot break through the upward boundary. However, a strong break above the boundary is not the most likely outcome. The Dow, and for that reason the S&P have been hitting significant upward resistance over the past week on the upside. The developments in Dubai can be held attributable to the current state of tension in the markets which has also led to a massive spike in the VIX. If you notice the previous yellow boxes, you will see that this sort of short-term inability to move higher ended up with a break lower. This is generally followed by consolidation and a move higher. It is difficult to draw specific conclusions from these observation, but it does demand caution to be exercised on a go-forward basis. It might be a good time to move up those stop-losses.

Upward Catalysts: Easing of the Dubai crisis. Further dollar devaluation (95%+ are already bearish!!). Positive jobs and manufacturing data.

Downward Catalysts: Increase in the dollar (perfect contrarian trade), aggravation of the Dubai situation, Greece and EU, negative jobs and manufacturing data, home and commercial loans problems resurfacing, economic problems in the emerging markets.

Lets look at the TSX where similar situation is working itself out.

TSX: The rising wedge is apparent here as well. However, I suspect that the TSX might be poised for a break above 11,800 and towards 12,000 in the near future. There is a reverse head and shoulders pattern developing which often yields strong and sudden upwards movements. The catalysts for the TSX rally has been the strong inflows into the materials sectors, especially gold. With gold seemingly heading towards the moon, other metals are beginning to ride its coattails. These include copper, iron, silver to name a few. However, given the rising wedge, I would also remain cautious and keep a finger on the sell button while actively booking profits.

Portfolio comments: There have been no recent changes in my portfolio recently. I have chosen to load some smaller, more volatile names to take advantage of the market’s strengths. These have yielded some nice profits in the short term. I will look to scale out of some positions this week and reduce leverage (currently around 140%), possibly unwinding all leverage that has been built up thus far.