Party like it's 2008?

Everyone's got an opinion on where gold, equities and bonds will be by the end of 2010. Although my crystal ball isn't always accurate, I may be seeing a pattern developing.

Let's look at the dollar index on a 2 year chart:



On August 5th, 2008, the dollar index crossed over its 200 day moving average, signaling a flight to quality. The smart money moved into cash to avoid the impending danger. Check out what happened next to an economic bell-weather, silver:



Almost immediately after the dollar moved over the 200 day moving average, silver rolled over. In less than 2 months, the Dow Jones Index did the same:



If investors watched the dollar index for signals, they could have saved themselves plenty of heartache by keeping powder dry while the market beat up risk assets like a giant piñata.

When the smoke cleared and the dollar reversed south over its 200 day moving average, investors could have had silver for 27% less and DJI for 36% less.

I believe we may see a repeat again in 2010. Consider where we're at right now:

1. On Feb 1, UUP crossed north over its moving average.
2. Shortly after, SLV tanked again, below its moving average.
3. We're also seeing cracks in DJI, with low volume rallies and high volume declines as it trends down to it's moving average.
4. Sovereign debt is the scary theme du jour, with a potential Greek default less than 2 months away.
5. If Greece goes down, the fate of the rest of the PIGS might follow shortly thereafter.

No matter what, be careful and be hedged. The dollar play is in full effect right now. The only question is what we'll see when the DJI gets closer to the moving average. Will it kiss and head north? Or will we see the wheels fall off the wagon?

Only time will tell. There's only one thing to do right now...stay liquid. Patience is most definitely a virtue.