It’s been said that success occurs when preparation meets opportunity. In other words, success is a combination of being at the right place at the right time and most importantly being prepared to make the correct move.

More often than not, investment opportunities cannot be forced; they simply occur and are identified as such by savvy investors. This component of chance, however, can be mitigated by solid preparation. You can’t force opportunities, but you can make sure you’re ready to take advantage of them.

Right now, the market seems to be gearing up to offer a number of good opportunities which should become ripe for the picking, if they aren’t already.

Irritating a sleeping bull

Many have labeled the U.S. dollar an outright bear, ready to fall to never before seen lows. A look at the chart below, however, shows that the dollar just broke out of a technically and psychologically important trend channel. Could it be that the bear is a sleeping bull ready to awaken?

This seems impossible considering all the negative news and sentiment surrounding the buck. But isn’t it exactly that kind of doomsday atmosphere found at all major market bottoms?

Did you expect stocks to bottom right after 9-11-2001 and again in 2002? Did you go out and buy stocks earlier this year in March when they were 65% cheaper than today? Only a select few have the guts to buy when nobody else does. But usually it’s those select few that get rewarded handsomely.

On March 2nd, 2009, the ETF Profit Strategy Newsletter sent out a much-mocked (initially, but not for long) Trend Change Alert, which predicted the onset of the biggest rally since the October 2007 all-time highs.

The stock market bottomed five trading days later. The Dow Jones (DJI: ^DJI), S&P 500 (SNP: ^GSPC), Nasdaq (Nasdaq: ^IXIC), Russell 1000 (NYSEArca: IWB), Russell 2000 (NYSEArca: IWM), mid caps (NYSEArca: MDY), financials (NYSEArca: XLF), and all other recommended indexes rallied between 65% - 120% since.

The moral of the story is that extreme pessimism is usually indicative of a major market bottom. Several times in late November, over 90% of all US dollar futures traders were bearish. Those types of readings are a strong signal for contrarian investors to close out open positions of the PowerShares DB Dollar Bearish Index (NYSEArca: UDN) and look at the PowerShares DB Dollar Bullish Index (NYSEArca: UUP).

The dollar carry trade – where international investors borrow U.S. dollars to buy stocks – was the most popular trade for bigger institutions since the late summer. A rising greenback will force many traders to close their dollar short positions and stock long positions. The 3%, 5-day rally may be an indication of just how much is at stake.

Are the “golden days” over?

Throughout 2008, the performance of gold has frustrated goldbugs who’ve been waiting for $1,500/oz gold for years. Finally, gold is living up to the expectations and the $1,500 mark has come closer. But, and that’s a big but, $1,500/oz may still be far away.

For the first time ever, Harrods of London is selling gold bullion and it’s selling a lot. In Germany, you can now buy gold via vending machines and the TV is running hot with ‘cash for gold’ commercials. Is there anyone out there that’s bearish on gold?

How many people were bearish on stocks on 1999 right before tech stocks (NYSEArca: XLK) crashed, or in 2007 when the Dow Jones (NYSEArca: DIA) and S&P 500 (NYSEArca: SPY) climbed to new highs before falling apart?

The biggest parallel to gold, however, might well have been seen in oil. Who thought last year – when oil pushed to $147/barrel – that oil prices would tumble to below $35? Wall Street and Main Street thought that the world was running out of oil, yet oil crashed.

Today, the world thinks we are running out of gold. China, India, hedge funds and the average Joe are buying gold. Demand outstrips supply by a large margin, allegedly – all we can say is “remember oil.”

The chart above (gold prices monthly) shows that gold’s peak occurred precisely at the top of the trend-line channel created by a multi-year advance.

Once again, it’s appropriate to ask why anyone who didn’t want to buy gold at $300 years ago would want to buy it for $1,200 today. This “I-can’t-get-enough-at-any-price” mentality is usually associated with some sort of a market top. Chances are, this time won’t be any different.

Gold- a rocky road ahead

Unlike many other assets classes, gold’s future is more complex and intricate. As the only store of true value, gold will benefit from cross currents as no other asset class will.

The October issue of the ETF Profit Strategy Newsletter provides a detailed roadmap for gold’s tumultuous years ahead and points out some of the risks of holding gold ETFs like the SPDR Gold Shares (NYSEArca: GLD), iShares COMEX Gold Trust (NSYEArca: IAU) and others.

Putting the odds in your favor

Investing is always a matter of putting the odds in your favor. The more indicators pointing in the same direction, the higher the odds your investment will pay off.

We’ve discussed above the outlook for the U.S. dollar. As the chart below shows, the dollar has been conversely correlated to stocks to a very large degree. When the dollar is down, stocks are up.

A bottoming dollar should be confirmed by signs of a topping U.S. stock market. Just as a bottoming dollar is associated with extreme pessimism, a topping stock market should be linked to extreme optimism, or lack of pessimism.

The Investors Intelligence just reported the lowest percentage of stock market bears amidst advisors since June 2003 – 16.5%. Long-term, this is extremely bearish. The most recent readings however, offers some hope for the bulls, at least for the next week or so. Details are discussed in Thursday's (12/10/09) ETF Profit Strategy update.

The Volatility Index (VIX), also called the fear index, is hovering around the lowest levels in 18 months. This is a sign of extreme complacency among option traders. Readings around and below 20 are considered worrisome from a contrarian point of view.

An edge for stock investors

Unlike stocks, gold (currencies to a certain extent) does not provide any income via yields or interest. It is, therefore, tougher to pinpoint how much one oz of gold or one U.S. dollar should be worth. Gold is worth as much as investors are willing to pay. Gold’s true value is largely derived by its perceived value.

While the aspect of perception does influence stock prices, it does so to a smaller degree.  A hundred years of stock market data not only covers prices, it also covers dividend yields, earnings, and the corresponding economic environment.  Prices are a direct result of valuations derived by metrics such as dividend yields, earnings, and perception. To sum it up in a simple formula:

Valuation + Perception = Market Value

Obviously, perception is the big fluctuating variable.  Eventually, however, the market will always disregard perception and reset the market value to its proper valuation. At that time the formula is:

Market Value = Valuations

With its gravitation like pull, the market has a way of bringing stocks down to a fair valuation level. This level can be measured by simple yet effective indicators such as dividend yields and P/E ratios.

Major market bottoms, such as in the 1920s, 1930s, 1950s, 1970s and 1980s saw P/E ratios drop to multi-decade lows while dividend yields rose to multi-decade highs. Right now - and even nine months ago - P/E ratios are the highest they’ve ever been, while dividend yields are close to their 1999 all-time lows – the opposite of what you’d expect to see at a market bottom.

Based on the market’s internal temperature gauge, stocks are way overheated and ready for a serious cool-down period.

The November issue of the ETF Profit Strategy Newsletter includes a detailed historical analysis of P/E ratios, dividend yields, and other reliable indicators plotted against current prices to determine a target range for the ultimate market bottom.

Opportunities will abound.  Will you be ready?