Sunday, September 19, 2010


The S&P has now joined the Nasdaq 100 in completing the 1-2-3 reversal.

Now whether we get any follow through next week will depend on if the dollar continues down to test 80. Note that Friday was day 14 of the current daily cycle. We usually see a minor half cycle correction sometime around day 15 to 20.
So we should expect a short term top any day now. However I expect the pullback will just serve to dampen sentiment a bit so the next push higher can begin. If I had to guess I would say the market will likely find support at 1100.
The move to a higher high also puts this rally into week 11 of the larger intermediate cycle.
That means we are now dealing with a right translated cycle. The majority of the time right translated cycles hold above the prior cycle low. In English that means it's now unlikely that the market will drop below the July low of 1010 at the next intermediate cycle bottom due in mid to late November.
How is that possible you ask? The economy is in dumper. Well first off never make the mistake of thinking the economy determines whether the stock market goes up or down. From 1932 to 1937 we saw one of the greatest bull markets in history. The Dow rallied almost 700% and it did it with unemployment holding above 14% and occasionally rising to over 20%.
Let me show you what is driving the stock market.

The dollar is in the process of it's own 1-2-3 reversal. If it breaks below 80 we will have confirmation that the counter trend rally that started last year is over and the secular bear trend has resumed.
I've been warning for sometime that the dollar is due to drop down into a major 3 year cycle low. A falling dollar is a sign that Bernanke is printing too many of them. He's trying to support asset prices and create the illusion of prosperity. He is probably going to succeed in creating asset inflation. However, in the process he is going to do tremendous damage to the global economy.
At some point the market will recognize that, and the global stock markets will roll over into the third phase of the secular bear market that began in 2000. But until the market wakes up to the fact that a currency crisis is brewing don't be surprised if we have a brief period where it will appear that everything has been fixed.
The initial phase a currency debasement is often mistaken as an improving economy. It's not. In reality Bernanke will be doing massive damage to the economy.
At the dollar's next 3 year cycle low, due next spring, we will be dealing with a mini-crisis in the dollar. That is going to cause surging inflation problems.
Gold is already trying to warn us what is coming for those that will listen.
Since we were talking about trend lines let me say this again for those that forgot during the July correction. In a bull market all trend line breaks will eventually be recovered until the secular bull finally comes to an end.
In July I saw gold bears falling all over themselves because the trend line from the Oct. `08 bottom had been broken.

I knew at the time that it was a mistake to attach any significance to the trend break. At the end of the article I said the "the bears are going to be wrong again". And of course they were wrong again. Gold has gone on to make new highs just like I knew it would. And we now have a new trend line to watch.
Sooner or later this trend line too will break and just like the last one it also will be meaningless. These trend breaks are one of the most effective tools the bull has to shed riders and punish shorts.

When the next break comes are you going to let the bull sucker punch you again or are you going to see it for what it is? A major buying opportunity.


  1. Toby the price action looks strong here and to use a football analogy, it looks like it's first down and goal at the 1 yard line, and we've got the jumbo package in with Christian Akoye ready to grab the ball and run somebody over! I can't stand metals bears right now. I've been totally confident since April that the metals were going to be very strong moving forward and I've never felt so bullish. I don't like to feel too confident bit maybe this is just a sign that we're entering a new glorious phase of this bull market. I just almost doubled my physical silver position and I thinl silver is heading to 36 per ounce. I think gold gets to at least 1390 or so before any risk of pullback. My main feelings are that we have now crossed the rubicon and we now officially live in a banana republic. It's too bad and it is also too bad that the public is totally blind. It is also too bad that a lot of metals bears are still is such denial. They don't realize that the metals are now not just an investment but perhaps a key element to their very survival. This is no time to be kicking the tires. I believe that we're only about 25% through with the metals bull. What say you on this? My reasoning on this is because with the long bond market top potentially in.... All that money has to go somewhere! Also, the way I feel about selling metals at this point is... "What do you get back?" To be honest I don't feel comfortable holding too many dollars so whenever I feel I have an excess of dollars these days.... I get out of them into some more PM holdings. What will ever come along to make us feel secure in holding some fiat instrument. My trust is gone and never coming back. Hopefully you can help provide some guidance on the next bull other than the metals if and when that ever comes along. My thinking is that it will be a key natural resource (right now I think the key resource is precious metals in the ground as it's a bear market in fiat money and a bull in real money) or it could be when the bond market crash finally bottoms out and rates all over the world are super sky high. Just some ideas.... It'll be interesting to get your thoughts on this. Thanks.

  2. Dear Tobi,

    Its always a pleasure for me to read your articles. I have to say thank you for your awesome work.

    Now i have question:

    A lot of gold bugs and other well known persons call for a comex default. (They do this for years..) I m invested in gold and silver physically and have also a big trading position. (CFDs on gold and silver at the broker GFT)
    On a comex default, what consequences would this mean for my trading positions?

    Big thanks

    kind regards
    Ralf from Switzerland

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  4. The next bull when it comes will be in paper assets again. That's how the large cycles work. Frist stocks get extremely overvalued while commodities get undervalued then a secular shift happens and the cycle swings the other way.

    At some point stocks will be so undervalued that one just has to sell their gold and start buying stocks again.

    I don't think you need to worry about a comex default at the moment. I would think we would be seeing shortages in the physical market if that were going to happen. So far I don't see where dealers are running out of silver.

  5. based on the first commenters

    'sky's the limit,buy now' enthusiasm

    ...we better lighten up and wait for a slight correction :)

  6. I actually doubt gold will get through $1300 without some kind of corrective move.

    Silver is also about to make its first attempt to break out to new bull market highs. I doubt that will be successful on the first try either.

  7. I agree. tho they CAN take off and go parabolic,i think that'll happen when you see the dollar drop below .80 as you have mentioned (maybe spring of 2011). for now things look stretched & overbought already (and almost EVERYONE is talking about it as a must buy). Seems a test of highs,maybe even slight break above and retest breakout of silvers triangle break to shake out weak would do the trick. Great wkend report!!

  8. Toby,do you expect Gold to move bellow 1250 as a possible corection?
    What about a runaway move in Gold you been warning us in your subsc.reports?

  9. I certainly wouldn't bank on gold dropping to $1250.

    The next daily cycle correction should tell us if gold is in a runaway move.

  10. I have a feeling that we are already in runaway move. We been testing 1265,then new high 1273. I look at the chart and can't find reason to go back down again to 1265.

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  12. I heard the exact opposite at the July bottom.

    Remember a chart is nothing more than a record of history. And the past in no way guarantees the future. Gold will have some kind of correction and the reason will be because sentiment is too bullish. We will temporarily run out of buyers.

    Generally speaking it tends to happen about every 20-25 days.


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