FINAL LEG UP

Certain conditions were met on Friday that convinced me that gold is now entering the final leg up in this particular phase of the ongoing C-wave advance. The final spurt higher last year tacked on a very healthy 19% in a little over 1 month.

A similar performance this year would drive gold to $1578. Although this year we have the added benefit that the entire sector is trading at new all time highs. It is the only sector in the world that is in this position. This is an incredibly powerful combination that could drive the precious metal sector even further than it did last year.

At the moment there is a very low risk (-3%) entry for investors and traders to get on board this final run.

I explained the setup in depth in the weekend report.

For one day only I'm going to offer the 15 month yearly subscription rate again. That works out to a monthly price of $13.33.

15 months should be long enough to get investors not only through this final spurt higher but also back in for the final phase of the C-wave this spring. Get you out of the precious metals market in time to avoid the severe D-wave correction. And then back in to ride the next powerful A-wave advance.

We have an incredible opportunity ahead of us over the next several months and year.

If you want to take advantage of the discounted yearly subscription click here  and follow the Paypal link.

ALL THE SIGNS ARE IN PLACE

There are three things I watch for as a sign that a correction is imminent. They are in order of importance, cycles, sentiment and money flows.

The current cycle is already stretched to 45 days. Usually this cycle bottoms between 35 and 40 days so you can see we are now overdue for a top. That covers the cycles part of the equation.

Sentiment has now reached bullish levels (contrary sign) that should be enough to force at least a daily cycle correction. We haven't yet reached the extreme level that is normally required to turn the larger intermediate cycle. In bull markets it usually takes a push to new highs to get to that kind of extreme sentiment level.

Finally I like to see some sign that smart money is exiting the market in preparation for a correction. For me that sign comes when we see a large selling on strength day in the SPYDER's ETF.

Today we got that final sign.

Not surprisingly we now have a volatility coil forming on the S&P chart.

As most of you probably remember the initial move out of a coil is often a false move even though it is usually very aggressive. Typically the initial move will run 3 to 5 days and then reverse leading to a much more powerful and more durable move in the opposite direction.

Since we are 45 days into the current cycle and we now have all three signs for a correction lined up I think the odds are strong this coil will break to the downside. There are implications for the dollar and gold if this unfolds.

I went over them along with a game plan in tonight's report so I won't repeat it here but I think we will likely see a correction soon and since we still haven't eclipsed Monday's intraday high it may have already begun.

Intraday Alert

There is an intraday alert on the premium website  for subscribers in case you didn't get the morning email.

DOW:GOLD RATIO STILL TOO HIGH

I've stated before that I expect this secular bull to continue until the Dow:gold ratio drops to at least 1:1. Considering how much further the ratio stretched on the upside (42:1) than any other time in history it's entirely possible that we could briefly see gold become more expensive than the Dow.

As it pertains to the current C-wave I want to point out that we still haven't even seen the ratio hit new lows yet. Every C-wave so far has managed to drive the ratio to new lows before topping.

The current C-wave still hasn't accomplished that goal. I'm confident it will eventually. Possibly even driving the ratio down to 6. If we assume modest new highs on the Dow of 12,000 we could be looking at $2000 gold before this rally tops (probably next spring).

It looks like we are going to form the swing low I mentioned in my last post this morning so the odds are now high that gold has put in the daily cycle low and the short term correction has run its course.

If one doesn't have a position it's probably a good idea to get one and if one was waiting for a pullback to add to positions it looks like that's all we are going to get.

Depending on how the dollar reacts and how long it takes to reach the 74 pivot will determine how far and how aggressive the next leg up will be.

I will elaborate in tonight's update for subscribers.

BOTTOM IN SIGHT

Trying to pick a bottom in the gold correction at this point is probably a low probability strategy. The simple fact is that until gold forms a swing low there is no possibility of a bottom. So someone trying to jump in front of the correction might as well wait at least until a swing forms.

Ultimately though we need the value investors to step in to the gold market. Of course its tough to guess ahead of time at exactly what level we are going to get enough value money come into the sector to halt the correction.

I do have a couple of ideas of where that's likely to happen, being somewhat of a value investor myself.

The first level that should start to bring in big money is the psychological $1300 level. That level may or may not bring in enough money to halt the decline. We will only know after the fact of course. But if one wanted to try and pick a bottom that would be the first level to make an initial purchase.

A much safer bet in my opinion would be if gold can correct enough to test the $1265 breakout level. I expect enough value money will enter the gold market at that level that's it's unlikely gold will decline significantly below that point.

We have a bit of a dilemma right now. Similar to what happened back in January. Gold has begun to correct but the stock market is still resisting. As soon as the stock market rolls over into it's daily or intermediate cycle decline it's going to put added pressure on the gold correction. So trying to prematurely jump into the gold market here is risky (in so much as one will probably experience a drawdown. Of course being a bull market any timing error will eventually be corrected).

In a perfect world the dollar rally will strengthen and test 80 and in the process force the stock market to correct and gold to drop down to test the $1265 breakout. That's the point where I would advise investors to step back into the market heavily. I expect you will have a lot of company at that point and your chances of a significant drawdown will be drastically reduced.

THE CORRECTION HAS BEGUN

Yesterday the market broke the trend line off the August bottom.

The dollar also followed through on it's snapback rally.

The odds are now high that we have the cycle top in place for stocks and the cycle low in the dollar. We should now see the market drift lower possibly till the third quarter GDP report next week.

However let me stress again this isn't over. This is just a profit taking event and once it's run it's course the dollar will resume what I fully expect to be a complete train wreck (especially if Bernanke is stupid enough to run QE2) as it continues to crash down into the yearly and three year cycle low.

Initially this will push stocks higher, until surging inflation next year destroys the fragile economy. At that point the stock market will begin the next leg down in the secular bear market and the economy will roll over into the next depression.

WARNING SIGNS

We're now starting to see warning signs pop up that a correction is imminent.

Despite the market making new highs breadth is diverging badly. Aka the market is being driven higher by fewer and fewer stocks. When this starts to happen late in the daily cycle a correction isn't far away.

We now have a large divergence in the McClellan oscillator.

If we happen to see a down day today the slower 10 day moving average will turn down and join the faster 5 day average on the new high/ new low chart. Granted that doesn't always lead to a correction but when it happens late in the daily cycle it's a pretty reliable sell signal.

We are now late enough in the daily cycle that these warning signs should probably be taken seriously. It's probably too late to continue pressing the long side. To do so one risks getting caught in the down draft when the correction begins.

LONG POSITIONS ARE IN JEOPARDY

The stock market is now on the 34th day of its daily cycle. That cycle lasts on average about 35 to 40 days. So as you can see we are pushing the limits for a cycle top. We may have made that top on Wednesday. We'll just have to see how next week plays out.

I also think the dollar may have put in a cycle bottom on Friday. If it did then it is due for a snap back rally to relieve the extreme oversold conditions. This should pressure virtually all asset classes (the possible exception might be gold).

At the moment I'm expecting the market to begin working it's way down into a daily cycle trough possibly bottoming on the third quarter GDP report Oct. 29th.

Any one still holding long positions might want to consider taking profits here, especially if the trend line gets broken next week.

Once we get past the correction into the now due daily cycle low traders can probably re-enter long positions for a run at the April highs.

More in the weekend update for subscribers.

DOLLAR CYCLE STRETCHING

The dollar just sliced right through the 76.50 pivot this morning. Today also happens to be the 28th day of the current daily cycle. The normal timing band for a cycle to bottom is between 20-28 days, However the Fed's threat to print, print, print appears to be going to stretch the dollar cycle slightly long this time.

We will look for the next swing low to mark the bottom of the cycle and the beginning of what should be a counter trend bounce. That bounce should be of the dead cat variety as the intermediate cycle still has 8 to 12 weeks yet before an intermediate bottom is due.

The next support zone now that 76.50 has been violated would be the rising trend line off the last 3 year cycle low in 08.

Once the counter trend bounce begins it should pressure the stock market down into the now due daily cycle low. In theory gold should also drop down into it's now overdue daily cycle correction.

GOLD IS FAR FROM TOPPING, ITS JUST GETTING STARTED

Lately I've been seeing quite a few analysts calling for a top in gold. I have to say these analysts don't really understand what's happening. If they did they would know that far from topping, gold is just getting started.

Just as a preface let me point out that the fundamental driver of this leg up in gold is the same driver that it's been for the entire 10 year bull market; currency debasement.  Only now every country in the world is getting in on the race to the bottom. That being said it's the dollar's turn to collapse. The Euro had it's spell earlier in the year and now that cancer has infected the world's reserve currency...just like I said it would.

Let me show you a long term chart of the US dollar so you can get a clear picture of what is unfolding.

About every 3 to 3 1/2 years the dollar drops down into a major cycle low. I call it the 3 year cycle low but the average duration is 3 years and 3 months trough to trough. The dollar is now on its way down into that major bottom. After a brief bounce off the `08 all-time lows of 71 later this year I expect we will see the dollar roll over early next spring as the final plunge begins and the currency crisis reaches a climax.

Next let me show you a chart of the smaller daily cycle.

This smaller daily cycle tends to run about a month (18 to 25 days)trough to trough. We are now deep in the timing band for this cycle to bottom. Once it does (it may have on Thursday) we should see a weak rally, possibly back up to test the all important pivot at 80. That should pressure stocks and gold down into their respective cycle lows. I suspect many will take this as a sign that gold's run is over. It won't be.

Gold's drop into the now due cycle low shouldn't last more than 4-8 days. That's about how long we can expect the dollar rally to last as it will only be a dead cat bounce to relieve oversold conditions and ease sentiment extremes. Then the dollar will roll over into another decline that should bottom in early November and will likely test the 74 pivot. Again after another weak rally the dollar will crash down into a daily, intermediate and yearly cycle bottom that should test the `08 lows at 71. That is the point where the gold rally should take a more significant rest.

As I noted in the above chart the intermediate dollar, and gold cycle for that matter, runs on average 20 weeks. Last week marked the 9th week of the dollars intermediate cycle. It's way too early to look for a major bottom yet. If the cycle runs the "normal" 20 weeks then we won't get an intermediate bottom until late December. Considering the last yearly cycle low came in early December of `09 mid December should be a fairly accurate target for an intermediate bottom.

I can assure you that while the dollar crisis intensifies this winter gold will not be sitting still and it certainly won't be topping. As the dollar crashes down to test the `08 lows I expect we will see gold rocket to at least $1450 and $1550ish is probably a more realistic target.

But don't forget the larger three year cycle low isn't due to hit until next spring/summer. The dollar rally out of the yearly cycle low in December will also be a dead cat bounce, although it should last at least a month or two, but ultimately it too will fail and the true consequences of Bernanke's monetary policies will come home to roost as the dollar crashes down into the three year cycle bottom and the currency crisis reaches a climax next year.

That will drive the final leg up in this huge C-wave advance, possibly as high as $1700 -$1800.

So yes gold is due for a minor corrective move but it is a long way from the final topping process of the current C-wave that began in April of last year when the B-wave decline tested 850 which by the way was the top of the 1980 bull market.

Folks we are never going to see $850 gold again. And I seriously doubt we will ever see $1200 gold for the remainder of this bull market.

A CORRECTION IS DUE

The stock market is now entering the timing band for a move down into a daily cycle low. Today is the 29th day of the cycle and we usually get a final cycle bottom by day 40. Of course we need to allow some time for the decline to unfold so I think we can expect a top any day now.

The move down in stocks should coincide with a bounce in the dollar index as the dollar is already moving into the latter part of the timing band for its daily cycle low.

Since gold has been tracking the dollar almost tit for tat I expect the rally in the dollar to also pressure gold down into it's daily cycle low which is now due.

I have complete confidence the stock market will indeed move down into a cycle low. I'm also confident the dollar will rally during this process. Gold is questionable. There remains the possibility that it could be in a runaway move and miners have broken out to new all-time highs so there is a chance that gold could ignore the dollar rally.

This is why one shouldn't lose their core position. However late comers may want to wait and see if the dollar bounce does push gold down into a cycle low before adding to their core or adding leverage.

All this being said any dollar rally should be brief and the next leg down into the yearly cycle low will cause massive damage to the dollar as the burgeoning dollar crisis starts to intensify.

More in last nights report for subscribers...

HISTORIC BREAKOUT TO NEW ALL-TIME HIGHS

The miners have now joined gold and silver at new all time highs. (Well silver isn't at all time highs but it is at bull market highs.) The entire precious metal complex is now trading in a vacuum with no overhead resistance. This is the only sector in the world that can make this boast.

 
Needless to say this is a very bullish configuration and one that should lead to massive gains the next 6 months as the dollar collapses down into its 3 year cycle low.
 
The risk now isn't that we may get a pull back, although we certainly could. No, the risk is that the miners may never trade back below the breakout level again for the duration of this bull market.
 
Anyone waiting on a pull back to enter runs the risk of missing the entire move because they couldn't adjust their thinking from trading range mode to break out mode.

THROW THOSE OSCILLATORS AWAY

Most people have a lot of trouble buying anything when it's in an overbought condition (they have trouble buying when it's oversold too). Unfortunately virtually every breakout occurs from overbought levels. This is especially true during a powerful C-wave advance.

Take a look at the last two C-waves and the first leg up in the current C-wave.
 

 
 
You can see that each one of these powerful rallies when it broke out of the trading range had already reached overbought levels. Then it stayed overbought for most of the rest of the rally.
 
If you didn't buy the breakout you missed a huge portion of the C-wave as no corrective move retraced back to the breakout point.
 
One of the biggest mistakes investors and traders make is using oscillators after a breakout has occurred. Oscillators are great tools if an asset is in a trading range. Once that trading range gets broken though one has to throw out their oscillators as they will cause you to miss huge portions if not all of the move.
 
Now let me remind everyone that Bernanke clearly stated he would print money if the economy didn't improve. We know there is no way the economy can improve because we still don't have the next "new" industry to drive job creation.
 
Folks this one is a no brainer. The Fed is going to print. That is going to cause asset inflation. The dollar is going to drop down into a yearly and three year cycle low. And the market is going to make Bernanke pay for his insane monetary policy with at least a mini-currency crisis in the dollar by next spring. And ultimately it is going to cause general inflation in all prices with the possible exception of real estate.
 
Gold is likely now in a runaway move higher. Smart money is using any and all pullbacks to get in ahead of the inflationary storm that's coming. We saw it in the action yesterday. Gold briefly traded down to the $1300 level and miners briefly tagged 500. Buying pressure immediately came in at those levels.


 

 

 

 
I think there is a very strong possibility that the miners are never going to see sub 500 again for the duration of this bull market. And even if they do it will be only briefly. As a matter of fact, The miners are on the cusp of a historic event which I have been discussing at length in the last several premium updates.