Monday, July 4, 2011

DOLLAR UP OR DOLLAR DOWN

For my call of a new bear market to remain valid one very important assumption has to be true. That assumption is that the dollar put in its three-year cycle low in May. If that assumption is wrong and the dollars three-year cycle low still lies ahead then most asset classes should still have one more leg up to at least marginal new highs.

My assumption that May marked a major cycle bottom was based on:

1. Sentiment had reached multiyear extremes.
2. The May low occurred right in the middle of the normal timing for that major cycle bottom.
3. And QE2 was scheduled to end shortly thereafter.

When QE1 ended last year the deflationary pressures slammed back down on the stock market and economy. There didn't seem to be any reason to expect something different this time (unless quantitative easing really isn't ending).


The next couple of weeks are going to be important. The dollar should form a short term daily cycle low sometime in the next few days. If the bounce out of that low is weak, rolls over quickly, and breaches that pivot then the odds are going to be high that May did not mark the final three-year low. If the dollar still has one more leg down then the deflationary scenario is going to be put on hold while that runs it's course. As a matter of fact it would be more likely that we would see a pronounced inflationary period during this process.


The start of the next bear market will depend on whether May marked the final bottom in the dollar or whether that bottom will come later this year. Either way once that bottom is in it will mark the beginning of the next deflationary period and the next cyclical stock market bear.

22 comments:

  1. brief,concise,pithy....says it all ! I like your charts and cycles,always a bit different !

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  2. I believe the dollar hasn't seen its lows this past May. And with the continuous U.S. debt interest service increases till infinity, I suspect the dollar will continue to be devalued against Gold for decades.

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  3. C'mon Gary, make up your mind.
    This is getting out of hand.
    I believe we have falling wedge on our hands with target of 83

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  4. I'm not really into the whole wedge pattern thing. If one tries hard enough they can usually find one in just about every chart.

    Rather than guess I'll just wait and see what happens.

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  5. Well Gary, your cycles seem to either extend or shorten in just about every chart as well.
    What we gonna do about that, hahah

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  6. The only cycle that I care about, gold, is on track and moving down into its intermediate degree low.

    The dollar cycle hasn't deviated, it's just at a crossroads where it can go either up or down.

    You can make a guess as to which direction it will be, your odds are 50-50. Personally I'm just going to wait and see.

    It's irrelevant to how I trade though. I rarely ever trade the stock market as there are too many conflicting forces at work.

    I covered short positions on a tag of the 200 day moving average and I have no desire to trade it anymore, either up or down.

    If you want to fight with the stock market for small gains and large risk, be my guest.

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  7. Are you 'all in' Gold or are you waiting for your forecasted weakness to add to your current position?

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  8. waiting for the intermediate cycle bottom.

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  9. So you like gold even if we enter a deflationary cycle??

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  10. Toby,

    You need to add one more assumption... That the markets are totally rigged. You have argued that there is no such thing as invisible hands in the market moving and manipulating prices to help nurse the "recovery" along as well as make sure that conditions stay as favorable as possible politically. I mean, now the hands are totally visible!! IEA and world governments all releasing oil when oil was technically weak to kick it through support, CME rigging of the silver market, then just the other day the USDA says that corn is oversupplied when there's really a shortage! Banks forgiving "special risk" mortgages, Euro bailout world, etc!! How can you think you're going to make accurate calls in this environment where central planning is now front and center here in the USSA?! Time to just tell everybody to buy physical gold and silver. That's all you do. Tough to sell a service doing that but that's the best thing to do. When you made your call "Transition Complete", boy did that bamboozle me. That's when I thought you had dusted off your seven footer and got cracking on some of that swanky stuff from Hawaii!! This dollar rally and stabilization has been due to massive interventions on behalf of the central planners who want the existing US regime to stay in place for more banana republic policies in the forthcoming years. If there is one thing this regime seems to want, it is to make sure that these stock markets stay up and keep going up. It seems like they want me to buy things like the S & P 500, Nasdaq, and Dow. But if I buy things like oil, silver, and gold, that's not OK and I'm a speculator... Even worse maybe even a terrorist! It also seems like they want me to have health insurance and drive an electric car. But if I don't have health insurance, and I drive a gas guzzler, that's not OK.

    This stuff is all right out of Atlas Shrugged for crying out loud! Buy gold and silver, and run for the hills!!!

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  11. I like gold at the bottom of an intermediate cycle.

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  12. Well the market has come back.
    The dollar weakened and Gold has raored back

    3 for 3 so far

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  13. I recall the Dollar 'bottoming' in March '08 but then retesting in July or thereabouts? After that it was away to the races. Can't say on the timing this go round because the 'past as prologue' thesis is even less reliable with the limited participation (low volume) and obvious manipulation of financial markets and currencies. And, I will surely be pilloried for saying so, but if gold goes where the (still) relatively small number of, ahem, enthusiasts claim, most of the world is going to be in a very unhappy space.

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  14. Basically, the article says that the dollar is going up now, unless it goes down. Instead of predicting, I like to treat the Markets like a beautiful woman. Instead of trying to predict which way she may go, I just follow her around.

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  15. This comment has been removed by the author.

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  16. Marketwhiner,
    For some reason your comment is getting flagged as spam.

    FWIW we initiated positions in gold and miners today as we may have the intermediate bottom in place. We're still saving some dry powder just in case we get another leg down.

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  17. I think that we'll still see considerable weakness in the PM market and over the next 3 months we're going to see Gold much lower, around the 1422 level and Silver down in the low 20's. We're in the summer doldrums now and it's going to come out of it slowly, maybe the end of September before it picks up.

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  18. "The only cycle that I care about, gold, is on track and moving down into its intermediate degree low."

    1,534$ today. Nice call Gary; your anti-timing is perfect, as always.

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  19. The cycle just bottomed in case you haven't noticed. We went long yesterday.

    You really should get a subscription so you don't keep sticking your foot in your mouth :)

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  20. Wow! And I was the opinion, you called Gold down to at least 150dma @ $1,440. I bought @ $1,503 couple of days before the spike down to $1,478. What is your buy in price?

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  21. $1511. I bought at the close on the first day gold closed back above $1500.

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