Wednesday, September 21, 2011

THE NEXT SELLING WAVE IS ABOUT TO BEGIN

As many of you already know I expected the dollar index to put in a major three year cycle low sometime this year. The normal timing band would have been for a bottom in the spring. The recent breakout and move to new highs has confirmed that the May bottom did in fact mark the three year cycle low. As expected that also marked the top of the cyclical bull market in stocks.

It's widely expected that the Fed will announce operation Twist at today's FOMC meeting. Obviously if printing several trillion dollars didn't save the economy, then rotating the Fed's balance sheet from short-term interest rates to long-term in the attempt to hold down the long end of the yield curve isn't going to have any effect at all as the approaching recession intensifies. Interest rates are already at historic lows.

Interest rates aren't the reason why people are not borrowing.With continued high unemployment There simply isn't enough demand for businesses to expand their operations.
  The American consumer is so deeply in debt that he can't service  it. Unfortunately, we can't print money like the US government so it doesn't help us to go deeper into debt. The US consumer will not be borrowing money any time soon.

The bottom line is operation twist will be a miserable failure just like QE1 and QE2.
 

The stock market, and gold are now moving into the timing band for the next daily cycle low (selling event). The only question now is whether the announcement of operation Twist this afternoon will initiate a short term knee-jerk reaction higher, or whether the market will immediately continue to sell off into that next cycle low that is due to bottom sometime in the next 11 days.


I expect gold to bottom a little sooner as its daily cycle tends to be slightly shorter.

But gold also is at a critical stage. It must hold above the prior daily cycle low of $1705. If it fails to do that it will signal that an intermediate degree decline has begun. It would also signal a left translated intermediate cycle which would have high odds of moving below the prior intermediate degree bottom of $1478.

As you can see in the chart below gold began to struggle just as soon as the aggressive stage of the dollar rally began.



As the stock market moves down into the next daily cycle low and the selling pressure intensifies, this should drive the dollar index much higher. It remains to be seen if gold can reverse this pattern of weakness in the face of dollar strength, especially since the dollar will almost certainly be rallying violently during the intense selling pressure that is coming in the stock market.

All we can do now is wait to see what the initial reaction to operation Twist will be this afternoon. Will there be a temporary knee-jerk rally that quickly fails, or will the market just continue down after yesterdays reversal?

11 comments:

  1. It would not surprise me if the 'knee jerk' is attenuated somewhat today but shows up tomorrow and into Friday to really mess with the heads of bulls and bears alike. Today is probably best spent avoiding one's 'investment' bookie, reading a good book or getting outside for a vigorous walk in the early Fall air.

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  3. Nas is holding up the market for now. Once it rolls over, it will take down all segments of the market with it. UGL doubled over the last 7 months. So, my take is that it will also aggressively pull back to at least 50% mark along with the rest of the market.

    TZA looks good for folks wishing to profit from any future decline.

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  4. Imminent macd upside xover for tza. Many other inverse etfs also looking good: srty,spxu,ery,smn,etc.Nas is still not rolling over.My srategy: buy inverse etfs on dips and sell on rallies until it does not work.

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  5. Macd downside crossover today for $indu and $spx.Not yet for $compq,it will, may be, in the next few days. Macd upside crossover today for tza. Tza holders hang on to your hats. It could be a wild ride up, as spx hurtles towards,may be, 1020.Ditto other inverse etfs.

    Toby's rubber band broke before his wild 1300 target is reached. Nobody can predict in advance how high a rally will go.Just hubris! Best take it one day at a time.

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  6. Now see if you had a subscription to the premium newsletter you would know that we sold our long positions in the stock market because it wasn't acting like it was supposed to.

    We also got out of gold because it was at great risk of entering a D-Wave decline, which after witnessing today's move is virtually guaranteed.

    We also entered a dollar long trade five days ago when it tagged the 200 day moving average.

    You really need to get a subscription so you don't keep sticking your foot in your mouth.

    Plus you could make some money along with the rest of us.

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  7. Hi,Mr.hubris,or gary or toby, or whatever your name is!My previous post is a general comment on all analysts who make wild predictions, as if they have a special line to the market god.It is a fair comment. If you choose to read more into it, that is your business. I am doing fine without the benefit of advice from market analysts, you or anyone else. You seem to think that visitors to your site are here to follow your advice. Far from it. It is simply one way of passing time and may be chuckle a little bit about some wild guesstimates that appear on this site. Just do not forget that the market is much bigger than any one of us. The market would suck in and spit out anybody who gets cocky in this business. You are not the only who figured out the market's poor action. Monday's swoon was the tip off. Refer to my earlier post on the market being juiced out. No offense meant.Take it easy fellah! Sell your subscriptions to whoever needs them.

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  8. Well obviously no one can "see" the future. Cycles analysis allows me to spot lows on a pretty consistent basis but is worthless for spotting tops. So I have trouble with tops In real time just like every other human being in the world. All I can do is give my best guess and then if the market does something to tell me that I am wrong I reverse course.

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  9. Gary, looks like you nailed it. Gold is being slammed but not good for us. How long will this last?

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  10. Elaine,
    My expectations for when a bottom would occur are in the last several nightly reports.

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  11. So another $300.00 to go on gold. Every thing is moving very fast. Bad times will be with us for a long time. Good time to buy if you have any money left.

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