It may not seem like much happened yesterday, but a very important event occurred. Yesterday the dollar index breached 78.65. The reason that is significant is because 78.65 marked the intraday low of the prior daily cycle. A penetration of that level indicates that the current daily cycle has now topped in a left translated manner and a new pattern of lower lows and lower highs has begun. Any time a daily cycle tops in a left translated manner it almost always indicates that the intermediate cycle has also topped.
In this case it would indicate that
the intermediate dollar cycle topped on week two and should now move
generally lower for the next 10-12 weeks, bottoming sometime in late
June or early July, about the time Operation Twist ends.
Now that we have confirmation that
Bernanke has broken the dollar rally I'm confident in calling April 4th
an intermediate bottom (B-Wave bottom) in the gold market. Gold should
now be entering the consolidation phase of the next C-Wave. I expect a
test of the all-time highs sometime this summer as the dollar moves down
into its intermediate bottom.
That being said I have no interest in a
15% rally in gold. The real money will be made as the mining stocks
exit their bear market, re-enter the consolidation zone between 500 and
600, and move up to retest the old highs. It's not inconceivable that we
could see a 30-45% gain in mining stocks over the next 2 1/2 months.
Sentiment in the mining index has
reached the same levels of bearishness that were seen in the fall of
2008. That black pessimism drove a 300+ percent rally over the next two
years. I have little doubt this time will be any different.
Now what we need to see is a change in
character. We need the mining stocks to stop generating these sharp
bear market rallies and transition into the wall of worry type rally
that characterizes a bull market. So far that is exactly what is
happening. The miners are rallying very hesitantly, and as long as this
continues it will camouflage the move and keep sentiment depressed.
That's exactly what we need to happen to drive a long sustained rally
back up to the old highs.
The problem with the rocket launch
type rallies we've seen over the last year and a half is that they swing
sentiment very quickly to the bullish side and we run out of buyers.
As long as the bottoming process
proceeds gradually I think there's a very good chance the HUI could
break back above the 200 day moving average, and possibly test the 600
level by mid-July.
So far all of the pieces are starting
to fall in place to initiate the very early stages of what I think will
eventually become another huge momentum move similar to what happened in
silver and gold last year. This scenario may well culminate in a parabolic
blow-off top sometime in late 2014 as the dollar moves down into its next
three year cycle low.
Now is the time to invest in this
sector as it struggles to transition from a bear market back to the
secular bull trend. The time to enter is at the very beginning when no
one believes. This is when the really big money is made. If you wait
till your emotions give you the all clear, half the move will be over.
Most traders are going to jump back
into the general stock market, or tech stocks. You have to be smarter
than that. The stock market, including tech, have already generated a
massive move out of the October bottom. That kind of move usually leads
to a multiweek, or month, consolidation. The odds of another 20 to 30%
rally in the stock market are very slim.
The odds of a 20 to 30% rally as the mining stocks resume the secular bull trend are extremely high.
The combination of extreme downside
momentum and irrational human nature has created the kind of oversold
conditions and extreme undervaluation that generates an opportunity that
only comes around once or twice a decade.
Interview with Tekoa Da Silva of Bullmarketthinking.com
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