It's been a great run over the last two months but it may be time to tighten stops on mining stocks. You can see in the chart below that at least during this stage of the new C-wave gold is still inversely tethered to the dollar index, as are miners.
During the period from September 2011
to July 2012 the dollar was moving generally higher out of its three
year cycle low and that forced a 10 month correction in the precious
It's been my opinion that the three
year cycle in the dollar topped at that point, and should drift
generally lower until the next three year cycle low sometime in mid-2014
(with occasional counter trend rallies from time to time).
I've been expecting one more leg down
in the dollar to test the February intermediate low before the first
counter trend rally.
However, this bounce is now on the 10th day and in
jeopardy of generating a right translated daily cycle (a cycle that
rallies longer than half its duration and tends to form higher highs and
If a right translated daily cycle occurs it will probably signal that an
intermediate degree counter trend rally has already begun. As you can
see in the chart above just as soon as the dollar started to rally gold
stagnated, mining stocks started to correct, as did the stock market.
If this bounce in the dollar turns
into a full-fledged intermediate degree rally then we can probably
expect a 3-4 week correction in asset markets.
I find it hard to believe that
Bernanke is going to allow the dollar to rise and asset markets correct
right in front of an election but the possibility definitely exists if
the dollar doesn't turn down early next week.
Those of you not willing to hold
through a 10-15% correction in miners should probably consider
tightening stops, possibly right below Thursday's intraday low. If that stop level gets violated it would start a pattern of lower lows and lower highs
which is generally the definition of a down trend.
If, on the other hand, Monday morning finds the dollar getting hit hard then I think we may see gold test $1900
before the next intermediate degree correction. In my opinion what
happens Monday & Tuesday to the dollar index will probably set the
stage for market direction over the next month and into the election.
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