Well how was that for the start of a new intermediate cycle? While many analysts were calling for continued losses or even a market crash I repeatedly warned traders that an intermediate degree bottom was coming and that markets routinely rally violently out of those bottoms, often generating 5-8% gains in the first 12 to 15 days. This particular intermediate bottom has already gained 5% in just the first five days.
As I've been saying all along, I
think the market will easily make new highs in the next two or three
months, possibly even significant new highs, or a test of the 2007 top
as QE3 starts to work its magic.
That being said, stocks and gold are
now due for a short-term breather. Why is that you ask, if all markets
have just formed major intermediate cycle lows? The reason has to do
with the daily dollar cycle. Friday marked the 24th day in the current
daily cycle. That cycle generally runs about 18-28 days trough to
trough. At 24 days the cycle is well into the timing band for a bottom
That bounce should force stocks into a short-term correction, or sideways consolidation, and gold into its next daily cycle low.
However don't be fooled by any
short-term corrective move as stocks and gold have all clearly formed
major intermediate bottoms. There are always corrective moves along the
way, nothing goes straight up, but intermediate cycles don't usually
form a final top until sometime around week 12-15. As last week was only
week 1 of a new intermediate cycle, we probably don't need to look for a
final top until sometime in February, or early March.
Coincidentally, that is when the
dollar is due to form its yearly cycle low. A yearly cycle bottom is the
most severe cyclical decline other than a three year cycle low (the
next one of those isn't due until mid-2014). I think we can safely
assume that QE3 is going to complete the head and shoulders topping
pattern for this particular three year cycle, and just like I said
months ago the dollar topped back in the summer when the CRB index formed its final three year cycle low.
The dollar should now head generally
lower over the next year and a half with brief bear market rallies
similar to what we just experienced. This will drive an inflationary
phase that should drive all asset prices higher into mid-2013, and
commodities into a super spike in mid-2014 (this is when I expect gold
to reach its next C-wave top at roughly $4000).
By mid-2013 inflation will start to
take its toll on the economy, and stocks will stagnate and begin an
extended topping process as inflation continues to surge, similar to
what happened in 2007/08.
I think we will experience the same
phenomenon this time as QE3 eventually generates the same unexpected
consequences and spikes commodity inflation.
Traders need to be prepared next week for some kind of corrective move. Understand this is not the beginning of another
leg down, but a second chance to get positioned for what should be a
very profitable intermediate degree rally over the next 2-3 months.
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