The stock market has known all along that the fiscal cliff
issue was going to be pushed out to the last minute. This is just how
Washington works. Nothing is ever settled until everybody gets all of
the pork needed to buy their vote. The correction today is nothing more
than a short-term breather before the market makes a final push to test
the all-time highs, probably by the first week in January. I'm guessing
we will get some kind of stopgap measure, or extension of the deadline
next week that will trigger another explosive move up to test those
September highs. At that point the market will find some excuse to drift
down into a daily cycle low around the middle of January. Once a deal is struck the daily cycle correction will end and the market should explode to new highs, maybe big new highs by the state of the Union address on January 29.
The gold market however has been
rather confusing of late. The selloff on the QE4 announcement,
especially the huge sell orders that hit the market late Wednesday
night, made no sense at all. Now with the benefit of hindsight it's
apparent that the yearly cycle low that I was expecting sometime in
April or May has been moved up to correspond with last year's D-Wave
bottom.
There is a possibility that that
yearly cycle low bottomed yesterday. However it appears that we have a
daily cycle low 10 days ago. If that's the case then after a short-term
bounce gold may make one more move to marginal new lows as the stock
market finishes its test of the highs in early January. The normal
duration for a gold daily cycle is about 18-25 days. Unless
this turns out to be an extremely stretched daily cycle then gold
probably has one more curveball to throw us before a final yearly cycle
bottom. On the plus side the rally out of a
yearly cycle low tends to be the most powerful rally of the year. In
this case if we were to get one more marginal new low to say around
$1630 in the next couple of weeks that should be the end of the selling
and I think gold will easily test the $1900 level during its next
intermediate cycle.
Those of you still holding positions
in the precious metals market I would strongly advise you to not lose
your position in the next couple of weeks if gold does make another
marginal new low.
If you are back in cash I think I
would advise waiting to see how gold reacts as the stock market launches
out of this short-term correction. Like I said that may be the trigger
for gold to move down into the normal timing band for a daily cycle low
and possibly a marginal break below yesterday's intraday bottom.If
it does, that should mark a final yearly cycle bottom and trigger a big
rally back up to test the September 2011 all-time highs.
Last summer I told traders to watch
the oil cycle as the CRB was working its way down into a final three
year cycle low. At the time I was confident that the entire commodity
complex was just waiting for the oil cycle to bottom. Once it did, the
rest of the commodity complex launched out of that bottom like a rocket.
Remember at the time virtually every
analyst was predicting the end of the commodity bull market. I knew that
was baloney. All that was happening was a completely normal decline
into a major three year cycle low. I also correctly predicted that the bottom in the CRB would mark the three year cycle top in the dollar.
As expected the dollar made a
halfhearted attempt to regain the 200 day moving average before rolling
over in anticipation of QE4. At this point all we are waiting for is a
move below the last daily cycle low at 79.56 to confirm the intermediate
cycle has topped, and done so in a left translated manner (left
translated cycles are an indication of a cycle that is in decline and
making lower lows and lower highs).
Once 79.56 is breached the dollar will
be on its way down into its yearly cycle low sometime in mid to late
February. My best guess is an intermediate bottom somewhere around 76-77
before another mild bounce like we witnessed out of the August low and
then a continued collapse of the worlds reserve currency. Since September when the dollar began
it's pathetic countertrend rally, the CRB has been moving down into its
first corrective phase. At this point I think the entire commodity
complex is just waiting for the leader to turn. And by leader I mean
natural gas. As you can see in the chart below Nat gas led the entire commodity complex out of that major three year cycle low.
I think Nat gas began a new cyclical
bull market in April. This was the point at which currency debasement
overwhelmed the supply/demand fundamentals of a saturated Nat gas
market. I don't believe for a minute that this bull market is being
driven by supply and demand fundamentals. I think this market is being
driven by the same thing that the entire commodity complex is responding
to, and has been responding to since last summer, and that is massive
global currency devaluation. As you can see in the chart above the
natural gas cycle is now deep in the timing band for a turn. I suspect
when Nat gas forms a swing we will see oil, gold, silver, and the entire
commodity complex begin another leg up in what I expect to be a severe
inflationary spiral culminating in at least a mini currency crisis in
mid-2014. As predicted the stock market rallied
violently out of its intermediate bottom logging a 7% gain on the
initial thrust. We can now expect stocks to take a breather as a minor
profit-taking event unfolds and the stock market moves down into its
half cycle low.
My best guess is we will see a bottom
somewhere between 1400-1410 followed by a move up to test the all-time
highs, probably by the end of the year (especially if we get a
resolution to the fiscal Cliff in the next week or two). But if Congress
manages to drag this into the new year, then I think wecan expect fiscal cliff resolution and at least a marginal break of the September highs before the state of the union address on January 29.
So for commodity traders I think we are just waiting on the natural gas market to bottom before the next leg up begins.
I think we are on the verge of entering the euphoria stage of this cyclical bull market.
The
euphoria phase is where the rate of change starts to accelerate as
traders become convinced that the economy is booming, and will continue
to boom into the foreseeable future (the last bull market), or in this
case that QE3 is a magic elixir with no unintended consequences.
During this final phase the character
of the intermediate cycles should change and instead of a modest move
above the prior intermediate top we will see a strong acceleration and a
significant and sustained breakout above the September high of 1475.
All of the traders that have convinced themselves that QE is having less
and less effect are about to be caught off guard as we move into the
euphoria phase of the bull market.
You can see in the chart below in
2006/07 the intermediate cycle accelerated rapidly past the prior
intermediate top at 1326 in a classic runaway move. While this certainly
felt good at the time, it was the beginning of the end as the housing
and credit bubbles began to implode.
I
think we are on the verge of something similar as I believe QE3 will
drive the market high enough to test or marginally break the all-time
highs. However, it’s also going to start an upward spiral in commodity
inflation that will eventually poison this fragile economy and be the
straw that breaks the camel's back.
CHRISTMAS SPECIAL For the next couple of days I'm going to run a Christmas special,
one penny for the month of December. This is only valid for new
subscribers. If you have already subscribed to the SMT premium in the
past the system will charge you the regular $25 monthly rate. At the end of the month your subscription will convert to the normal monthly charge unless canceled before then.
