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
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
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
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.