For months and months now I've been warning traders that QE3&4 were going to have a major effect on stocks. I knew that analysts claiming that each new QE was having less and less affect would not apply to this latest round of quantitative easing.
I was confident the latest
counterfeiting operation by the Fed would push stocks to at least test the 2007 highs, and I really expect we will see a marginal break
above that level sometime this year. Probably by the end of the month.
My current guess is that we will get a sell the news type of event as
soon as the sequestration can is kicked down the road and that will mark the top of this particular intermediate cycle.
Make no mistake though we are still in
a secular bear market. Stocks are testing their all-time highs at the
same time earnings are in decline, GDP has turned negative, and
unemployment is starting to tick up.
It has been my expectation that the
stock market would put in a final top sometime this year. I also expect
this will be a very extended and difficult topping process lasting
months if not a year or more.
During this topping process I expect
to see an inflationary surge very similar to what happened in the oil
markets during the 2007 top.
Notice the breakdown in early 2007
that convinced everyone that the bull market in oil was finished. This
set up a massive parabolic move into the 2008 blowoff top.
This time however I don't think it's
going to be oil leading the inflationary charge. In order to generate
that kind of move we need something that has formed a long consolidation
similar to what happened in oil, and preferably an asset that has
declined long enough and far enough to push sentiment to negative
extremes capable of convincing everyone that the bull market is over.
Those are the conditions necessary in order to generate a massive
parabolic move over the next two years.
The only asset that qualifies in my opinion is the precious metals markets.
The breakdown after the QE4
announcement, and now the extreme move into a yearly cycle low has, I
daresay, convinced everyone that the gold bull is over. I would argue
that it is impossible for the gold bull to be over as long as central
banks around the world continue to debase their currencies. Gold is just
creating the conditions necessary for its next leg up, similar to what
oil did in early 2007.
A very similar pattern to what
happened in oil is also unfolding in the gold market. I'm talking about
the T-1 pattern that formed in oil during 07-08.
Here are the rules of T-1 pattern for those not familiar:
T1. A move followed by a sideways
range often precedes another move of almost equal extent in the same
direction as the original move. Generally, when the second move from
the sideways range has run its course, a counter move approaching the
sideways range may be expected.
I think the gold chart is setting up to produce a monstrous T-1 pattern with a target around $3200 sometime in the late 2014 or early 2015.
just need to get through the bottoming process of this yearly cycle low.
Considering that gold is now on the 15th week of its intermediate
cycle, which usually lasts about 18-25 weeks We should be getting
we are probably closer than it appears by that previous statement. The
last intermediate cycle ran a bit long at 25 weeks. Long cycles are
usually followed by a short cycle. So I would expect this cycle to run a
bit short at 16-18 weeks.
all, I expect a final bottom sometime in the next 5-10 days. And once
that bottom has formed gold should be ready to break out of the
consolidation zone it has been in over the last year and a half and get
busy delivering the second leg of that T-1 pattern.