The big news for Thursday is that gold
formed a weekly swing. Considering that the QE4 manipulation stretched
the intermediate cycle way beyond its normal timing band, this weekly
swing should confirm that the yearly cycle low is complete.
We did see profit-taking come into the market as soon as
gold tagged its 50 day moving average. I don’t see anything unusual in
that, as gold has delivered a 75 point rally in only nine trading days.
The 50 day moving average is a logical place for short term traders to
lock in some profits.
On another note, this was the third
attempt in two weeks by the shorts to drive gold down. It worked for a
couple of weeks after QE4 and even for two days at the beginning of
January, but I think the complete failure today to hold gold down
against its natural trend is probably the signal that the market has
broken the short-term manipulation. I think any further attempt at
short-term manipulation and the shorts are just asking to get their head
handed to them. Shenanigans are not out of the ordinary on
options expiration. So we could very well see another attempt to drive
gold down on Friday. If this one fails also, and it probably will if the
dollar is falling, then I don’t think it will be long before the gold
chart starts to look like the platinum chart.
Next I want to discuss the mining stocks. It seems everyone has an excuse for why the miners have underperformed lately. Needless to say I don't really
buy any of that nonsense. However I am as confused as everyone else to
come up with a reasonable explanation for why miners continue to sell
for these ridiculously cheap valuations.
Whenever
I am confused, usually the first thing I do is pull
up a very long-term chart so I can get a feel for what is really going
on, and eliminate the distraction of the day to day wiggles. I think we
are all wondering when the miners are going to join the party as it
certainly appears that gold and silver both have formed major yearly
cycle bottoms.
What I saw was quite a surprise. The
character of the mining sector has changed completely. For the first
time in this bull market miners are forming a rounded base instead of
the typical V-shaped bottom. A rounded bottom is a much more powerful
basing structure than a V-shaped recovery.
If you believe like I do that gold is
going to $3500 - $4000 over the next two years, then I would
have to say there is no way it is going that high without taking the
miners with it. As a matter of fact, I don’t think there’s any way gold
goes to even $1900 without taking the miners with it.
The
complete loathing & disgust that we are seeing for the mining sector, coupled
with the character change in the bottoming process is the setup in my
opinion, for a huge move in this asset class over the next two years.
I can’t tell you exactly when the move
will begin, but like I said, I don’t believe for a second that gold is
going to $4000 without taking the miners along for the ride.
For what it’s worth, I saw the exact
same sentiment in silver back in August of 2007. When silver broke
through its last support level everyone threw in the towel. As you can
see from the chart that was the exact moment one should have been
buying, or if you already had positions, it was a huge mistake to get
knocked off the bull.
This is just another example of
technicals not working in the volatile precious metals sector. I’m
pretty sure every technical trader in the world sold when silver broke
through that $12 support level. It caused them to miss an almost 100%
rally over the next six months.
If
you believe in the bull market, and I think most everybody here does,
as I tend to focus on gold, and I suspect that is the reason most people
bought a subscription in the first place, then all one needs is the
patience to let the bull run its course. If you get sidetracked like the silver traders in the summer of 2007, you aren’t
going to do yourself any favors.
If you are here to ride the bull
market, then ride it and don’t worry about whether or not you made money
today or yesterday. The only thing that makes any difference is how
much money you make by the time the next C-wave tops, and that has
nothing to do with what happened this week, last week, or last month. It
has to do with what is going to happen over the next two years.
If I’m
right about where gold is going then it is definitely going to be worth
the hassle of letting the miners complete this rounded base, because the
upside once it’s finished is huge.
If you don’t believe in the bull market
then you probably have the wrong newsletter. My goal isn’t to make a
couple of percent trying to jump in and out of momentum stocks. My goal
is to double or triple your portfolio by 2014. However, I can’t do that
unless you have the patience to hold on through all of the bulls tricks
and curve balls. I can keep subscribers focused on the big picture, but patience
is something everyone has to learn on their own.
I can say that the traders that had it during the last C-wave were well rewarded.
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I realize that this extended (and
somewhat manipulated) move into a yearly cycle low has frustrated most
investors to the point where they have no more patience left, and have
lost sight of the big picture. So I am going to go over it again,
because I think it is a huge mistake to lose sight of the reason why we
are investing in this sector to begin with.
To start, I’m going to assume that gold
will drop down into another eight year cycle low pretty much on
schedule sometime in late 2015 to mid 2016. As long as that assumption
is correct then I think we also have to assume that there is another
C-wave advance between now and then.
The reason I say this is because all
markets are governed by the forces of action and reaction. Hence in order for
gold to drop down into a correction severe enough to be considered an
eight year cycle low, it first has to generate a rally big enough to
trigger a profit-taking event of that magnitude.
So let’s begin by looking at the last three C-wave advances and the corrective action that followed each one...
That is a small sample of the latest Weekend report.
In all fairness I have been warning traders that this was coming. This is a chart I posted to the blog on November 24 2011.
Frustrated
gold bugs may want to read the entire weekend report before you throw
in the towel on the sector. The 16 month correction is completely normal
and should soon generate another huge leg up in this massive bull
market.
I will reopen the $1.00 two day trial subscription for
anyone interested in reading the report. If you decide you want to
continue accessing the nightly reports do nothing and the trial will
automatically convert to a monthly subscription after the second day. If
you are only interested in reading the weekend report just cancel the
subscription by following the directions in red print on the home page
before the second day expires.
OFFER HAS EXPIRED
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 we can 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.
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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
and bounce.
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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In my last couple of articles I
mentioned that I was waiting for the S&P to form a swing low as the
first confirmation that an intermediate degree bottom had formed. That
swing is going to form on the open Monday morning.
Typically the stock market will rally
fairly aggressively out of one of these major intermediate bottoms,
often gaining 6%-8% in the first 15-20 days. At that point the market
will dip down into a half cycle low that will establish the trend line
for this particular daily cycle.
Since the dollar is now on the 21st
day of its daily cycle it is now overdue for a move down into a
short-term low. This should drive the first half of that 6%-8% move,
followed by a very short corrective move as the dollar bounces and then
rolls over quickly into a another leg down.
That cycle would be due to bottom around the first of the year, and
should drive the stock market generally higher until early January at
which time we should get a more significant correction, probably as
nervousness builds before the next earnings season.
I've diagrammed the general directions
and rough targets for what I think will unfold over the next month and a
half in the chart below.
However, the dollar shouldn't put in
the true yearly cycle low until sometime in mid February to early March
so there should be another leg down after the one bottoming in January.
The final leg down on the dollar index
into its yearly cycle low should drive the stock market back to at
least marginal new highs later this spring.
Back in June when the CRB made its
final three year cycle low I said at the time that this should
correspond with the three year cycle top in the dollar, which so far has
been the case.
We should continue to see the dollar
generally heading lower with intermittent bear market rallies until it
puts in a final three year cycle low in mid-2014. This should keep the
stock market generally moving higher at least until the point where
commodity inflation, especially energy, gets to the point it collapses
consumer spending. Once that occurs the stock market will start to
stagnate and refuse to rise even if the dollar continues to fall. If
Bernanke didn't learn his lesson in 2008 he will continue to print and
spike inflation even higher creating the conditions for the next
recession.
As has been the case in the 70s and
also during the last cyclical bull market in 2007, I think we will
probably see the stock market at least test the all-time highs, if not a
marginal break above them, before rolling over into what I expect will
be a very complex bear market bottoming sometime in 2015.
Today
should be the opportunity to get on board what is likely to be a
significant rally over the next 3 weeks and probably a move to new highs
over the next 2-3 months.
However I think the really big money will be made in mining stocks as gold should rally enough to make it's first test of the all time highs at $1900. It's not unreasonable to think miners will follow and test 640 during this time.
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