Best of the Week
Most Popular
1. 2019 From A Fourth Turning Perspective - James_Quinn
2.Beware the Young Stocks Bear Market! - Zeal_LLC
3.Safe Havens are Surging. What this Means for Stocks 2019 - Troy_Bombardia
4.Most Popular Financial Markets Analysis of 2018 - Trump and BrExit Chaos Dominate - Nadeem_Walayat
5.January 2019 Financial Markets Analysis and Forecasts - Nadeem_Walayat
6.Silver Price Trend Analysis 2019 - Nadeem_Walayat
7.Why 90% of Traders Lose - Nadeem_Walayat
8.What to do With Your Money in a Stocks Bear Market - Stephen_McBride
9.Stock Market What to Expect in the First 3~5 Months of 2019 - Chris_Vermeulen
10.China, Global Economy has Tipped over: The Surging Dollar and the Rallying Yen - FXCOT
Last 7 days
Dow Jones Stock Market Topping Pattern - 20th Mar 19
Gold Stocks Outperform Gold but Not Stocks - 20th Mar 19
Here’s What You’re Not Hearing About the US - China Trade War - 20th Mar 19
US Overdosing on Debt - 19th Mar 19
Looking at the Economic Winter Season Ahead - 19th Mar 19
Will the Stock Market Crash Like 1937? - 19th Mar 19
Stock Market VIX Volaility Analysis - 19th Mar 19
FREE Access to Stock and Finanacial Markets Trading Analysis Worth $1229! - 19th Mar 19
US Stock Markets Price Anomaly Setup Continues - 19th Mar 19
Gold Price Confirmation of the Warning - 18th Mar 19
Split Stock Market Warning - 18th Mar 19
Stock Market Trend Analysis 2019 - Video - 18th Mar 19
Best Precious Metals Investment and Trades for 2019 - 18th Mar 19
Hurdles for Gold Stocks - 18th Mar 19
Pento: Coming QE & Low Rates Will Be ‘Rocket Fuel for Gold’ - 18th Mar 19
"This is for Tommy Robinson" Shouts Knife Wielding White Supremacist Terrorist in London - 18th Mar 19
This Is How You Create the Biggest Credit Bubble in History - 17th Mar 19
Crude Oil Bulls - For Whom the Bell Tolls - 17th Mar 19
Gold Mining Stocks Fundamentals - 17th Mar 19
Why Buy a Land Rover - Range Rover vs Huge Tree Branch Falling on its Roof - 17th Mar 19
UKIP Urged to Change Name to BNP 2.0 So BrExit Party Can Fight a 2nd EU Referendum - 17th Mar 19
Tommy Robinson Looks Set to Become New UKIP Leader - 16th Mar 19
Gold Final Warning: Here Are the Stunning Implications of Plunging Gold Price - 16th Mar 19
Towards the End of a Stocks Bull Market, Short term Timing Becomes Difficult - 16th Mar 19
UKIP Brexit Facebook Groups Reveling in the New Zealand Terror Attacks Blaming Muslim Victims - 16th Mar 19
Gold – US Dollar vs US Dollar Index - 16th Mar 19
Islamophobic Hate Preachers Tommy Robinson and Katie Hopkins have Killed UKIP and Brexit - 16th Mar 19
Countdown to The Precious Metals Gold and Silver Breakout Rally - 15th Mar 19
Shale Oil Splutters: Brent on Track for $70 Target $100 in 2020 - 15th Mar 19
Setting up a Business Just Got Easier - 15th Mar 19
Stock Market Elliott Wave Analysis Trend Forercast - Video - 15th Mar 19
Gold Warning - Here Are the Stunning Implications of Plunging Gold Price - Part 1 - 15th Mar 19
UK Weather SHOCK - Trees Dropping Branches onto Cars in Stormy Winds - Sheffield - 15th Mar 19
Best Time to Trade Forex - 15th Mar 19
Why the Green New Deal Will Send Uranium Price Through the Roof - 14th Mar 19
S&P 500's New Medium-Term High, but Will Stock Market Uptrend Continue? - 14th Mar 19
US Conservatism - 14th Mar 19
Gold in the Age of High-speed Electronic Trading - 14th Mar 19
Britain's Demographic Time Bomb Has Gone Off! - 14th Mar 19
Why Walmart Will Crush Amazon - 14th Mar 19
2019 Economic Predictions - 14th Mar 19
Tax Avoidance Bills Sent to Thousands of Workers - 14th Mar 19
The Exponential Stocks Bull Market Explained - Video - 13th Mar 19
TSP Recession Indicator - Criss-Cross, Flip-Flop and Remembering 1966 - 13th Mar 19
Stock Investors Beware The Signs Of Recession / Deflation - 13th Mar 19
Is the Stock Market Still in a Bear Market? - 13th Mar 19
Stock Market Trend Analysis 2019 - 13th Mar 19
Gold Up-to-Date' COT Report: A Maddening Déjà Vu - 12th Mar 19
Save Fintech? Ban Short Selling. It's Not That Simple - 12th Mar 19
Palladium Blowup Could Expose Scam of Gold & Silver Futures - 12th Mar 19
Next Recession: Concentrating Future Losses & Bringing Them Forward In Time As Profits - 12th Mar 19
The Shift of the Philippine Peso Regime - 12th Mar 19
Theresa May BrExit Back Stab Deal Counting Down to Resignation, Tory Leadership Election - 12th Mar 19

Market Oracle FREE Newsletter

Stock and Finanacial Markets Trading Analysis Worth

Gold and Commodities Major Long-term Bottom Forming

Commodities / Commodities Trading Jun 05, 2012 - 04:16 AM GMT

By: Toby_Connor

Commodities

Diamond Rated - Best Financial Markets Analysis ArticleStocks:

With Friday's employment report a few things began to clear up. The first one is the correct cycle count on the stock market. With the break to new lows it's now apparent that April 10th formed either a very stretched, or very short daily cycle. I tend to lean towards the very short cycle interpretation based on the trend line breaks I have illustrated in the chart below.


SPX

But one could make the case for one very long, extremely stretched daily cycle driven by LTRO and operation twist. No matter how you interpret the last two daily cycles it's now apparent with the break to new lows that April 10th did in fact form a daily cycle bottom. That puts the current daily cycle on day 37 and now deep in the timing band for a daily (30-40 days) and intermediate (20-25 weeks) degree low. As the intermediate cycle is now on week 34 it's apparent just how far LTRO and Operation Twist stretched the stock market cycle.

I suspect sometime next week we are going to see a narrow range day and a large buying on weakness data print on the SPY ETF. Then once a swing forms it should mark the bottom of this intermediate cycle.

SPX

I have mentioned before how news mysteriously seems to coalesce around intermediate turning points. I suspect this time it's going to be another round of quantitative easing by the Fed (although it won't be called QE) or a gigantic LTRO in Europe to bail out Spain and Italy, or a combination of both. Either way it's now late enough in this daily cycle that we should expect a bottom very soon (probably early next week). The fact that this intermediate cycle has stretched extremely long raises the odds massively that the next daily cycle bottom is also going to be an intermediate and yearly cycle bottom.

Once we have printed the intermediate low we should see stocks rally back to at least test the highs ($1422). If the market becomes convinced the next round of money printing is on the way then this could be an explosive rally as traders have now been conditioned to expect QE to drive big market rallies.

In the chart below, the first scenario is the most likely in my opinion and would be what I would expect to happen if more QE is introduced.

The second scenario would play out if inflation surges high enough and quickly enough to topple the already weak global economy. In that scenario the stock market would move to marginal new highs, allowing smart money to offload positions to dumb money buying into the breakout. What would follow would almost certainly be a 1 1/2 to 2 1/2 year grinding bear market as the slowly deteriorating fundamentals fight ever larger infusions of liquidity from global central banks. Unfortunately liquidity is exactly what would be driving commodity inflation so central banks would actually be making the problem worse rather than better.

SPX

That being said stocks, especially tech stocks led the last intermediate cycle. I doubt hot money is going to jump back into that sector again right off the bat. No, I expect the stock market will rally fairly quickly back to the old highs but then run into a brick wall that will require considerable consolidation before any serious breakout.

This intermediate rally is almost certainly going to be led by a different sector. As a matter of fact the new leaders are already starting to show their true colors. (More on that in the gold section of today's report).

Dollar:

An intermediate bottom in stocks (and commodities) should also correspond with an intermediate top in the dollar. I suspect the reversal on Friday's employment report is going to mark not only a daily cycle top, but probably an intermediate, and possibly even a three year cycle top on the dollar index.

US Dollar

I say this because the CRB is now due to form a major three year cycle low, and I don't see that cycle low forming until the dollar index has topped. Since this three year cycle has already stretched slightly long it's unlikely to stretch for another complete intermediate cycle. All that means is that the CRB's three year cycle should bottom along with the yearly cycle in stocks and gold (which already bottomed slightly early two weeks ago).

CRB

Once the dollar has topped the CRB will stop falling and begin moving back up, into what I think will be a parabolic spike much bigger than what occurred in 2008. That parabolic top should come sometime in late 2014 as the dollar moves down into its next three year cycle low. Or as was the case with gold in 2011 momentum may carry the parabolic move slightly past the dollar's bottom.

Gold

Since the CRB's three year cycle is already starting to stretch slightly long I am confident that bottom is going to occur right now as gold and stocks all put in their yearly cycle lows. As long as the CRB, gold, and stocks don't stretch their yearly cycles any further, and I don't see why they should, then the dollar's rally out of the three year cycle low is on its last legs.

As I mentioned last week sentiment in the dollar index has reached levels not seen in the last 12 years. This is exactly what one would expect to see at a major three year cycle top.

Sentiment

Chart courtesy of sentimentrader.com

So conditions are now in place for major reversals in stocks, commodities, precious metals (already bottomed), and the dollar.

Gold:

I think it's safe to say that Friday's action took the short cycle scenario off the table (as well as the D-Wave continuation). Gold not only broke its intermediate trend line, but also formed a weekly swing. I think we have all the confirmation we need at this point to conclude that gold's intermediate cycle bottomed two weeks ago. (My previous post dated May 17 correctly called gold's bottom within a single day).

Gold

Gold

As I pointed out in the dollar section above, this should also mark a yearly cycle low and a B-wave bottom in the gold market. I'm about 99% positive Friday's rally was the kickoff of a brand new C-Wave advance. That being said I wouldn't expect gold to rally straight up to new highs this summer. It may test $1900 during this new intermediate cycle but I think gold is still going to have to consolidate for most of this year before it can breakout to new highs. My best guess is probably next spring before any sustained move above $1900.

Gold

This means I think the bear market in miners has probably ended. As everything starts to rally out of its yearly cycle low (and the CRB out of its three year cycle low) the biggest gains are going to be made in the sectors hardest hit during this correction. Without a doubt that was mining stocks. At the lows two weeks ago miners had reached levels of undervaluation only seen one other time in history. That was at gold's eight year cycle low in the fall of 2008.

As you can see in the chart below miners rallied over 300% as everything came out of that major bottom in late 2008 and early 2009. I have little doubt we will see something similar this time as the CRB begins moving up out of its three year cycle low and gold begins its next C-Wave advance. Hot money is going to start looking for sectors with the potential for big percentage gains. No sector has that kind of potential more than the mining stocks. As a matter of fact I expect the gains in this sector to be absolutely mind blowing over the next 2 1/2 years.

HUI

For our purposes all we need to know right now is that gold is on week two of a brand-new intermediate cycle. In these two weeks the HUI has already rallied almost 19% from the trough to yesterday's close. Keep in mind this occurred while the stock market was still going down and gold was moving sideways. The out performance in mining stocks is a subtle hint for anyone that cares to take notice of what is going to lead the market out of this major bottom. It's the same hint that was given in late 2008 right before miners launched into a 300% rally.

$10 one week trial to the premium newsletter.

    Toby Connor
    Gold Scents  

    GoldScents is a financial blog focused on the analysis of the stock market and the secular gold bull market.   Subscriptions to the premium service includes a daily and weekend market update emailed to subscribers.  If you would like to be added to the email list that receives notice of new posts to GoldScents, or have questions,email Toby.

    © 2012 Copyright Toby Connor - All Rights Reserved
    Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

DB
05 Jun 12, 18:44
And what about the Euro?

If you are predicting a fall in the USD, you must be predicting a rise in the Euro. Its possible I guess, but looks like it has formed a head and shoulders, on the chart. If that played out, would take it close to parity and the USD on to new multi-year highs.

That could happen if Bernanke looked at the current state of markets, what with ultra low bond-yields and falling gas prices, and thought maybe that's exactly what the economy needs? Steady as she goes.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules