15 MONTH SPECIAL

Today will be the last day for the 15 month special. Click here to purchase the extended subscription.

INTRADAY POST TO PREMIUM SITE

THE BEAR WILL RETURN IN 2011

It's almost impossible to find anyone who is long term bearish on the stock market or economy at this time. In the recent Barrons poll every single analyst expected a rise in stock prices next year and  continued economic expansion.

I think they are all going to be wrong, horribly wrong. I believe next year the stock market will begin the third leg down in the secular bear market. And the global economy will tip over into the next recession that will be much worse than the last one.

I've gone over the 3 year cycle in the dollar index many times. The dip down into the next 3 year cycle low this spring should drive the final leg up in golds massive C-wave. What I haven't talked much about is what happens after the the dollar bottoms.

I actually expect this three year cycle in the dollar to play out almost exactly like it did during the last three year cycle. When the dollar collapses this spring it will not only drive the price of gold to a final C-wave top, it will drive virtually all commodity prices through the roof, the most important being energy and to some extent food.

It was the sudden massive spike in energy that drove the global economy over the edge into recession in late `07 and early `08. The implosion of the credit markets just exacerbated the problem. You can see on the following chart just as soon as Bernanke drove the dollar below long term historical support (80) oil took off on its parabolic move to $147.

What followed was a collapse in economic activity and the beginning of the second leg down in the long term secular bear market for stocks.

This was mirrored by the dollar rallying out of the 3 year cycle low. That rally was driven by the severe, but brief, deflationary pressures released as the global economy and then credit markets collapsed.

We will see the same thing happen again. In his attempt to print prosperity and reflate asset prices Ben is going to spike inflation horribly as the dollar collapses down into the three year cycle low next spring. Just like in `08 that will tip the global economy back into recession and another deflationary period as the dollar rallies out of the three year cycle low.

The stock market will begin the trip down into the next leg of the secular bear market that it's been in since 2000. The global economy will roll over into the next recession. Which I expect to be much worse than the one we just suffered through mainly because it will begin with unemployment already at very high levels.

Contrary to what economists and analyst are telling you, at the dollars three year cycle low next year it will be time to put our bear hats back on, prepare for hard times, and the next leg down in the stock market bear.

I will leave the special Christmas subscription offer, (15 months for the price of 12), up for a few more days. If you want to take advantage of the discounted price click here.

15 MONTH CHRISTMAS SPECIAL

I've temporarily unlocked this weekend's update. I'm also going to run the special 15 month subscription until Christmas.

Click here to read the weekend report.

If you want to take advantage of the Christmas special (a perfect Christmas present for that hard to buy for investor) follow this link and click on the yearly subscription. I will add three free months to the normal 12 month subscription.

Sorry this offer is only for new subscribers and or current subscribers converting a monthly subscription.

BAD BREADTH

I've noted before that at intermediate turning points we will usually see breadth diverge from price.

The McClellan oscillator is now showing a large negative divergence and has moved back below 0 despite the market making new highs.

On a slightly more serious note we are also starting to see a divergence in the advance/decline line for the first time since the cyclical bull began.

The last time this happened the market was entering the final topping process of the last bull market.

I think that is probably the case here also as I believe we are already in a very large topping pattern.

As you can see on the chart the next four year cycle low is due sometime in 2012. 

Bernanke has massively increased the monetary response in the attempt to halt the secular bear, and we know how the last attempt to control the market turned out (we got the second worst recession since the Great Depression and the second worst bear market in history). I fully expect the next leg down in the secular bear to be even worse that the last one. Not only in the stock market, but also in the economy.

Greenspan already proved that you can't meddle in the markets without eventually causing bad things to happen. Unfortunately Bernanke doesn't seem capable of learning that lesson and has now made the same mistake again only on a much larger scale. I'm confident it will only lead to a much larger collapse in the end.

We will almost certainly dip below the `09 lows at the next 4 year cycle low, probably in nominal terms and certainly in inflation adjusted terms.

Once the impending intermediate degree correction runs it's course we will get what I believe will be the last rally in this cyclical bull market. That rally may or may not make marginal new highs before rolling over into the next leg down in the ongoing secular bear market.

I expect by this time Bernanke's insane monetary policy will have spiked inflation high enough to collapse the economy again and the global stock markets will begin the trip down into another devastating bear market.

In 2012 they won't be calling it a Great Recession they will be labeling it by it's true name; The next Great Depression!

4 DAY RULE

If the market can end the day with a gain we will get a 4 day rule possible trend change signal.

The four day rule says; After a long intermediate rally look for the first down day to signal an intermediate trend change after the market rallies 4 or more days in a row.

The four day rule is a sign of extreme sentiment. I would caution that it only works after a long intermediate rally lasting multiple months. We have those conditions right now. We have also reached extreme bullish sentiment levels. The kind of levels where we are in jeopardy of running out of buyers.

Add to that the fact that the intermediate cycle is now going on it's 23rd week and we got a large selling on strength day a couple of weeks ago (a sign institutional smart money is exiting in front of a large correction.) and we can probably expect any further gains to be given back and then some when the market moves down into the intermediate degree correction.

Now is not the time to press the long side in either stocks or gold.

That doesn't mean one should short. Shorting bull markets is a tough trade. You have to time the exit perfectly and survive the violent fakeout rallies to make money. Not to mention you will invariably miss time the entry several times. All in all you will probably be better off just going on vacation for the next 5-6 weeks.

SIGNS ARE STARTING TO FALL INTO PLACE

If gold closes positive today it will be moving higher at a 76% clip.

Today will mark the 14th day of the current daily cycle. We will soon enter the timing band for the next cycle low. The dollar is now deep into the timing band for a cycle low and could bottom sometime this week.

Sentiment is starting to get frothy. Traders are starting to find reasons for why gold and silver will just continue higher indefinitely. (JPM short squeeze)

All signs that an intermediate top is approaching. Trust me we will get a profit taking event. They come like clockwork about every 20-25 weeks.

I went over in the weekend report what to look for to spot a potential top.

Stay on your toes here folks!

ALOHA

Not exactly a margarita but at least there isn't any snow. (I'll be working on the margarita's tonight)

Comment cleaner

I really don't have anything I want to post at the moment as I'm using everything for the premuim newsletter so I'll just use this as a comment cleaner.

I'm going to include a picture of where I will be Saturday.

This one's for you Mary ;)

Moving

I'm going to be moving this weekend. The weekend report probably won't be out till Saturday night or Sunday.

I'm going to be busy so answering emails will be sporadic also.

PORTFOLIO CHANGE

I posted a portfolio change to the premium website this morning.

HOLDING THE 200

Last week the market regained the 200 week moving average. I suspect after the brief  2 day move back below that level we will see the market now hold above this major support level.

Yesterday's rally was strong enough to form a swing low and should mark the bottom of the daily cycle. I'm still expecting the new daily cycle to move back to new highs before topping in mid to late December and rolling over into a more substantial intermediate degree correction in January.

By the way, my good friend Doc, who most of you are familiar with either from his blog or from the insightful comments he posts in the SMT comments area, has offered a discounted rate for his newsletter to SMT readers. You can go here to take advantage of his offer thru Thanksgiving weekend. He might even buy me a chicken burrito or two if you sign up ;-)

http://www.thedocument.com/members/smt.cfm

ABOUT TO HIT THE WALL

For the duration of the dollar's secular bear market the 200 week moving average has acted as pretty solid support and resistance.

The recent two week rally has now relieved the oversold conditions and in the process the dollar is about to hit the brick wall of a declining 200 week moving average. It's already hit the intermediate down trend line.

The dollar is now short term overbought, in a strong down trend, is pushing up against solid resistance, in a secular bear market, is caught in the grip of a left translated 3 year cycle decline, and in the early stages of a dollar crisis.

I don't like the dollars chances of pushing significantly above 80.

As soon as the dollar resumes its collapse into the 3 year cycle low I expect we will see stocks and commodities resume their upward advance.

By the way, my good friend Doc, who most of you are familiar with either from his blog or from the insightful comments he posts in the SMT comments area, has offered a discounted rate for his newsletter to SMT readers. You can go here to take advantage of his offer thru Thanksgiving weekend. He might even buy me a chicken burrito or two if you sign up ;-)


http://www.thedocument.com/members/smt.cfm

Portfolio change

I posted a portfolio change to the premium website

CORRECTION SET TO GAP DOWN TO SUPPORT

If the premarket weakness holds into the open the market will gap down to the 200 week moving average this morning.

In April the 200 WMA acted as resistance and turned the market down into the extended multi-month correction. Now the market has regained that important resistance level. I have my doubts that it will spend very long below that level if at all now that it has been recovered.

I've been harping all along on the fact that we needed to see an "obvious" correction before we could consider that we have a move into a daily cycle low. We now have it and it is taking the form of a bull flag on mild volume.

Usually a bull flag will break sharply higher as it is normally a bullish pattern. Unless we get a sharp break down out of the flag traders need to stay nimble as we could put in a bottom at any time. A swing low this late in the daily cycle will have high odds of marking a bottom.

By the way, my good friend Doc, who most of you are familiar with either from his blog or from the insightful comments he posts in the SMT comments area, has offered a discounted rate for his newsletter to SMT readers. You can go here to take advantage of his offer thru Thanksgiving weekend. He might even buy me a chicken burrito or two if you sign up ;-)

http://www.thedocument.com/members/smt.cfm

I'M NOT BUYING IT

The general consensus now appears to be that all asset classes have put in an intermediate top and that the dollar has made an intermediate bottom. I jumped to that conclusion myself the other day. After further consideration I'm not buying it any more for several reasons.

First, the cyclical structure of the stock market is not set up for an intermediate top unless we are on the verge of another 2 month horror show like we saw this summer. I don't think for a second that with another 900 billion scheduled to be thrown at the market, of which 110 billion will come in the first month, that we are going to see the market roll over into an extended correction during the traditionally bullish Christmas season.

The intermediate gold and dollar cycles also aren't set up for an intermediate top. Ever since March of `09 the Fed's QE programs have stretched cycles, not caused them to contract. Here are the last 5 intermediate gold cycles.

Every single one of them has run long except one and that one was followed by a very stretched 30 week cycle. If the current cycle follows the pattern of the last two years then it's too early to expect an intermediate top, and the current correction is nothing more than the normal move down into a daily cycle low. Once that bottom is in place (possibly sometime next week) it should be followed by one more daily cycle higher before putting in the larger degree intermediate top.

But more importantly the dollar cycle is way too short to be looking for an intermediate bottom. In order for stocks and gold to form an intermediate top we would need to see the dollar form an intermediate bottom.

You can see in the above chart that the Fed's monetary policy has led to normal to slightly stretched dollar cycles also. The current cycle would have to have bottomed on the 13th week. This would also have to correspond to the yearly cycle low.

Now what are the odds of a yearly cycle low, a major bottom, being put in above 74, in a shortened cycle, with sentiment never hitting true bearish extremes? (The recent public opinion poll had bulls at 29% and I've seen it as low as 22% at prior yearly cycle lows) Pretty slim in my opinion.

There is no question the dollar is now in the grip of the three year cycle decline and in the beginning stages of a currency crisis. That being the case I seriously doubt the dollar will be able to move significantly above major resistance at the 80 pivot. It's already half way there now. If this is an intermediate bottom the rally is about to hit a brick wall that I have serious doubts it will be able to penetrate for more than a day or two, if at all.

Far more likely in my opinion that the dollar rally will fail at 80 and roll over into the natural timing band for an intermediate cycle low sometime in mid to late December. This should drive stocks and gold higher into December before finally rolling over into intermediate degree corrections in January or early February.

Finally, to top it off, we still haven't seen the large selling on strength day or days that occur at virtually all intermediate tops. Until we see signs that big money is sneaking out the back door I'm going to assume the intermediate rally is still intact.

By the way, my good friend Doc, who most of you are familiar with either from his blog or from the insightful comments he posts in the SMT comments area, has offered a discounted rate for his newsletter to SMT readers. You can go here to take advantage of his offer thru Thanksgiving weekend. He might even buy me a chicken burrito or two if you sign up ;-)

http://www.thedocument.com/members/smt.cfm

CURVE BALL

For some time I've been of the opinion that the dollar will control the fate of not only the stock market but also our favorite bull market...precious metals.

Since June the dollar has been collapsing down into a yearly cycle low. I didn't expect that low until the dollar reached at least 74 and I thought it even more likely we would see 71 before the cycle bottomed. However yesterday the dollar threw us a major curve ball. What should have been a minor bear flag that would resolve with a downward break has gotten unexpected traction.

Yesterday the dollar broke the down trend line and it now appears clear that the dollar has formed a shortened daily cycle low.

If the dollar rises above 78.36 it will reverse the pattern of lower highs and the odds will rise significantly that we now have a shortened intermediate cycle bottom, which should also mark the yearly cycle low.

If that turns out to be the case then we can probably expect stocks and gold to turn down into an intermediate correction.

The stock market is definitely due for the intermediate correction as it is on week 19. (The cycle usually runs about 20 to 25 weeks so a top is now due.)

The gold cycle is a bit shorter at 15 weeks but still in the timing band for a top. If we end the week about where we are today then gold will form an exhaustion candle on the weekly charts.

This is why traders can't leverage themselves to the moon. These curve balls happen. If you get caught by one of these and you are leveraged to the max you will do catastrophic damage to your portfolio.

Trust me when I tell you this. Massive leverage always ends in a blown out account. There are never any exceptions to this rule. Never!

Everyone might as well resign themselves to the fact that the SMT will be posted only to the website from now on. Every newsletter I've ever subscribed to is done this way and now I see why. There comes a point when it just gets too big to be sent as an email. The SMT has reached that point.

When I started this I had no intention of spending anywhere near as much time at this thing as I am. I'm retired and I fully intended to enjoy my retirement.  I realize I've made my bed and now I have to lie in it, but I can tell you I'm going to do everything I can to make this easy on me. And right now that means the nightly emails are done. I'm going to write the nightly report once and post it on the website.

I will tweet when it is posted so everyone doesn't have to constantly check the site. However 90% of the time the report will be up by 6pm PST. Subscribers can just go to the site at 6 and usually find the report ready to go.

Intraday posts are pretty rare and even if you don't get the post till the evening it usually isn't going to make much of a difference whether you acted immediately or the next morning. But for those of you who think you have to react instantly I will tweet when I post an intraday alert. Most of the time they come premarket, so you could always just check the website before the market opens.

Now for anyone who is having trouble logging in. 90% of the time you have caps lock on. The other 10% you put the username in the password prompt and vice versa.

To make it easier the username will never change and it is very easy to remember. All you have to do is save the password on Sunday night when I send it out (perhaps on a sticky note on your computer) . If you loose the password email me and I will get back to you as soon as I can with the password for the week.

That's it. Now let's turn off the grumbling and get back to investing.

WEBSITE ONLY FROM NOW ON

I've been in an almost constant battle with my email server now for the last couple of weeks. For some reason their system is set up to recognize bulk emails as spam. So when I send out the nightly report it occasionally triggers their system to shut down my outgoing emails for several hours.

After a 5 hour ordeal on the phone Saturday attempting to get the weekend report out, it has become painfully obvious that the nightly alert has become too large to continue as a mass email.

So from now on the reports will only be posted to the website .

You can still send email questions to me at the usual email address, but this too is starting to overwhelm me. So from now on I can't guarantee I will be able to answer every email.

If you have general questions you can always post them here on the blog.  

I will try to have the nightly report posted to the website by 6pm PST but occasionally if I'm out climbing it may be later than that. Most days it will be up by 3pm PST.

If I post an intraday alert to the website I will also post on the blog to notify everyone to check the website and I will send out a notice on twitter. My username is garysavage1

Tournament this weekend

I will be at a weightlifting tournament this weekend and will not have access to the internet for much of the weekend. If you subscribe it may be Sunday evening before I get a chance to get the login info to you.

ONE OF THE GREATEST BLUNDERS IN HISTORY

Many years from now when we look back at history I think yesterday will be seen as one of the greatest blunders ever made by a central banker.

The dollar was already headed down into a major 3 year cycle low.

The first round of QE had already guaranteed that the dollar was going to be under severe duress by next spring. Bernanke just added insult to injury yesterday and virtually guaranteed we will have a major currency crisis by next spring.

I think history will come to view yesterday as the beginning of the end for the dollar as the worlds reserve currency and unless the Federal Reserve comes to their senses soon the dollar is doomed to follow every other fiat currency in history into an eventual hyperinflation and total devaluation. 

One has to protect their purchasing power from the depredations of central bankers bent on destroying the dollar. That means one has to exchange their paper dollars for real assets. It's not safe to hold cash. 

One can buy stocks but soaring inflation will destroy profit margins and the stock market is going struggle more and more to rise in the face of soaring input costs.

There is one and only one sector that is positioned to protect one's wealth from the Fed. That sector is of course precious metals. The more the Fed devalues the better the fundamentals become. Gold is now entering the parabolic phase of this particular leg of the ongoing C-wave advance.

I doubt we will ever see sub $1300 gold again for the duration of this secular bull. Now that the HUI and silver have broken to new all time highs we have a rare condition in that the entire precious metal sector is trading in a vacuum with no real overhead resistance. This is the only sector in the world in this position. That is the recipe for an incredible move higher in a short period of time as funds begin to chase the outperformance in this sector.

The key now is to spot the top and lock in profits, but not to exit too early, and believe me most traders and investors are going to exit too early because they will try to trade this based on oscillators and overbought levels. That will be a huge mistake during a parabolic surge.

I will reopen the 15 month subscription briefly for those that want to ride the bull and need a coach to keep them focused. And a voice of reason to get you out at the top when your emotions will urge you to stay at the party too long. 

COMMENT CLEANER

I have a lot to say about today's action but I think I will keep it exclusive to the subscriber newsletter. So I will just use this as a comment cleaner.

FINAL LEG UP?

Certain conditions were met on Friday that convinced me that gold is now entering the final leg up in this particular phase of the ongoing C-wave advance. The final spurt higher last year tacked on a very healthy 19% in a little over 1 month.

A similar performance this year would drive gold to $1578. Although this year we have the added benefit that the entire sector is trading at new all time highs. It is the only sector in the world that is in this position. This is an incredibly powerful combination that could drive the precious metal sector even further than it did last year.

At the moment there is a very low risk (-3%) entry for investors and traders to get on board this final run.

I explained the setup in depth in the weekend report.

For one day only I'm going to offer the 15 month yearly subscription rate again. That works out to a monthly price of $13.33.

15 months should be long enough to get investors not only through this final spurt higher but also back in for the final phase of the C-wave this spring. Get you out of the precious metals market in time to avoid the severe D-wave correction. And then back in to ride the next powerful A-wave advance.

We have an incredible opportunity ahead of us over the next several months and year.

If you want to take advantage of the discounted yearly subscription click here and follow the Paypal link.

ALL THE SIGNS ARE IN PLACE

There are three things I watch for as a sign that a correction is imminent. They are in order of importance, cycles, sentiment and money flows.

The current cycle is already stretched to 45 days. Usually this cycle bottoms between 35 and 40 days so you can see we are now overdue for a top. That covers the cycles part of the equation.

Sentiment has now reached bullish levels (contrary sign) that should be enough to force at least a daily cycle correction. We haven't yet reached the extreme level that is normally required to turn the larger intermediate cycle. In bull markets it usually takes a push to new highs to get to that kind of extreme sentiment level.

Finally I like to see some sign that smart money is exiting the market in preparation for a correction. For me that sign comes when we see a large selling on strength day in the SPYDER's ETF. 

Today we got that final sign.

Not surprisingly we now have a volatility coil forming on the S&P chart.

As most of you probably remember the initial move out of a coil is often a false move even though it is usually very aggressive.  Typically the initial move will run 3 to 5 days and then reverse leading to a much more powerful and more durable move in the opposite direction.

Since we are 45 days into the current cycle and we now have all three signs for a correction lined up I think the odds are strong this coil will break to the downside. There are implications for the dollar and gold if this unfolds.

I went over them along with a game plan in tonight's report so I won't repeat it here but I think we will likely see a correction soon and since we still haven't eclipsed Monday's intraday high it may have already begun.

INTRADAY ALERT

There is an intraday alert on the premium website  for subscribers in case you didn't get the morning email.

DOW:GOLD RATIO STILL TOO HIGH

I've stated before that I expect this secular bull to continue until the Dow:gold ratio drops to at least 1:1. Considering how much further the ratio stretched on the upside (42:1) than any other time in history it's entirely possible that we could briefly see gold become more expensive than the Dow.

As it pertains to the current C-wave I want to point out that we still haven't even seen the ratio hit new lows yet. Every C-wave so far has managed to drive the ratio to new lows before topping.

The current C-wave still hasn't accomplished that goal. I'm confident it will eventually. Possibly even driving the ratio down to 6. If we assume modest new highs on the Dow of 12,000 we could be looking at $2000 gold before this rally tops (probably next spring).

It looks like we are going to form the swing low I mentioned in my last post this morning so the odds are now high that gold has put in the daily cycle low and the short term correction has run its course.

If one doesn't have a position it's probably a good idea to get one and if one was waiting for a pullback to add to positions it looks like that's all we are going to get.

Depending on how the dollar reacts and how long it takes to reach the 74 pivot will determine how far and how aggressive the next leg up will be.

I will elaborate in tonight's update for subscribers.

BOTTOM IN SIGHT

Trying to pick a bottom in the gold correction at this point is probably a low probability strategy. The simple fact is that until gold forms a swing low there is no possibility of a bottom. So someone trying to jump in front of the correction might as well wait at least until a swing forms.

Ultimately though we need the value investors to step in to the gold market. Of course its tough to guess ahead of time at exactly what level we are going to get enough value money come into the sector to halt the correction.

I do have a couple of ideas of where that's likely to happen, being somewhat of a value investor myself.

The first level that should start to bring in big money is the psychological $1300 level. That level may or may not bring in enough money to halt the decline. We will only know after the fact of course. But if one wanted to try and pick a bottom that would be the first level to make an initial purchase.

A much safer bet in my opinion would be if gold can correct  enough to test the $1265 breakout level. I expect enough value money will enter the gold market at that level that it's unlikely gold will decline significantly below that point.

We have a bit of a dilemma right now. Similar to what happened back in January. Gold has begun to correct but the stock market is still resisting. As soon as the stock market rolls over into it's daily or intermediate cycle decline it's going to put added pressure on the gold correction. So trying to prematurely jump into the gold market here is risky (in so much as one will probably experience a drawdown. Of course being a bull market any timing error will eventually be corrected).

In a perfect world the dollar rally will strengthen and test 80 and in the process force the stock market to correct and gold to drop down to test the $1265 breakout. That's the point where I would advise investors to step back into the market heavily. I expect you will have a lot of company at that point and your chances of a significant drawdown will be drastically reduced.

THE CORRECTION HAS BEGUN

Yesterday the market broke the trend line off the August bottom.

The dollar also followed through on it's snapback rally.

The odds are now high that we have the cycle top in place for stocks and the cycle low in the dollar. We should now see the market drift lower possibly till the third quarter GDP report next week.

However let me stress again this isn't over. This is just a profit taking event and once it's run it's course the dollar will resume what I fully expect to be a complete train wreck (especially if Bernanke is stupid enough to run QE2) as it continues to crash down into the yearly and three year cycle low.

Initially this will push stocks higher, until surging inflation next year destroys the fragile economy. At that point the stock market will begin the next leg down in the secular bear market and the economy will roll over into the next depression.

WARNING SIGNS

We're now starting to see warning signs pop up that a correction is imminent.

Despite the market making new highs breadth is diverging badly. Aka the market is being driven higher by fewer and fewer stocks. When this starts to happen late in the daily cycle a correction isn't far away.

We now have a large divergence in the McClellan oscillator.

If we happen to see a down day today the slower 10 day moving average will turn down and join the faster 5 day average on the new high/ new low chart. Granted that doesn't always lead to a correction but when it happens late in the daily cycle it's a pretty reliable sell signal.

We are now late enough in the daily cycle that these warning signs should probably be taken seriously. It's probably too late to continue pressing the long side. To do so one risks getting caught in the down draft when the correction begins.

LONG POSITIONS ARE IN JEOPARDY

The stock market is now on the 34th day of its daily cycle. That cycle lasts on average about 35 to 40 days. So as you can see we are pushing the limits for a cycle top. We may have made that top on Wednesday. We'll just have to see how next week plays out.

I also think the dollar may have put in a cycle bottom on Friday. If it did then it is due for a snap back rally to relieve the extreme oversold conditions. This should pressure virtually all asset classes (the possible exception might be gold).

At the moment I'm expecting the market to begin working it's way down into a daily cycle trough possibly bottoming on the third quarter GDP report Oct. 29th.

Any one still holding long positions might want to consider taking profits here, especially if the trend line gets broken next week.

Once we get past the correction into the now due daily cycle low traders can probably re-enter long positions for a run at the April highs.

More in the weekend update for subscribers.

DOLLAR CYCLE STRETCHING

The dollar just sliced right through the 76.50 pivot this morning. Today also happens to be the 28th day of the current daily cycle. The normal timing band for a cycle to bottom is between 20-28 days, However the Fed's threat to print, print, print appears to be going to stretch the dollar cycle slightly long this time.

We will look for the next swing low to mark the bottom of the cycle and the beginning of what should be a counter trend bounce. That bounce should be of the dead cat variety as the intermediate cycle still has 8 to 12 weeks yet before an intermediate bottom is due.

The next support zone now that 76.50 has been violated would be the rising trend line off the last 3 year cycle low in 08.

Once the counter trend bounce begins it should pressure the stock market down into the now due daily cycle low. In theory gold should also drop down into it's now overdue daily cycle correction.

BUY TARGET

The S&P has now formed a swing high and we finally have a little follow through on the dollar rally. We are late enough in the daily cycle that this should signal the beginning of the decline into the daily cycle low for stocks and gold.

For the many reasons I've discussed in the nightly reports this correction shouldn't last very long but it could be sharp. If, and this is a big if, the dollar can tag the historically significant 80 level which also happens to be where the declining 200 week moving average comes in that would be the point where one could take a shot at picking the exact bottom of the cycle.

I really doubt we are going to see the dollar regain this major resistance level for the duration of this 3 year cycle and there is a strong possibility that we may never see 80 again until the secular bear market for the dollar ends.

A tag of 80 would be the spot where one would want to add to precious metal positions for the continuation of the current C-wave.

Make no mistake this still has a long way to run yet.

The swing high was negated that very same day as the market formed an outside day.

A CORRECTION IS DUE

The stock market is now entering the timing band for a move down into a daily cycle low. Today is the 29th day of the cycle and we usually get a final cycle bottom by day 40. Of course we need to allow some time for the decline to unfold so I think we can expect a top any day now.

The move down in stocks should coincide with a bounce in the dollar index as the dollar is already moving into the latter part of the timing band for its daily cycle low.

Since gold has been tracking the dollar almost tit for tat I expect the rally in the dollar to also pressure gold down into it's daily cycle low which is now due.

I have complete confidence the stock market will indeed move down into a cycle low. I'm also confident the dollar will rally during this process. Gold is questionable. There remains the possibility that it could be in a runaway move and miners have broken out to new all-time highs so there is a chance that gold could ignore the dollar rally.

This is why one shouldn't lose their core position. However late comers may want to wait and see if the dollar bounce does push gold down into a cycle low before adding to their core or adding leverage.

All this being said any dollar rally should be brief and the next leg down into the yearly cycle low will cause massive damage to the dollar as the burgeoning dollar crisis starts to intensify.

More in last nights report for subscribers...

HISTORIC BREAKOUT TO NEW ALL-TIME HIGHS

The miners have now joined gold and silver at new all time highs. (Well silver isn't at all time highs but it is at bull market highs.) The entire precious metal complex is now trading in a vacuum with no overhead resistance. This is the only sector in the world that can make this boast.

Needless to say this is a very bullish configuration and one that should lead to massive gains the next 6 months as the dollar collapses down into its 3 year cycle low.

The risk now isn't that we may get a pull back, although we certainly could. No, the risk is that the miners may never trade back below the breakout level again for the duration of this bull market.

Anyone waiting on a pull back to enter runs the risk of missing the entire move because they couldn't adjust their thinking from trading range mode to break out mode.

THROW THOSE OCSILLATORS AWAY

Most people have a lot of trouble buying anything when it's in an overbought condition (they have trouble buying when it's oversold too). Unfortunately virtually every breakout occurs from overbought levels. This is especially true during a powerful C-wave advance.

Take a look at the last two C-waves and the first leg up in the current C-wave.

You can see that each one of these powerful rallies when it broke out of the trading range had already reached overbought levels. Then it stayed overbought for most of the rest of the rally.

If you didn't buy the breakout you missed a huge portion of the C-wave as no corrective move retraced back to the breakout point.

One of the biggest mistakes investors and traders make is using oscillators after a breakout has occurred. Oscillators are great tools if an asset is in a trading range. Once that trading range gets broken though one has to throw out their oscillators as they will cause you to miss huge portions if not all of the move.

Now let me remind everyone that Bernanke clearly stated he would print money if the economy didn't improve. We know there is no way the economy can improve because we still don't have the next "new" industry to drive job creation.

Folks this one is a no brainer. The Fed is going to print. That is going to cause asset inflation. The dollar is going to drop down into a yearly and three year cycle low. And the market is going to make Bernanke pay for his insane monetary policy with at least a mini-currency crisis in the dollar by next spring. And ultimately it is going to cause general inflation in all prices with the possible exception of real estate.

Gold is likely now in a runaway move higher. Smart money is using any and all pullbacks to get in ahead of the inflationary storm that's coming. We saw it in the action yesterday. Gold briefly traded down to the $1300 level and miners briefly tagged 500. Buying pressure immediately came in at those levels.

I think there is a very strong possibility that the miners are never going to see sub 500 again for the duration of this bull market. And even if they do it will be only briefly. As a matter of fact, The miners are on the cusp of a historic event which I have been discussing at length in the last several premium updates.

QUOTE OF THE DAY

"You can’t make big money, unless you think big money." Others have said it as well – you can’t achieve that which you can’t conceive. In the world of investments, if you can’t imagine something happening, like a stock or a commodity going up many times in value, then it is highly unlikely you would buy and hold such an item if it did, in fact, go up many times."  Izzy Friedman

GOLD RISING AGAINST ALL CURRENCIES

The question was posed that perhaps gold is only rising because the dollar is falling. While every C-wave has been driven by a collapsing dollar you will see in the next several charts that gold is rising in every currency. Every country is debasing their currency.

As you can see gold is rising in all currencies even in the strongest of all currencies, the Yen.

What's more, gold is also rising against all other commodities since late `05.

Remember how I've pointed out that oil was the leader during the first phase of the commodity bull and how it should under perform during the second phase. That is because the fundamentals are now impaired in the energy markets but are improving in the precious metals sector.

I've been of the opinion that the gold:oil ratio will now remain in a range above 13 for the rest of the commodity bull with occasional spikes above 20 as C-waves progress.

At the moment the gold: oil ratio is at 17. I expect that will move up to or above 22 by the end of the current C-wave sometime this spring.

Alright I've had enough of the troll investation for the time being. If you want to comment on the blog you will have to create a google account.

PRECIOUS METAL SECTOR REACHES MAJOR RESISTANCE

It's been my expectation that gold would manage to rally at least to $1300 before dropping into the now due daily cycle low. We are now ready to test that theory as gold has tagged $1300 this morning.

The rest of the sector is also mashed right up against all time or bull market highs.

I have my doubts that we will see all these resistance levels broken on the first try. We are also deep into the timing band for a daily cycle correction. This would be the most logical level for a corrective move to initiate from.

If gold is in a runaway move then any correction should hold within a 25 to 40 point range. My thinking is gold should drop about 35 points to test the breakout level at $1265.

A throw back to test the triangle breakout by the HUI would also be a normal corrective move.

Once silver & miners join gold at new highs the entire sector will be trading in a vacuum with no overhead resistance. This will be like throwing gas on the fire. And that is the recipe for huge moves.