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Monday, July 4, 2011

DOLLAR UP OR DOLLAR DOWN

For my call of a new bear market to remain valid one very important assumption has to be true. That assumption is that the dollar put in its three-year cycle low in May. If that assumption is wrong and the dollars three-year cycle low still lies ahead then most asset classes should still have one more leg up to at least marginal new highs.

My assumption that May marked a major cycle bottom was based on:
1. Sentiment had reached multiyear extremes. 
2. The May low occurred right in the middle of the normal timing for that major cycle bottom.
3. And QE2 was scheduled to end shortly thereafter. 

When QE1 ended last year the deflationary pressures slammed back down on the stock market and economy. There didn't seem to be any reason to expect something different this time (unless quantitative easing really isn't ending).

The next couple of weeks are going to be important. The dollar should form a short term daily cycle low sometime in the next few days. If the bounce out of that low is weak, rolls over quickly, and breaches that pivot then the odds are going to be high that May did not mark the final three-year low. If the dollar still has one more leg down then the deflationary scenario is going to be put on hold while that runs it's course. As a matter of fact it would be more likely that we would see a pronounced inflationary period during this process.


The start of the next bear market will depend on whether May marked the final bottom in the dollar or whether that bottom will come later this year. Either way once that bottom is in it will mark the beginning of the next deflationary period and the next cyclical stock market bear.

264 comments:

  1. The dollar dropping below the 08 low would provide the liquidity/technical break that the big boys love to flip the market on. It would generate a C wave top in gold, new highs in indices for the MSM to gloat over, and a significant Fibo retracement in silver similar to other post-parabolic spikes, before setting up for a classic Octoberish deflation downturn on the dollar intermediate low. We have the wall of worry in the form of QE2 ending, and with the upside trend line break in the SPY/continuation symmetrical triangle in the dollar at the moment this could very well be the scenario that plays out. We will also have the same issue with spotting the gold top as the silver top if it gets stretched enough. Constant adjustments as always...

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  2. E,

    I am working on the same case with several of my mortgages that I am trying to reduce due to being upside down yet cash flowing.

    IMO Cash is King and if invested properly (commodities, PM) during an inflationary period your position becomes more powerful to pay your mortgage off at that time (if you desire). I also believe that real estate will not go up at the same rate or very little as other commodities during an inflationary period. Thus, putting your cash to work in certain hard assests is your better choice opposed to paying back money which is charging you a minimal rate. You also can't just go and get that cash right back if needed unless it is an equity line. Leaving your cash as liquid cash during an inflationary time will just eat at its value or purchasing power. Now, on the flip side. If you have the cash to pay off the mortgage you now have your home free and clear which would give you a piece of mind knowing you primary home is paid in full. What is that worth?? (Everyone is different). Investment properties I would go with door #1. I persnonally am going with door #1 on my investment properties that are dogs.

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  3. Cory,

    Corrections in PMs do come around October however the lows have consistently been made during the summer months and anything afterwards have been profit taking events.

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  4. white2ronnin:

    Regarding Gary's track record and his calls. Many subs are up three figures basis points, so let us not question that. Even with the stock market, he CLEARLY indicated that because of the intervention, holding shorts for too long is not advisable. He also said that the biggest gain shorting the stock market will be made very early in the cycle and after that it will be all zig-zag.

    It is good to see that the market clearly indicating that risk is on. Some players in the market may have been positioned too negatively. Further, relative value reallocation at the quarter end by money managers added fuel to the fire. Flight from bonds, especially since QE2 was ending, was also a money-flow following mechanism. So the stars were aligned as they say for this leg up, making it most powerful ever when measured by the McLellan Oscillator on the SPX (hit 130).

    With the kind of impulse move we have had, the market will try to balance out before it takes on its new direction. The Friday's job report will be the key though it is likely the ADP and the Jobless claims before that may help set the tone.

    So it is not surprising to see the risk-on trend to continue today also. The market tacked on a full 10 handles after Europe closed on Friday; so the Europeans are still catching up. The bull defended the 1329 and 1330 levels today; we did get a 6 point sell-off on the S&P news but the buyers came in. In fact I suspect we will see another leg up on Tuesday morning before we see any downside action.

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  5. Interesting developments, we will just have to see how the dollar plays out.
    jnewman that would be something if this plays out as you were calling for something like this for a while.
    Happy 4th catch you guys later.

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  6. My money will be on the dollar breaking to new lows, which was your original thesis before the two month head fake. Gold $1800/Silver $60 by year end. Don't tell me how many burritos I owe you if I'm wrong.

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  7. Gary

    Thanks for the detailed answer on the dollar possibilities (new post). Either way we won't know the dollar has or will have printed a new low in real time.

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  8. Fregie

    Did I just hear you say AGQ?

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  9. Gary,

    The 2008 cycle low in the dollar took about 4 months to play out: March to July 2008. The bottoms were 71.32, 71.93, then marginally lower at 71.79.

    I am wondering if we could see a repeat: namely a drop below the 73.89 low last month to convince everyone the dollar bear was resuming and (just to fake everyone out) strongly up from there.

    What do you think? I don't know how this would mesh with your cycle timing, but could we see a bottom sometime in the August/Sept. period, instead of July or the autumn? Presumably this would mark a stock market top and gold bottom around then as well. Worth looking at the USD bottoming process in 2008 I think.

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  10. I really doubt silver is going to go above $50 at this point. I don't think I have ever seen a broken parabola recover without one to three years of consolidation first.

    Gold on the other hand is in fine technical shape and could certainly go to $1800 on another leg down in the dollar cycle.

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  11. Albert,
    It's always possible that this could unfold similar to 08.

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  12. Thanks Gary for making part of your analysis free and available for us smaller investors out there.

    Regarding this week's forecast, I guess it's likely the stock markets will continue to follow through for at least the next 1-2 days before the job reports come out, and depending on that and the Euro rate decision we'll have a better idea... but the question is will gold and silver get on board and in the same direction as the stock market for the next couple days, or will they continue to stall and consolidate on their own? When the Euro continues to rise it *should* be positive for PMs does it not?

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  13. Gary,

    If you look over past parabolas silver does get close to previous peaks within a year. It does not significantly break the highs for a couple years but it does test them so I think anyone buying silver to hold into the end of the year will do just fine although PM stocks may finally outperform on this run.

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  14. Thanks, Gary. Revisiting the charts, I see the triple bottoms in the dollar actually took 3 months, not 4 as I said earlier. First one was in mid-April, last low was mid-July.

    So (if this repeats) a low in the USD could well come in late July, and your call for a possible low in gold around then could well be very accurate (and also fits in with the seasonal gold pattern).

    One last question: would it not make sense for those who want to play the gold stocks when the time comes to go with GLDX (Global Gold Explorers) rather than GDXJ. The latter is pretty heavily weighted with silver miners like Silver Standard, Hecla, Silvercorp etc.(though it is not as liquid as GDXJ).

    Thanks for a great report.

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  15. Gary,

    I am not surprised to see this post. My opinion the dollar follows equity/credit risk on/risk off - not the other way around. DXY is a lagging indicator and the last piece to fall in place for risk on right now. By the time DXY rolls over equities/credit have left the barn (they already did last week). I am looking at the charts (DXY is a the low end of the 4 year range)and watching credit/swaps/TED spreads.

    Aviat: good for the subs, but an audited track record of the manager is the only way to validate competence behind risk management. I can show you a sub that read the exact post AND lost money, thats why you don't use subs (or managed accounts) to evaluate manager performance. The manager audited track record is what separates opinion from fact. That said I enjoy this thread and the work that Gary puts into it. Posting results would give me more confidence in the work, but I'm saying the obvious.

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  16. White2Ronin, you are missing a key point. Gary is not a money Manager nor offering investment advice.

    Therefore you are paying for his musing of the market as he sees it through cycles; and if you are not paying for it, it is worth what you paid for it.

    He may or may not even trade some of his ideas due to any number of reasons.

    Give it a break

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  17. Wow. Interesting. I was loooking at AGQ - nicely triangled ready to fall off another 50. So who knows if QE2 ended - they can keep throwing money like that for whatever reason and disguise.

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  18. youks,
    Gold and silver are working their way down into an intermediate decline. It's still a bit early and golds daily cycle, so it should be another week or two before the precious metals put in a final bottom.

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  19. White,
    On a daily basis the currency markets are probably influenced to some degree by the stock market. But on a macro basis the currency markets dwarf every other market in the world they are not driven by the stock market.

    The dollar index has its own separate cycle independent of stocks. That cycle is influenced by fundamentals such as quantitative easing and sentiment factors pertinent to the currency markets.

    Ever since stocks moved into a secular bear market they have been driven to a great extent by what's happening in the currency markets a.k.a. dollar devaluation/asset appreciation.

    Until we cleanse the debt spiral from the world, reach true bear market valuations, and the next new paradigm industry emerges this correlation will continue.

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  20. In regards to silver's parabola. There has never been so far in this bull market a parabola that even came close to what just happened.

    From the low of eight dollars in 08 to a high of $50 that was a 500% move. The greatest trough to peak move previously was barely able to rack up 100%.

    What we just saw in silver was more akin to the final move in oil in 2008. Notice that broken parabola still hasn't recovered and it's been three years.

    We are not going to be concentrating on silver again anytime soon.

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  21. This comment has been removed by the author.

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  22. Gary

    Whilst you are right on the size of the currency market relative to equity and bond markets, I would disagree with you on the drivers, ie equities and credit drive currencies and not vice versa. My reasoning is simple for the risk premium of holding these assets (credit/equity) and the duration risk is much higher than that of currencies. This is especially true when the pundits, and I rate Faber (whom I rate as top pundit) among them, conclude that all fiat currencies are bad (and so why differentiate at all between (USD/EUR/GBP)? hence the push to precious metals as an alternative. The appetite for currencies/gold are therefore a buyproduct of the risk appetite for equities/credit, which can be assesed for relative risk (investment grade company bonds safer high yield bonds safer than equities etc...). That said there is no way to prove either of what you or I said and so I will be content to watch DXY hit 73.5 to put in the final piece of the risk on trade.

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  23. white2ronin,

    You said "an audited track record of the manager is the only way to validate competence behind risk management."


    I read numerous opinions online; however, before taking anyone seriously, I would like to know their track record. How does one go about establishing an independently audited track record?

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  24. Gary,

    Do BB crash trades work on the upside also??

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  25. I think that maybe with all the computer/internet access on this planet, too many people are expecting the same things to happen and the opposite happens.

    Do the opposite of everything I say..

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  26. Do the opposite of everything, I say.

    That's better.

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  27. Marty,
    No the Bollinger band crash trade does not work on the upside. Markets go up differently than they go down.

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  28. would anyone consider that the S&P is tracing out a large head-and-shoulders top, and the rally to 1,340 makes the pattern more symmetrical?

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  29. Could it be the whole circus comes from US Treasury the following weeks - they need to make that payment and do all to attract people to bonds. With their chief on the go they might even 'threaten' not to issue more bonds and the equities will sell off boosting the dollar...That's me thinking :)

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  30. if we can get a bounce out of the dollar to 76.10 on the sept futures i will be trilled. i want out of the dollar soooo bad
    im hopeing that wont be asking to much and it has a little gas in it

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  31. Eamonn

    That is what I am betting on. Shorted the S&P at 1331.25 thinking there is not as great of risk to the upside and more potential to the downside. It will be a quicker trade. Hoping 30-50 points minimum. Will take some off in the money and put the stops for the rest at the entry point. I got caught in the down trend line break at the end of May and I am thinking this may be the same thing again with the trend line from the tops at the beginning and end of May. Will take some off at 1345'sh if the rally continues severely throughout the week and reconfigure the trade. Also I am keeping an eye out for a dark cloud pattern at the open Tuesday.

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  32. Yes, QEII has ended but it will take a year before it works it's way through the system. It's not like the money evaporates as soon as you turn it off. Obviously, the end of QE turned out to be a buy on the bad news event.

    And a SPY P/E ratio of 15 - 15.5 this means we will be at the low 1400's by the end of the year...

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  33. Eamon

    those were future prices ESU1 as there is a difference to the big board.

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  34. SP500 buy any pullback until august 17 2011!

    http://astrofibo.blogspot.com/2011/06/sp500-60min-buy-any-pullback-until.html

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  35. Hack,
    Let me remind you that last year after QE1 ended it took less than one month for the market to collapse.

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  36. ..Could seems naive but:...always keep alive a plan B....if 1485 area will hold..the correction on Gold ...it's over

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  37. "Hack,
    Let me remind you that last year after QE1 ended it took less than one month for the market to collapse."




    good point g-man
    jake

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  38. my last post on metal rates/GC http://bit.ly/jZAhi5 only if You are interested..of course..

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  39. Sure but at what point do you decide that it held?

    One could have made the case that in May the $1500 level held.

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  40. This is one of the reasons why I don't put a lot of trust in pure technicals, there are just too many alternate interpretations of any particular chart.

    I think if one analyzes the cycles first and then uses technicals for entries once cycles and sentiment give a buy signal you are much more likely to time the trade correctly.

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  41. time will tell my friend...I'm one of the "genuine" gold bear around..shorting futures with real money.....I know what I mean..time will tell.

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  42. Hack,
    SPY pe of 15??? Last I checked SPY PE was in the 20's, easily overvalued.

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  43. i.e Dec09 I was short on Gold http://bit.ly/mM16u1 ..on of the few around..

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  44. My bad....S&P PE is 23.6. The median is 16.4. the S&P 500 is easily overvalued.

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  45. Here's one of my favorite charts. S&P PE chart.

    http://www.multpl.com/

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  46. 26May was short on Gold http://bit.ly/lqOSPT

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  47. 16Jun Micromanaged the pos http://bit.ly/kaB6ET

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  48. Wave Ridah, and with a forward earnings estimate at 13%. The dollar will need to fall hard just to remain in place. But then oops oil goes up crushing margins. Time is now on our side.

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  49. Marty, you have a fine Irish name it seems!

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  50. ive been following the dollar on the iphone useing furturesource. all of the sudden it doesnt come up and i cant find it on there anywhere. anyone know anything about it? or have something else to recomend on the iphone

    thanks

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  51. Well, we got our dollar bottom with the US Ratings agencies declaring the Greek bailout as it currently stands a technical default, which would trigger all derivatives. Now we have to see if the dollar bounces and rolls over, or if it breaks thru the top of the triangle and makes a higher high. If the european central bank has to absorb all of those bonds instead of the private banks it will send the eur/usd down. Dollar positive for now.

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  52. Cory,
    Thanks for that! Where did you find that by the way?

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  53. Now add China...via zero hedge as always

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  54. This is also a potentially important story RE US Dollar http://www.zerohedge.com/article/moodys-july-4-bomb-rater-finds-10-chinese-gdp-bad-debt-claims-china-debt-problem-bigger-stat

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  55. Cory,

    Even if the USD rolls back over after a swing high in the new cycle, do you think silver can break into the $20's?

    Wav,

    U still holding your July's? What' your exit strategy on them? Do you think you'll hold into next week?

    Thanks

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  56. eamonn
    so would that give support to the dollar?

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  57. JEFFtheFLEA, yes if the euro weakened the us dollar index would usually rise

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  58. These Euro/Greece stories may gain some traction

    http://globaleconomicanalysis.blogspot.com/2011/07/s-warns-greek-bailout-plan-constitutes.html

    http://www.zerohedge.com/article/guest-post-making-sense-french-rollover-plan

    Zero hedge a bit to sensationalist in my opinion but I like the way peter tchir has walked through the French rollover proposal. A number of moving parts, with outcomes favorable to the lenders.

    This might be the ammo the dollar bulls are looking for. DXY 74.47

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  59. Honestly, I originally thought silver would get to the low to mid 20's if this was the midpoint of a parabolic breakdown. I now think that I would rather miss further downside in silver and change teams when gold bottoms and go long. My vehicle of choice is miners this time, but they are affected by equities so it will be tough to time. I will look for a surge in volume and go no margin in case there is another dip down. Then Old Turkey.

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  60. Gold is acting as expected, bounced off the 100sma as it had in previous intermediate corrections, the 75sma should act as resistance now, Seems that is the case tonight with futures. If gold happens to push higher it looks like next resistance will be the 10sma. If gold reverses tomorrow or wednesday and breaks below the 100sma it will have broken down quicker than previous IT declines, as it did with the break below the 75sma.

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  61. When gold breaks below the 100sma the 150sma will be tagged soon after, within a day or two.

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  62. Eamonn

    Yes Irish is in the blood. :) Named after my Grandfather,

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  63. What happens after gold tags the 150sma is the question, the 150sma was support during more than a few intermediate declines throughout this C-wave, a break below the 150sma is D-wave territory.

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  64. Marty, "Fenton" is a strong Cork name I'll have you know!

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  65. Gary said, "I really doubt silver is going to go above $50 at this point. I don't think I have ever seen a broken parabola recover without one to three years of consolidation first."

    Gary, the front of the 1980-81 parabola can be viewed as similar to what's happening now, with the then expected target of 130-200 on the next run. That would replicate the 80-81 pattern. When the front part of that double parabolic rise failed, many I would assume thought it was over, and those shorts were the basis for the return of the parabola with a vengence.

    Sentiment towards silver now is very negative. Take a look on a daily/weekly/monthly basis at SI in 1980-81.

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  66. Can someone make a $WTIC and $SILVER chart and overlay them at the peaks. I'm just curious how close silver collapse of 2011 is following the oil collapse of 2008.

    Thanks

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  67. Sf fan,
    I'll look for the article I saw later but the charts are scary identical. Oil had major resistance for years at 35. Then the parabolic spike into the 140's, formed a h&s on the way up and down, and collapsed to around prior resistance. All silver needs is another shoulder (neckline keeps falling by the day) then BANG down to prior resistance, around 21. It probably wont happen in this dollar cycle but it needs to hurry up because we all know silver will follow gold and if golds IDC bottoms in a couple weeks, 21 dollar silver will never hit. I'll look for those charts for you SF. I'm up north in Fubsyland (Eureka) for the 4th so give me a day.

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  68. RJ,
    Still holding strong. I'll be looking to sell into a strong day next week. I'm sticking with Gary and expecting the dollar to rally into the next couple weeks. Looks like we formed a DCL on Friday so I feel like I'm sitting pretty here. I'll post when I sell. GL RJ.

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  69. This comment has been removed by the author.

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  70. Morning all,
    I recall someone here mentioned a trader who looked at gold in a "Three Peaks and a Domed House" pattern.
    Here's the link to the blog:

    http://fx5186.wordpress.com/

    What I think is really interesting is that he/she started to paint this pattern already back in April, and has consistently updated the gold graph since. It has followed the pattern really accurate. Next move would be down to the First Floor's floor at roughly 1400, then bounce to around 1440 and then finally plunge down to 1300-ish, which is the Basement in the model.

    If you haven't already take a look at it, is quite fascinating!

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  71. We live in a market with so many different forces. Just heard that the last time the US gave a tax break to allow repatriation of foreign profits at a lower tax rate, the US Dollar appreciated 15%! There is talk of a similar deal doing the rounds in DC.

    So when the Chinese are buying Euros to keep the USD cheap, US corporations may buy the USD to repatriate earnings. The Moody's story about the Chinese debt has been picked up by the WSJ and Reuters but so far is not impacting risk appetite in Europe. ES is trading near its close on Friday, having tested the 1331 level overnight a few times.

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  72. Anyone know what caused the PM spike this am? Don't see any news and USD steady...

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  73. Swing Low on Gold. Did the cycle bottom on week 22, right in the middle of the normal timing band? If the $$$ does have one more swoon down, and given the high BLEES rating from the weekend, is this the bottom?

    Gary, what other confirmations are we waiting for? 20+ points so far seems like Gold is playing catch up with the SPX rally from last week!

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  74. spot on love your analysis.

    The guy from http://www.forecastfortomorrow.com/trading-club stated today taht we are at some critical resistance points and posted a chart of the trannies, hmmm intersting. His stuff is killer.

    Can see a case for both sides, but I am more wondering if they have a plan for screwing the bulls partying here. Hmmmm. Greece is not the only one in trouble.

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  75. Good morning all,

    Dollar up, metals up. Just a reminder to trade the trade, not assume that the relationship is always inverse.

    The debate over owning gold vs. silver for the next move diverts one's focus. They are both sound money and will both rise together. Whether silver "only" runs to $46 this round, and gold rockets to $1950, it's a 30% move in each. Also, it's way too early to predict silver is "done" for several years, IMO. Yes, parabolas don't typically turn higher again (at least not immediately), but silver in particular is a thin and volatile market. It could just as easily begin to act like gold or even outperform again. Gold was the driver for both metals and will be once again.

    My point is that if gold rallies as we hope, silver will at least try to make a double top at the highs, which is not a little gain from current levels.

    Good luck!

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  76. Wow Gold is up nicely this morning, did we bottom already and I missed it? I'm trying to figure out what is pushing gold higher here.

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  77. The PM's are spiking while the dollar rises? Regardless, I don't see a PM rally sustain itself unless the dollar can fall much below $74. Then, I might take this pm spike seriously. Till then, I believe this falling wedge on the buck is still very much in play.

    http://screencast.com/t/cmOforXudv

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  78. It's still early for gold to put in a daily cycle low and we don't even have a swing low on the dollar yet.

    I would be inclined to wait another week before calling the bottom, especially as stocks are going to be moving into the timing band for a half cycle low which should correspond to general pressure and a higher dollar.

    That being said were probably close as the miners are starting to diverge.

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  79. I'm also not ready to call bottom in metals, yet agree with your observation on miners.

    Whenever we decide to get heavy, miners will be my focus.

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  80. Keep in my mind the gains your seeing includes yesterday's move as the PM market was open overseas so I wouldn't say they're "spiking" today.

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  81. Gld daily http://bit.ly/jvxYB8 (posted 3Jul)

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  82. There is not room for interpretation..GDX,XAU,HUI already tested the min. I already closed my short pos on GC, just waiting and looking closely to Wheat and Gold

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  83. If gold did bottom here without breaking 1462 pivot it brings up the question of did the bottom occur on Friday and we're starting a new intermediate cycle. Or did it occur back in May and we're now already two daily cycles into the move.

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  84. I certainly will never win the prize of "most popular Trader of the Year"

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  85. Gary I really like Your way to see at the market, I'm here to learn and share, I did many mistakes and still making..just trying to trade with a neutral bias..

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  86. valeri, trading isnt a popularity contest. If you make money, you win.

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  87. Aaron,
    yes, and I made money, since I shorted Gold from 1560 area, but I'm calling a IT Bottom on miners and GC..and in that sense I'm not "popular"

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  88. Was the BOW number last Friday on GLD a significant number or just buying based on oversold conditions?

    hope everyone had a great weekend.

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  89. Why would that make you unpopular?

    Most of us are just waiting for the bottom.

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  90. Gary,
    obrigado...I like Your words, buddy.

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  91. Being popular versus being right and making money... I see your dilemma... tough choice ...(NOT)

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  92. I find it hard to believe the silver correction would end here without having touched the 200dmva. All parabola corrections have not ended until silver hit and usually got under the 200dmva. Gold has also not yet hit it's 150dmva which has been the historic norm for corrections. I understand everyone here is excited by the move this morning but this "back to bull mode" may definitely be a little premature here as it goes against historic patterns.

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  93. Gold futures system will be back to a buy at 1523,and I will be closing my gold shorts at that point. The buy stop will be moving down in coming days if not hit today.Good luck to all.

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  94. I will say that if this is the bottom this is probably the mildest intermediate correction I've ever seen. Which would suggest that we have the C-wave blowoff top ahead of us.

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  95. miners/gld/slv gonna rip like equities did last week ... they'll rotate out of last weeks rippers into last weeks/months laggards, aka gld/slv/miners

    whaddya think Gary?

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  96. Oil is acting like it also put in a very early intermediate bottom.

    It certainly doesn't look like the commodity complex, or stocks for that matter, believe that QE2 is ending.

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  97. Gary what about the Fed's intent to reinvest the proceeds from the sale of maturing bonds? This will presumably keep some of the liquidity in the market. Can that not keep us afloat?

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  98. Yes, surprisingly mild. I'm hoping for more weakness so we can all get loaded up at much better prices.Last July my system went long on the 23rd before collapsing to new lows and I remember very clearly G man calling the low almost to the hour. Made me a believer:)

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  99. Gary,

    any chance of you making an intraday change to the model portfolio to reenter gld/slv/miners?

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  101. How much could that be, a few billion a month? I doubt it would be enough to stay ahead of deflation.

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  102. Without something that looks like a normal intermediate pullback I will probably wait for a weekly swing before adding to the model portfolio.

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  103. Why is gold going crazy today?

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  104. I would not feel comfortable at all buying gold and silver at these levels to hold into the end of the year. We clearly have not worked off overbought conditions fully yet. Even if this is near the bottom, PMs will need to consolidate for the next couple months for the moving average to catch up if prices are not willing to go down.

    I will adjust as required but I will not be comfortable loading up here in early July with everything still above levels where corrections have historically ended.

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  105. Harry, to suck us all back in before the final drop, of course:)

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  106. Gold's move is not entirely out of the normal. The move into the IT low last July (2010) was similar.

    You had that July 16th gap down after crawling below the 50dma, followed by $25 of strength over July 20th-23rd, before the final 3 day $50 move down in the IT low on July 28th.

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  107. The July correction last year lasted 22 days. This correction has lasted seven.

    I've got to say this is been a very unusual correction. Miners got smashed and looked like they were predicting a major correction. And so far all we've got is seven days.

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  108. The strength in oil is def interesting. I cant see this thing having bottomed so fast (and so high), since it would kill the SnP in my opinion if it goes back above 100. The Fed cant want that!

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  109. Now we have a huge gap on GLD.

    Like I said very confusing.

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  110. something is not right with dollar and miners are already sensing that..

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  111. Poly,

    I disagree, last year the correction ended like all past corrections and like it should have with gold at the 150dmva and 200dmva for silver. We are still too early at these levels judging by past action.

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  112. "The July correction last year lasted 22 days. This correction has lasted seven."

    My point is that last year it spiked up too at around this point, but it still managed to drop into a IT low. So it's not out of the norm in the sense that this strength does not have to mean IT low is in.

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  113. Dan, that is what I am saying!

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  114. if gold drops below 1462 then IT low will be much cleaner

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  115. Veronica,
    That`s about the one part of this mess that makes any sense!

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  116. Shalom,

    It's been a while. How are things?

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  117. poly
    you are right..last year everyone got caught in the bounce just before final bottom..i still remember that..no need to see chart for me..

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  118. Gary re: Fed purchases,
    I read that the Fed is scheduled to purchase $3 billion on July 6 and July 11 (source is the McClellan Market Report from last week). I do not know where to get more info on these and further purchases but it might be their purchases are more than just a few billion each month.

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  119. Allen, its all on the Fed's own site.

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  120. Even though it almost never gives us a replay, this action is almost identical to January. The move started with a gap down off highs, crawled along the 75 DMA, went below it, popped back above it, then moved into the cycle low. Who knows, I just hate gaps.

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  121. Poly,

    My mistake, hate doing this on the iPhone.

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  122. After rebalancing for the month:

    Long GDXJ 67%, EUO 13%
    Short SLV 7%
    Cash 13%

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  123. Before I found Gary and cycles this is the kind of move that would suck me in, especially with the dollar in its timing band low, because I never factored time into my decisions. It still could be legit, but now there's a gap below also.

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  124. Don't mention it Dan.

    Now that we're all thinking IT low, we start to wish it along. I remember the past 4 IT lows as they formed in real time, they were always difficult. I don't recall a single one not providing any head-fakes and when the final low was in, you knew the low was in. You can not say that here, although there is nothing written that states it must repeat that way.
    Judging by the increase traffic here too, this is likely drawing the crowd in.

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  125. Hi Gary,
    Would a weekly swing low in gold be at $1514 and does it need to CLOSE above this at the end of the week in order for confirmation or does it just need to break $1514?

    With the positive divergence in Silver and the HUI on Friday, will that be enough to make you buy?

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  126. Even if this was the bottom, which I really doubt, the PM will not scream higher here as they are already above their dmva and we are in the middle of summer. At best I would think the PMs would just move right until all the averages catch up to prepare for the move up in the fall/winter. You can't have a sustainable move up without having fully worked off overbought conditions from the previous run-up and without developing a base, something that we have definitely not done yet.

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  127. Why is Silver up so much today? Dead cat bounce?...or is someone about to monetize a lot of debt?

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  128. RE: Fed purchases & QE2
    Thanks Aaron. On this site, http://www.newyorkfed.org/markets/tot_operation_schedule.html ,
    if you scroll down it says that the Fed will be completing its $600 billion purchases (QE2) on July 6 and 11 with $2.5-3.5 billion purchases on each date. After that reinvestment begins, if it has not already done so. So QE2 is not ending until next week.

    Not sure how this affects PMs and the market but it does mean that new liquidity is still being injected into the system by the Fed for another week or so.

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  129. catbird,

    Things are great, thanks for asking. I've been mostly keeping away from the markets while waiting for an entry with size, and enjoying all the free time this job provides. :)

    I still have SVM and EXK, risking only 1% of assets.

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  130. Just an FYI, I have a swing low on the USD on my charting software. Yesterday (July 4th) was the low, and we have already taken out yesterday's high.

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  131. I agree that metals, and silver in particular, might not rally straight from here so have not added into this strength. Still, I would not be short silver under any circumstances. Shorts have big problems now, and should be looking for their best exit to cut losses, IMO.

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  132. Wow..silver and miners exploding higher

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  133. here is one more important point: If gold put in a yearly cycle low in May then it is already in the IT cycle with second daily about to bottom...and it is becoming more probable that dollar this time will follow tim woods 48 month cycle

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  134. debt ceiling? what to do with debt ceiling???

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  135. and in this case i doubt it will go below 1462 then..

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  136. folks

    don't deny the move..accept it at face value

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  137. Shalom,

    When do you think is the best chance to exit a silve short?

    Thanks!

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  138. it's time to sell or building up short positions in the stock market imho.

    perhaps a rise to 1355 on the S&P but any further would be surprising.

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  139. Glad to hear that, Shalom.

    Summer has unfortunately kept me too busy. Fortunately there hasn't been much to do, market-wise.

    Like you I'm waiting. Waiting for Gary to call an intermediate bottom in gold. Not sure that I have the stones to go heavy GDX. I'm thinking DGP and maybe a side portion of GDX...but not a moment before Gary's call.

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  140. BT,

    It's a tough call as my trading would not have me short metals to begin with, but I'd cover into any mid-morning pullback if it occurs.

    If there isn't a pullback today, I would certainly not hold silver short overnight, so I'd exit before the close.

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  141. This comment has been removed by the author.

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  142. People should not expect an exact replay of what happened when QE1 ended in April 2010, because it’s not exactly the same scenario. When QE1 ended, the Fed did not intend on reinvesting the proceeds from maturing securities. Instead, they were going to let these securities runoff and its balance sheet contract over time as an exit strategy. As the market started to tank, however, the Fed announced a program to start reinvesting the proceeds from QE1 in longer-term treasury securities, and this program was dubbed QE 1.5 or QE-Lite. This announcement came several weeks prior to the Fed’s August 2010 Jackson Hole Speech.

    The market then took off in late August 2010 and many people attributed this rise in the market to the Jackson Hole Speech and investors starting to price in QE2 (not slated to begin until November 2010). Some of the ramp in equities, however, should be attributed to the additional liquidity from the newly announced reinvestment program that began several weeks prior. From November 2010 until June 2011, the Fed conducted their formal $600B QE2 as announced. However, the Fed also continued to reinvest proceeds via QE-Lite to the tune of about $300B over that period. So, in effect, the Fed poured an additional $900B into treasuries, consisting of ~$300B in QE-Lite and $600B in QE2.

    Now if you fast forward to today, the formal QE2 program has been completed as of 6/30, but the Fed will now continue to reinvest the proceeds from maturing securities from treasuries accumulated during the QE programs. I don’t have access to the details of the Fed’s holdings, but I’ve seen estimates that put the repurchases for QE-Lite at around $17-$24B per month. Now if you factor in the additional maturities from all newly acquired treasuries and prepaid MBS, this figure is estimated to be as high as $32B per month initially (ZeroHedge Estimate) and declining over time. Obviously, this is much less than the ~$95B per month in liquidity ($75B from QE2 and $20B in reinvestments) that was being provided per month in the first half of the year, but it certainly is not stopping cold turkey similar to what happened after QE1.

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  143. cmon dollar u can do it..move up

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  144. folks

    don't be under assumption that the bounce is given for dollar..it may break the triangle and then put the daily cycle bottom..it still has plenty of time to move down..

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  145. I guess the pivot 1462 is not working out. As i said last week if you like gold just buy it. Your downside is $1400, upside ? DXY still at 74.5, no followthough up. I would have expected more of a pull back in equities this morning after the rally last week. absent event risk looks like risk on, would like to see dxy at 73.5 b4 jumping in

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  146. Take a look at the previous intermediate corrections, we always see a pop that takes gold back above the 10sma (within a few days), its taking a couple days here, then gold continues to move down to its low at the 150dma.

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  147. Gary,

    What are the chances gold's daily cycle bottomed
    on the 27th vs the 13th. Just something I'm looking at?

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  148. Your blowing my mind with the uncertainty Gary .

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  149. As Poly pointed out earlier, today's & yesterday's action is pretty much identical to July last year. Were up just over 20$ in total, like last year, so I dont think people need to start panicking here.

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  150. Greg,
    June 13 was the daily cycle bottom.

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  151. Jeff,
    these are uncertain times.

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  152. let me point this out. Even if this doesn't turn out to be the daily cycle bottom we're very close time wise as this is weak 23. As long as you don't mind holding through a possible minor drawdown, one could still buy today and have lots of upside potential.

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  153. I repeat, I still think miners will rip like equities did last week.

    If so, all minor dips should be bought up.

    It's gonna be a quick 1 - 2 week rip, in my guestimation.

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  154. alright I'm off to climbs some rocks.

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  155. do an overhang for us, Gary.

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  156. Gary,

    Do an overhang with Toby hanging from your ankle in a basket, that would be a nice photo op for Toby.

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  157. " Bruce said...
    I repeat, I still think miners will rip like equities did last week.

    If so, all minor dips should be bought up. "

    which one you like best?

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  158. Gary,

    I seem to remember you saying that gold does not come out od an IT bottom like stocks.

    Stocks tend to make the best gains early in the IT cycle, whereas gold typically starts off more slowly.

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  159. Poly,

    Still holding the SLV puts?

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  160. oa9200,

    fwiw, I'm playing ABX NEM KGC EGO NG SIL GDXJ .. so far .. I'd like to get into GLD/SLV calls

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  161. All,
    Does anybody else have a gut feeling that bad news in the pipe on earnings that will make the market dive?

    I just got a little 5% SH and 5% PSQ, both 1X the indexes to see.

    Bored in PA.
    Tom

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  162. SB,

    I'm surprised your advocating selling silver shorts here as it seems like an emotional trade to me.. Firstly, the action we are seeing is not outside the norm of other past corrective behavior. Secondly, silver is up well over a dollar the past two days and unless were going back to parabola days and hitting $40+ in the next week, I don't see silver keeping up this pace, even if it does rise. Finally, those holding shorts should be sitting on big profits now and should be able to ride these moves until we hit levels where ALL past silver corrections have ended - the 200dmva. /JMHO

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  163. BTW, it does look like the dollar put in it's low.

    Gary has often pointed out that the dollar often turns on jobs report.

    this could set up A four day or so dollar rally and then the dollar rolls over...

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  164. BTW, it does look like the dollar put in it's low.

    Gary has often pointed out that the dollar often turns on jobs report.

    this could set up A four day or so dollar rally and then the dollar rolls over...

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  165. Dan,

    You could be right, but it looks to me like silver could easily have another $2+ on the upside, before even taking a breather. It's not a prediction, but we've got some air above if this move does follow through. At this moment, and if we finish strong, I'd expect more upside tomorrow.

    The big money will be made on the long side with silver, IMO. I also don't think silver shorts are up in the trade, and certainly not up big. For those in put options with time decay to consider, the outlook is even worse.

    We'll see how it shakes out, but no way I'd be short or stay short silver, even if we don't rip higher immediately.

    That said, I have not added to longs today, either, but could at some point this afternoon.

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  166. Also to note...the dollar cycle bottoming...makes the previous cycle a right translated cycle at 19 days, with a high on day 14... provided nothing dramatic happens in the days ahead, this would also indicate that this new cycle should make a new high.
    Interesting to see how this unfolds. Today is a day 1.

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  167. fwiw, i've added slv calls & agq shares on the strength in slw & silver miners

    do not follow me to certain death via silver

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  168. Wav_ridah - the Shiller P/E you posted is completely bogus and not to be relied on. His "E" is the average inflation-adjusted earnings for the last 10 years. Do you think anyone in the market looks at that?

    FYI, Apple earnings according to Shiller = $3.84, actual earnings (2010) $15.15, 2011E $24.78.

    The man is great on real estate, doesn't know crap about the stock market. S&P P/E based on $96 in earnings is 13.9x.

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  169. The spike in Crude, perhaps due to the Barron's cover story is helping the equity markets a lot today. XLF and SMH are down almost 1% but energy is up 1% helping the market stay flat.

    The NQ is on a DeMark Sell Setup 9 and is attracting a lot of spec attention, though it is right for the pullback with strong resistance in the 2377 area.

    white2ronnin:
    The market has to balance before it moves in either direction and it is doing that today. I thought that we might just get another thrust in the morning today but no go so far. Perhaps later in the day.

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  170. Hard to reconcile gold being in a correction wave when its volatility index GVZ is touching multi-year lows and could not get any upside momentum at all recently.

    Often euphoric days around public holidays wrong times to be majorly rephasing expectations framework though IMHO.

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  171. aaron
    how come current dollar cycle is right translated?

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  172. I bought ZSL back in early June. It is just slightly higher than when I bought it.....very frustrating to say the least.

    I plan to sell my ZSL should silver close above the trend line from May 31. The risk/reward is not there.

    http://screencast.com/t/5wqx4UniVko0

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  173. have been watching SLW since $46. it is very tempting now..

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  174. Lindsey Williams said he was told. gold and silver will trade sideways until Sept., then rise 25%during the fall.

    He claims he is told by the elite, what there plans are. So far, he has a great track record, and has been right again, as PMs have moved sidways since he forwarded his last statement.

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  175. Mark,

    Did Williams explain his earlier missed call on $150-225 oil or does he still hold that?

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  176. One of my miners (NGD) is up 16% off it's lows from a few weeks ago (but I'm still out). The appearance to me of the dollar chart is that it has not seen it's lows for the year, so, yeah, I have a growing feeling that the biggest part of the C wave is trekking on without most of us.

    I know that gold has corrected and hit it's 140 sma a few times in a row, but that hardly makes it a rule. In previous two IM corrections, once it dipped below the 70 sma it did not regain it until it had touched the 140 sma -- this time it has regained it with enthusiasm and what appears to me to be a weak dollar. Maybe the dollar will not really strengthen so much since QE isn't actually over yet for another week or so.

    http://stockcharts.com/h-sc/ui?s=$GOLD&p=D&st=2010-06-01&en=%28today%29&id=p04476903477

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  177. Silver continues to range trade and I'm still long SLW, ANV and EXK. We saw the bottom in the mining sector last month, which to me is a month early but I'm not one to bicker. There's really not much more downside here. This month we will consolidate before going higher. I'm patient and will buy on further weakness.

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  178. Don, I have a high on day 14, in a 19 day cycle.

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  179. http://www.businessinsider.com/an-alternative-to-default-the-treasury-can-sell-gold-2011-7

    So if the US Tres starts selling huge amounts of gold to the Feds what will that do for the spot price??

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  180. This comment has been removed by the author.

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  181. @Felix "Still holding the SLV puts?"

    Got rid of a good bunch of them this morning. Got rid of all USO puts then too.

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  182. I am starting to lose faith in cycle analysis. At this point, we've reached the same conclusion as intermarket chart pattern trading. It's actually whipsawed us worse.

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  183. I follow Gary for his predicitioms, how he makes those predictions doesn't interest me but it's obvious how successful these "cycles" have been recently. In terms of making money, I dont think we've money by following "cycles" but by simply buying in the summer and selling in the winter. Nothing more. It's been the same pattern for the past decade.

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  184. Dan, you said that all silver corrections have ended at the 200DMA, but what about the one that ended at the beginning of February before the run to 50? I vividly recall how many people were saying it's going back to the 200DMA then which was in the 20s.

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  185. Stock Trader's almanac predicted a rally around this time before the year started. Meanwhile, we were all expecting stocks to take a swan dive off a balcony.

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  186. Felix,

    In '08, when oil was $50, he predicted $150, and was right in a matter of months. He then called for a complete reversal, and was right again.

    This year, he predicted gas would run to $6/gallon over the summer, which has 3 months left, but said due to strong opposition, the "Cartel", was reducing that to $5/gallon over the summer. We'll see if he's right. You're wrong in your analysis of his prediction.

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  187. Who has more money today, than they had on April 30? Not Gary, since he held AGQ for 4 days in May, and could never have made that back yet.

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  188. right dan
    even if just follow seasonality, can make money..i would appreciate if gary can provide audited results for his cycles trades

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  189. As of right now gold has still not strayed from its previous intermediate patterns, the 60sma being resistance before the plunge.

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  190. Mark - I was following Williams in his '08 oil predictions and I was very impressed and listened very closely to all he said up though this spring. I had much respect for his connection to oil elites.

    From last fall through early spring this year he said oil was headed for $150-225/bbl and stocks "near previous highs", and then stocks would collapse. Clearly oil didn't get there and I just hadn't heard his explanation. I think you've given it, thank you!

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