As many of you who have read my work in the past know, I expect the eventual endgame to this whole Keynesian monetary experiment that has been going on ever since World War II, to finally terminate in a global currency crisis. I'm starting to wonder if we aren't seeing the first domino start to topple.
I'm talking about the Japanese Yen of course.
I think everyone just naturally assumes that the Yen is dropping in response to Prime Minister Abe's intent to imitate US policy and print it's way out of its troubles. The problem with this strategy is of course, eventually you will break your currency. Japan is in a particularly tenuous situation in that their debt to GDP dwarfs most of the rest of the world. The only hope they have of servicing this debt is for interest rates to stay basically at zero.
Any move by interest rates above this artificially low level and Japan's debt becomes unserviceable, without resorting to a greater and greater debasement of the currency. Unfortunately that will also result in an acceleration of the collapse of the currency, which would just cause Japanese bonds to be sold even more aggressively. A nasty catch-22 situation.
At this point there is no way out for Japan. The only question is when will the endgame arrive. Japanese bond bears have been asking themselves that question for almost 2 decades.
The recent move in the Yen has started me wondering if that end game hasn't now begun.
In the chart below I have marked the successive yearly cycle lows with blue arrows. As you can see this major cycle bottom tends to arrive between March and May most years. If the 2013 yearly cycle low arrives in the normal timing band, then there may be a big problem developing with the Japanese currency. The reason I say that is because the Japanese Yen is basically already in free fall and we may still have another one-three months to go before a final bottom.
Another warning sign is the fact that this decline cut through not only the 2012 yearly cycle low, but also the 2011 yearly cycle low and never even blinked. In an orderly decline both of these levels should have generated at least a decent bear market rally. In my opinion, it's very worrisome that the Yen didn't even slow down as it moved through these major support levels.
The next major support level is at the 2010 yearly cycle pivot. If the Yen slices through this support level also, then I think we have a major currency crisis on our hands.
Needless to say if the world sees a major currency collapse, which up to this point I think most people would consider to be an absurd idea, it's going to spark a panic for protection. Despite stocks entering the euphoria stage of this bull market, stocks are not going to protect one from a currency crisis. Only hard assets will do that, and the two hard assets that are best at protecting one's wealth are gold and silver.
Wouldn't it be fitting that at a time when gold and silver are about to be most cherished, they are now completely loathed by the market?
The big news for Thursday is that gold
formed a weekly swing. Considering that the QE4 manipulation stretched
the intermediate cycle way beyond its normal timing band, this weekly
swing should confirm that the yearly cycle low is complete.
We did see profit-taking come into the market as soon as
gold tagged its 50 day moving average. I don’t see anything unusual in
that, as gold has delivered a 75 point rally in only nine trading days.
The 50 day moving average is a logical place for short term traders to
lock in some profits.
On another note, this was the third
attempt in two weeks by the shorts to drive gold down. It worked for a
couple of weeks after QE4 and even for two days at the beginning of
January, but I think the complete failure today to hold gold down
against its natural trend is probably the signal that the market has
broken the short-term manipulation. I think any further attempt at
short-term manipulation and the shorts are just asking to get their head
handed to them. Shenanigans are not out of the ordinary on
options expiration. So we could very well see another attempt to drive
gold down on Friday. If this one fails also, and it probably will if the
dollar is falling, then I don’t think it will be long before the gold
chart starts to look like the platinum chart.
Next I want to discuss the mining stocks. It seems everyone has an excuse for why the miners have underperformed lately. Needless to say I don't really buy any of that nonsense. However I am as confused as everyone else to come up with a reasonable explanation for why miners continue to sell for these ridiculously cheap valuations.
Whenever
I am confused, usually the first thing I do is pull
up a very long-term chart so I can get a feel for what is really going
on, and eliminate the distraction of the day to day wiggles. I think we
are all wondering when the miners are going to join the party as it
certainly appears that gold and silver both have formed major yearly
cycle bottoms.
What I saw was quite a surprise. The
character of the mining sector has changed completely. For the first
time in this bull market miners are forming a rounded base instead of
the typical V-shaped bottom. A rounded bottom is a much more powerful
basing structure than a V-shaped recovery.
If you believe like I do that gold is
going to $3500 - $4000 over the next two years, then I would
have to say there is no way it is going that high without taking the
miners with it. As a matter of fact, I don’t think there’s any way gold
goes to even $1900 without taking the miners with it.
The
complete loathing & disgust that we are seeing for the mining sector, coupled
with the character change in the bottoming process is the setup in my
opinion, for a huge move in this asset class over the next two years.
I can’t tell you exactly when the move
will begin, but like I said, I don’t believe for a second that gold is
going to $4000 without taking the miners along for the ride.
For what it’s worth, I saw the exact
same sentiment in silver back in August of 2007. When silver broke
through its last support level everyone threw in the towel. As you can
see from the chart that was the exact moment one should have been
buying, or if you already had positions, it was a huge mistake to get
knocked off the bull.
This is just another example of
technicals not working in the volatile precious metals sector. I’m
pretty sure every technical trader in the world sold when silver broke
through that $12 support level. It caused them to miss an almost 100%
rally over the next six months.
If
you believe in the bull market, and I think most everybody here does,
as I tend to focus on gold, and I suspect that is the reason most people
bought a subscription in the first place, then all one needs is the
patience to let the bull run its course. If you get sidetracked like the silver traders in the summer of 2007, you aren’t
going to do yourself any favors.
If you are here to ride the bull
market, then ride it and don’t worry about whether or not you made money
today or yesterday. The only thing that makes any difference is how
much money you make by the time the next C-wave tops, and that has
nothing to do with what happened this week, last week, or last month. It
has to do with what is going to happen over the next two years. If I’m
right about where gold is going then it is definitely going to be worth
the hassle of letting the miners complete this rounded base, because the
upside once it’s finished is huge.
If you don’t believe in the bull market
then you probably have the wrong newsletter. My goal isn’t to make a
couple of percent trying to jump in and out of momentum stocks. My goal
is to double or triple your portfolio by 2014. However, I can’t do that
unless you have the patience to hold on through all of the bulls tricks
and curve balls. I can keep subscribers focused on the big picture, but patience
is something everyone has to learn on their own.
I can say that the traders that had it during the last C-wave were well rewarded.
I realize that this extended (and
somewhat manipulated) move into a yearly cycle low has frustrated most
investors to the point where they have no more patience left, and have
lost sight of the big picture. So I am going to go over it again,
because I think it is a huge mistake to lose sight of the reason why we
are investing in this sector to begin with.
To start, I’m going to assume that gold
will drop down into another eight year cycle low pretty much on
schedule sometime in late 2015 to mid 2016. As long as that assumption
is correct then I think we also have to assume that there is another
C-wave advance between now and then.
The reason I say this is because all
markets are governed by the forces of action and reaction. Hence in order for
gold to drop down into a correction severe enough to be considered an
eight year cycle low, it first has to generate a rally big enough to
trigger a profit-taking event of that magnitude.
So let’s begin by looking at the last three C-wave advances and the corrective action that followed each one...
That is a small sample of the latest Weekend report.
In all fairness I have been warning traders that this was coming. This is a chart I posted to the blog on November 24 2011.
Frustrated gold bugs may want to read the entire weekend report before you throw in the towel on the sector. The 16 month correction is completely normal and should soon generate another huge leg up in this massive bull market.
I will reopen the $1.00 two day trial subscription for anyone interested in reading the report. If you decide you want to continue accessing the nightly reports do nothing and the trial will automatically convert to a monthly subscription after the second day. If you are only interested in reading the weekend report just cancel the subscription by following the directions in red print on the home page before the second day expires.
OFFER HAS EXPIRED
The stock market has known all along that the fiscal cliff issue was going to be pushed out to the last minute. This is just how Washington works. Nothing is ever settled until everybody gets all of the pork needed to buy their vote.
The correction today is nothing more than a short-term breather before the market makes a final push to test the all-time highs, probably by the first week in January. I'm guessing we will get some kind of stopgap measure, or extension of the deadline next week that will trigger another explosive move up to test those September highs. At that point the market will find some excuse to drift down into a daily cycle low around the middle of January.
Once a deal is struck the daily cycle correction will end and the market should explode to new highs, maybe big new highs by the state of the Union address on January 29.
The gold market however has been rather confusing of late. The selloff on the QE4 announcement, especially the huge sell orders that hit the market late Wednesday night, made no sense at all.
Now with the benefit of hindsight it's apparent that the yearly cycle low that I was expecting sometime in April or May has been moved up to correspond with last year's D-Wave bottom.
There is a possibility that that yearly cycle low bottomed yesterday. However it appears that we have a daily cycle low 10 days ago. If that's the case then after a short-term bounce gold may make one more move to marginal new lows as the stock market finishes its test of the highs in early January. The normal duration for a gold daily cycle is about 18-25 days. Unless this turns out to be an extremely stretched daily cycle then gold probably has one more curveball to throw us before a final yearly cycle bottom.
On the plus side the rally out of a yearly cycle low tends to be the most powerful rally of the year. In this case if we were to get one more marginal new low to say around $1630 in the next couple of weeks that should be the end of the selling and I think gold will easily test the $1900 level during its next intermediate cycle.
Those of you still holding positions in the precious metals market I would strongly advise you to not lose your position in the next couple of weeks if gold does make another marginal new low.
If you are back in cash I think I would advise waiting to see how gold reacts as the stock market launches out of this short-term correction. Like I said that may be the trigger for gold to move down into the normal timing band for a daily cycle low and possibly a marginal break below yesterday's intraday bottom. If it does, that should mark a final yearly cycle bottom and trigger a big rally back up to test the September 2011 all-time highs.
Last summer I told traders to watch the oil cycle as the CRB was working its way down into a final three year cycle low. At the time I was confident that the entire commodity complex was just waiting for the oil cycle to bottom. Once it did, the rest of the commodity complex launched out of that bottom like a rocket.
Remember at the time virtually every analyst was predicting the end of the commodity bull market. I knew that was baloney. All that was happening was a completely normal decline into a major three year cycle low.
I also correctly predicted that the bottom in the CRB would mark the three year cycle top in the dollar.
As expected the dollar made a halfhearted attempt to regain the 200 day moving average before rolling over in anticipation of QE4. At this point all we are waiting for is a move below the last daily cycle low at 79.56 to confirm the intermediate cycle has topped, and done so in a left translated manner (left translated cycles are an indication of a cycle that is in decline and making lower lows and lower highs).
Once 79.56 is breached the dollar will be on its way down into its yearly cycle low sometime in mid to late February. My best guess is an intermediate bottom somewhere around 76-77 before another mild bounce like we witnessed out of the August low and then a continued collapse of the worlds reserve currency.
Since September when the dollar began it's pathetic countertrend rally, the CRB has been moving down into its first corrective phase. At this point I think the entire commodity complex is just waiting for the leader to turn. And by leader I mean natural gas. As you can see in the chart below Nat gas led the entire commodity complex out of that major three year cycle low.
I think Nat gas began a new cyclical bull market in April. This was the point at which currency debasement overwhelmed the supply/demand fundamentals of a saturated Nat gas market. I don't believe for a minute that this bull market is being driven by supply and demand fundamentals. I think this market is being driven by the same thing that the entire commodity complex is responding to, and has been responding to since last summer, and that is massive global currency devaluation.
As you can see in the chart above the natural gas cycle is now deep in the timing band for a turn. I suspect when Nat gas forms a swing we will see oil, gold, silver, and the entire commodity complex begin another leg up in what I expect to be a severe inflationary spiral culminating in at least a mini currency crisis in mid-2014.
As predicted the stock market rallied violently out of its intermediate bottom logging a 7% gain on the initial thrust. We can now expect stocks to take a breather as a minor profit-taking event unfolds and the stock market moves down into its half cycle low.
My best guess is we will see a bottom somewhere between 1400-1410 followed by a move up to test the all-time highs, probably by the end of the year (especially if we get a resolution to the fiscal Cliff in the next week or two). But if Congress manages to drag this into the new year, then I think we can expect fiscal cliff resolution and at least a marginal break of the September highs before the state of the union address on January 29.
So for commodity traders I think we are just waiting on the natural gas market to bottom before the next leg up begins.
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