Well how was that for the start of a new
intermediate cycle? While many analysts were calling for continued losses or
even a market crash I repeatedly warned traders that an intermediate degree
bottom was coming and that markets routinely rally violently out of those
bottoms, often generating 5-8% gains in the first 12 to 15 days. This particular
intermediate bottom has already gained 5% in just the first five days.
As I've been saying all along, I think the market will easily make new highs
in the next two or three months, possibly even significant new highs, or a
test of the 2007 top as QE3 starts to work its magic.
That being said, stocks and gold are now due for a short-term breather. Why
is that you ask, if all markets have just formed major intermediate cycle
lows? The reason has to do with the daily dollar cycle. Friday marked the 24th
day in the current daily cycle. That cycle generally runs about 18-28 days
trough to trough. At 24 days the cycle is well into the timing band for a
bottom and bounce.
That bounce should force stocks into a short-term
correction, or sideways consolidation, and gold into its next daily cycle
However, don't be fooled by any short-term
corrective move as stocks and gold have all clearly formed major intermediate
bottoms. There are always corrective moves along the way, nothing goes
straight up, but intermediate cycles don't usually form a final top until
sometime around week 12-15. As last week was only week 1 of a new
intermediate cycle, we probably don't need to look for a final top until
sometime in February, or early March.
Coincidentally, that is when the dollar is due to form its yearly cycle low.
A yearly cycle bottom is the most severe cyclical decline other than a three
year cycle low (the next one of those isn't due until mid-2014). I think we
can safely assume that QE3 is going to complete the head and shoulders
topping pattern for this particular three year cycle, and just as I said
months ago the dollar topped
back in the summer when the CRB index formed its final three year cycle low.
The dollar should now head generally lower over the
next year and a half with brief bear market rallies similar to what we just
experienced. This will drive an inflationary phase that should drive all
asset prices higher into mid-2013, and commodities into a super spike in
mid-2014 (this is when I expect gold to reach its next C-wave top at roughly
By mid-2013 inflation will start to take its toll on the economy, and stocks
will stagnate and begin an extended topping process as inflation continues to
surge, similar to what happened in 2007/08.
I think we will experience the same phenomenon this
time as QE3 eventually generates the same unexpected consequences and spikes
Traders need to be prepared next week for some kind
of corrective move. Understand this is not the beginning of another leg down,
but a second chance to get positioned for what should be a very profitable
intermediate degree rally over the next 2-3 months.