The past week has been witness
to a very sharp decline in energy and commodity stocks, while broad stock
markets and related commodities really have not moved. Huge noted gaps were
put in place in the HUI which saw an extreme price excursion beyond lower 21
and 34 MA Bollinger bands, indicating that a bottom was likely put in place.
Combinations of hedge funds
dumping due to computer program stops being triggered, mom and pop investors
exercising their tax-loss selling as well as overall fear and uncertainty
were the likely causes for the sharp sell-off. One of the large problems in
the global economy is the US fiscal cliff...if the US government did nothing,
then Prechter would be correct with a 1000 DOW. If this were to happen there
would be too much suffering around the globe, so this event, following mass
human psychology this situation will likely be cleared up before Christmas.
The depth of the correction in all broad markets as well as the HUI has
created a situation where there is no where to really go but up over the
coming weeks. Building permits are up in many areas of the US as well as
Canada, along with the automobile sector starting to show increased
sales...these sort of things do not really happen when market crashes occur.
Everything occurring at
present is due to positioning of the US Dollar Index within its Contracting
Fibonacci Spiral. Cycles (CFS) such as this are smarter than everyone, so it
pays heed to observe, respect and thoroughly understand the theory behind the
CFS and what it suggests. There are big cuts coming to pension funds,
government entitlements across the board, unions etc. etc...if people do not
concede, business will be settled in the markets. The latest example of this
is Hostess...they are on the verge of bankruptcy and told the union was
required to accept deep pay cuts or they were going to fold...the union did
not budge and now some 18,500 people are laid off. I was witness to this when
a paper mill back in the hometown of my youth threatened to shut down unless
workers took a 20% pay cut. They refused and now, only the footprint of the
original mill remains...from 1906 until 2003 it survived, but greed forced
the closure.
Everything has a cycle and
now, unions are on the way out. In order to be competitive with other
countries around the globe, prices must be kept in check. If wages are not
going to really move, along with global demographic issues and government
spending out of control, then unless there is a paradigm shift in
repositioning of global currencies, the entire system is done. When 2020
arrives, the can will have been kicked to the end of the road, so instead it
will likely be kicked from boat to boat afterwards. How everything exactly
unfolds is anyone's guess, but the CFS has provided time posts for expected
market tops that have always been followed by an extremely sharp correction,
so make sure to know when the expected tops occur.
The updated CFS cycle has
broad stock market indices expected anytime between December 27th, 2012 and
May 21st, 2013, so chances are that commodity-related stocks top out 2-3
months after, followed by commodities anywhere from 6-8 weeks after. All of
the mentioned tops involve the US Dollar expected to top out within the next
1-3 weeks, followed by a decline to 70-72 before the end of August 2013. This
will mark the CFS top, with remaining tops due in 2016, 2018, 2019 and 2020.
Each of the dates on this cycle are based upon the precise Fib ratios which
change going below 8...this is specified within the updated CFS article on
the site. Prior CFS time posts were 1966 (34 years), 1987 years (21 years),
2000 (13 years) and 2008 (8 years). Due to the accuracy of this cycle, there
is no reason to expect that it will not drive itself to completion.
The following four charts
identify all observations that a bottom is looming, followed by an expected
rally in the broad stock market indices into early 2013 (January-April 2013).
All charts are based upon Elliott Wave analysis. Normally these updates are
presented with daily, weekly and monthly charts containing complex Bollinger
bands (21, 34 and 55 ) and full stochastics (21, 8, 13; 34, 13,21; and 55, 21
and 34 settings), but due to the main point of this article, understand that
these charts along with the CFS cycle do influence the mid-term and Elliott
Wave counts presented.
The mid-term Elliott Wave
chart of the AMEX Gold BUGS Index (HUI) is shown below, with the thought
pattern forming denoted in green. The corrective pattern at present is
thought to be completing a contracting triangle with reverse alternation (to
end wave [C]). Notice how the huge gaps with a brief penetration to the 61.8%
retracement of the most recent advance. Chances are highly probable that
another 1-2 weeks are required to put in an Orthodox low to wave [e] in order
to complete the entire pattern. Subsequently, wave [D] up is expected to
follow with a move up to 800-850 before August 2013, followed by a decline into
wave [E]. Please note that the corrective pattern from 2008 until present is
part of wave b. The move following the Orthodox low in 2014 will be wave c,
which should not top out until around 2020 with the minimum high is expected
to be at least 3000...much higher from present levels. As promised, I am not
going to be externally posting the US Dollar Index, as it is the pinnacle of
everything occurring at present...everything occurring at present is a
symptom of the US Dollar and where it is within the present cycle.
Figure 1
Larger Image
The short-term Elliott Wave
count of gold is shown below, with the thought pattern forming denoted in
green, with wave [Y] thought to be forming at present...I am expecting to
provide lower Degree labelling schemes within 2-3 weeks. Whenever parabolic
moves terminate a corrective phase and are not fully retraced, it provides a
bullish indication that higher prices are looming. At present, there is a
triple top around $1800/ounce, $120/ounce lower than the September 2011 high.
When gold takes out $1800/ounce, it will create a move that powers well above
the $1900/ounce...this is due to the significant amount of price action and
time required to correct the top. Gold is expected to top out anywhere
between $2500-3074/ounce before the end of August 2013. If $3000/ounce is
hit, then a 61.8% retracement of the move from the end of wave [X] is
expected, or $2200/ounce. This move down should occur between Q3 and Q4 2014,
which will subsequently see gold go to anywhere from $6000-10,000/ounce. In
order to balance all global debts by 2020, I calculated a valuation of
$30,000/ounce would be required. I do not think the price will get to this
level, but one thing I can guarantee....if gold goes above $7000/ounce, gold
should be owned over stocks because most countries will be nationalizing
mines for financial security.
Figure 2
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The mid-term Elliott Wave
count of the S&P 500 Index is shown below, with wave [c].B thought to be
forming at present. Once complete, wave B will be complete, with wave C
expected to have at least 2-3 months of sideways to upward price action. The
pattern presented represents a complex flat pattern, which has a bullish
upward bias. We are expecting a top anywhere between 1600-1650 before the end
of May 2013. QE's should be kicking in soon and much of the fear in the market
will be released into a sharp upward move. A 250 point move is not out of the
realms of probability to hit 1600 before mid 2013. With the CFS time post due
anytime between now and the end of May 2013, coupled with the first two years
of the US Presidential Cycle to perform their dirty work, the latter half of
2013 into late 2014 is expected to be very weak.
Figure 3
Larger Image
As promised, an updated
version of the Elliott Wave count of the AMEX Oil Index (XOI) is shown below,
with the thought pattern forming denoted in green. The wave pattern forming
is extremely complex and the thought pattern that I had forming (labelled
well over 18 months ago...refer to Archives for prior labelling scheme) fell
out of favour. With the present wave count, wave C.(C) completing a terminal
impulse of an expected flat pattern to complete wave g by late 2014. The wave
structure shown below illustrates a two year triangle that will be resolved
by a breakout to the upside or downside. Based upon the CFS and everything
that I examine, technical analysis strongly suggests a breakout to the upside.
One thing that may disappoint the reader is that wave (B) underway at present
is only expected to match the 2008 top...not any higher.
Figure 4
Larger Image
Well, that is all for the
weekend piece. Back tomorrow AM with an update of various Exchange-traded
funds. Have a great day.
