It is nearing two years since I first published an article describing a theory
titled "Contracting Fibonacci Spiral". For further information, simply Google "Contracting
Fibonacci Spiral" and a plethora of articles should be listed to provide a
more thorough description. Further to this, I published an article in the April
2013 issue of Technical Analysis of Stocks and Commodities (Submitted in October
2012) to attempt to bring more mainstream exposure to this concept.
In a nutshell, the theory indicated important tops of 1966, 1987, 2000, 2008,
with the next sequential date due in 2013. The ideal date was December 27th,
2012, but a 5% extension in time generated a date of May 21st, 2013. The broad
stock market indices topped on May 22nd, 2013, which is either a fluke or is
following the CFS, but with an extended time post for this move. The next CFS
date is 3 years away and has already been determined and posted on our site.
Historically, whenever a CFS time post has been reached, a subsequent sharp
correction in the market occurs. It is important to understand that this cycle
provides no indication for how long a correction can last. The 1966 top saw
a correction last for over 15 years, while the 1987 top saw a very sharp, yet
short correction. I would highly recommend everyone try to get a copy of the
article in the April issue of Stocks and Commodities Magazine, because it provides
a complete picture of this theory.
Lowry's has the stock market in a correction phase at present, with expected
strength in the stock market for the remainder of 2013. One thing I can comment
about the CFS is that if for some reason their was a "skip" in the rhythm of
this cycle, then the 2016 top would represent a very important top that would
subsequently find a very sharp correction. In today's report, I have included
5 different charts that help to paint a picture about what appears to be developing.
To quickly summarize for those who do not wish to delve into the technical
analysis, here is what I see:
-
The price of oil appears set to rise to at least $111/barrel due to a
few different technical factors. Rising energy costs will result in a decrease
in disposable income for the consumer that would result in a gradual slow
down in the economy.
-
The monthly chart of gold remains bearish with examination of stochastics,
which suggests the bigger picture is a deflationary back drop, which would
impact everything ex the US Dollar.
-
The short-term Elliott Wave count of the S&P 500 Index has one more
leg up to at least retest the May 22nd 2013 high no later than Thursday
this coming week and should top out by mid July. A rounding top is expected
to continue to develop over the summer.
-
The monthly chart of the US Dollar Index is showing a building trend for
a move to the upside. The sharp move down this past month was not expected
and altered the wave structure to indicate a more gradual rise rather than
a sharp move that charts were indicating.
-
The XOI Elliott Wave count has followed patterns to the highest degree
for everything that I track and it is pointing to a top in October 2013.
While the energy sector rises, it is expected that weakness in other sectors
will see a rotation into energy, which will merely extend the rolling top.
The following charts will illustrate the points mentioned above and what to
expect over the coming months.
The daily chart of oil is shown below, with a convincing breakout of an upper
triangular trend line that has been developing since February 2013. This created
an inverse head and shoulders pattern that has a measured move to $111/barrel,
which makes any oil related ETF a buy. Full stochastics 1, 2 and 3 are shown
below in order of descent, with the %K above the %D in 1 and 3 and beneath
the %D in 2. With the %K in stochastics 2 and 3 appearing to be hooking up,
expect another 3-4 weeks of further sideways to upward price action before
any sort of a top is put in place. Rising oil prices will translate into higher
prices for any processed item or goods requiring transportation (food, clothing,
manufactured goods etc.), which could put the breaks on the economy. The UFC
is in Winnipeg Manitoba tonight (where I live) so this is probably the most
anyone in the US would know about this city. Gasoline prices are $1.35/L (L
= Litre) and there is talk that it could reach up to $1.50/L. There are 3.78
US gallons per L, so doing the math, it is easy to see that we are paying over
$5/US gallon up here in the Great White North, with oil prices at $96ish/barrel.
If oil goes to $110/barrel, then $1.50-1.60/L is in the cards. Energy prices
are one of the key items that will keep an economy running or put on the brakes,
so it will be very important that oil prices do not overextend. Otherwise,
another recession would likely be triggered.
Figure 1
The monthly chart of gold is shown below, with a price excursion beyond the
lower 21 MA Bollinger band for the third consecutive month. Full stochastics
1, 2 and 3 are shown below in order of descent, with the %K beneath the %D
in all three instances. When gold took out the 2 year horizontal support back
in April, it changed the dynamics of this market, with lower prices likely
in the not too distant future. The %K in stochastic 1 is still headed lower
and has provided no indication that a bottom has been put in place. Although
an oversold condition is developing, it could still take anywhere up to 6-8
months before an extremely oversold condition finally results in a move to
the upside. If the price of gold were to head lower, it could result in people
being forced to liquidate, which in turn could drive prices lower. The general
back drop of the economy suggests deflation as people must now start paying
down debt. If I were to summarize what lies ahead, a drop to $1000-1100/ounce
is highly probable, followed by an 8-12 month rise by $400-600/ounce and then
one leg to at least retest the lows, maybe worse. The currency crisis that
lies ahead will be resolved by gold bullion, and based upon the CFS, it appears
that some time between mid to late 2015 into 2020 is likely to be the period
of time when extreme prices in gold that have been discussed over the past
decade occur.
Figure 2
The mid-term Elliott Wave count of the S&P 500 Index is shown below, with
the thought pattern forming denoted in green. Based upon this count, a bottom
is due on Monday or Tuesday, followed by a rise into mid July to either at
or below the May 22nd high. If this pattern is correct, then a market top should
be confirmed and should be followed by a series of higher lows as the broad
stock market indices begin to roll over. We were bullish from 2009 until May
2013, so the Contracting Fibonacci Spiral theory should at least be respected
for what potentially could occur. Again, if it were by chance to skip this
time post, then the aftermath of a 2016 top would be very intense to the downside.
With the CFS, it indicates market tops and with the next one due in 2016, there
in theory should be in theory a decline ranging anywhere from 30-50% between
now and then, followed by another strong move to the upside. This is why caution
should be exercised at this point in time....the downside may not occur, but
then again it might. Remain alert with respect to the broad stock market indices
at this point in time.
Figure 3
The monthly chart of the US Dollar Index is shown below, with with Bollinger
bands not providing any real clear indication of trend. Full stochastics 1,
2 and 3 are shown below in order of descent, with the %K above the %D in all
three instances. Extrapolation of the %K in stochastics 1 and 2 have sideways
price action that conforms to the market price action of the past year. With
rising oil prices, it fits with the inverse correlation that it has to the
US Dollar. There are other factors, such as supply and demand, political stability,
conflicts around areas that produce the majority of the globe's oil supply
etc., so rising prices for oil have many different dials that help to gauge
how high prices rise...the US Dollar is just one of them. The expected trend
of the US Dollar after its correction is complete is to head higher...more
analysis on this with next week's analysis.
Figure 4
The long-term Elliott Wave count of the XOI is shown below, with the thought
pattern forming denoted in green. The pattern broke out of a triangle, with
wave (C) thought to be forming at present. If this pattern is accurate, then
a top is not expected until sometime around October 2013. This scenario fits
well with rising oil prices, which in turn raises profits of energy companies.
So, out of everything that I can see, oil and related stocks appear to have
the best short-term potential profits.
Figure 5
That is all for today...back tomorrow with an update of oil, natural gas and
the XOI. Have a great day.