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It’s almost impossible to find anyone who is long term bearish on the stock market or economy at this time. In the recent Barrons poll every single analyst expected a rise in stock prices next year and continued economic expansion.
I think they are all going to be wrong, horribly wrong. I believe next year the stock market will begin the third leg down in the secular bear market. And the global economy will tip over into the next recession that will be much worse than the last one.
I’ve gone over the 3 year cycle in the dollar index many times. The dip down into the next 3 year cycle low this spring should drive the final leg up in golds massive C-wave. What I haven’t talked much about is what happens after the the dollar bottoms.
I actually expect this three year cycle in the dollar to play out almost exactly like it did during the last three year cycle. When the dollar collapses this spring it will not only drive the price of gold to a final C-wave top, it will drive virtually all commodity prices through the roof, the most important being energy and to some extent food.
It was the sudden massive spike in energy that drove the global economy over the edge into recession in late `07 and early `08. The implosion of the credit markets just exacerbated the problem. You can see on the following chart just as soon as Bernanke drove the dollar below long term historical support (80) oil took off on its parabolic move to $147.
What followed was a collapse in economic activity and the beginning of the second leg down in the long term secular bear market for stocks.
This was mirrored by the dollar rallying out of the 3 year cycle low. That rally was driven by the severe, but brief, deflationary pressures released as the global economy and then credit markets collapsed.
We will see the same thing happen again. In his attempt to print prosperity and reflate asset prices Ben is going to spike inflation horribly as the dollar collapses down into the three year cycle low next spring. Just like in `08 that will tip the global economy back into recession and another deflationary period as the dollar rallies out of the three year cycle low.
The stock market will begin the trip down into the next leg of the secular bear market that it’s been in since 2000. The global economy will roll over into the next recession. Which I expect to be much worse than the one we just suffered through mainly because it will begin with unemployment already at very high levels.
Contrary to what economists and analyst are telling you, at the dollars three year cycle low next year it will be time to put our bear hats back on, prepare for hard times, and the next leg down in the stock market bear.
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I’ve noted before that at intermediate turning points we will usually see breadth diverge from price.
The McClellan oscillator is now showing a large negative divergence and has moved back below 0 despite the market making new highs.
The last time this happened the market was entering the final topping process of the last bull market.
I think that is probably the case here also as I believe we are already in a very large topping pattern.
If the market can end the day with a gain we will get a 4 day rule possible trend change signal.
The four day rule says; After a long intermediate rally look for the first down day to signal an intermediate trend change after the market rallies 4 or more days in a row.
The four day rule is a sign of extreme sentiment. I would caution that it only works after a long intermediate rally lasting multiple months. We have those conditions right now. We have also reached extreme bullish sentiment levels. The kind of levels where we are in jeopardy of running out of buyers.
Add to that the fact that the intermediate cycle is now going on it’s 23rd week and we got a large selling on strength day a couple of weeks ago (a sign institutional smart money is exiting in front of a large correction.) and we can probably expect any further gains to be given back and then some when the market moves down into the intermediate degree correction.
Now is not the time to press the long side in either stocks or gold.
That doesn’t mean one should short. Shorting bull markets is a tough trade. You have to time the exit perfectly and survive the violent fakeout rallies to make money. Not to mention you will invariably miss time the entry several times. All in all you will probably be better off just going on vacation for the next 5-6 weeks.
If gold closes positive today it will be moving higher at a 76% clip.
Today will mark the 14th day of the current daily cycle. We will soon enter the timing band for the next cycle low. The dollar is now deep into the timing band for a cycle low and could bottom sometime this week.
Sentiment is starting to get frothy. Traders are starting to find reasons for why gold and silver will just continue higher indefinitely. (JPM short squeeze)
All signs that an intermediate top is approaching. Trust me we will get a profit taking event. They come like clockwork about every 20-25 weeks.
I went over in the weekend report what to look for to spot a potential top.
Stay on your toes here folks!