THIRD LEG IS NOW UNDERWAY

It’s been my contention all along that this cyclical bull would consist of at least three major legs. Now that the S&P has also broken to new highs I think we can safely say the third leg is underway.

That being said the market is due for a move down into a daily cycle low anytime. Sentiment has become extremely bullishly skewed, breadth is deterioating and we are seeing signs that institutional traders are taking chips off the table.

So I’m expecting another brief breather, probably starting next week as I think the market will probably hang in till after options expiration.

The key to the next phase of this cyclical bull is as always the dollar. I’ve been saying for a while now that we are getting late in the dollar’s intermediate cycle. As you can see from the chart despite the powerful rally the dollar still hasn’t been able to move above the last intermediate cycle high and it now appears to be failing at the downward sloping 20 week moving average.

If the dollar is about to begin the trip down into the intermediate cycle low (and I think it probably is) it’s going to act as a big tailwind for virtually every asset class. Actually I expect it’s going to be more like a hurricane driving everything willy nilly before it.
Once we get through the impending correction I expect most if not all assets to enter runaway moves for the next 2 or 3 months. Unfortunately that includes the energy markets. And that my friends is going to ultimately be the fly in the ointment for Bernanke’s plan to print our way out of this mess.

85 thoughts on “THIRD LEG IS NOW UNDERWAY”

  1. Todd R

    Ugh! I thought this was the time to be an observer? Should I get back into my miners trade or wait until we hit 1061 and then buy on the pullback?

  2. Anonymous

    Gary – if there’s a close lower than 79.56 then I agree that it’ll be odds on that we’ll see a very significant drop. Fast Stoch is already giving confirmation but I’m holding fire till that trigger is pulled.

    As an aside an in reference to the 4 year cycle – assuming that the cycle aligned with Obamas entry to the White House – its looking very left shifted. Any comments??

  3. Anonymous

    Gary, using your analogy, shouldn’t we wait to enter in shorts in dollar and longs in gold until the correction in stocks has run..it seems like we are very far stretched into this crazy rally in equities.

  4. Gary

    Yes I would wait till the stock market corrects before jumping into anything just yet. Remember gold did this to us in January also.

  5. Anonymous

    This is a selling opportunity in gold and a buying opportunity in the dawler…and short equities…

  6. Blake

    There was another anon yesterday that was shorting gold on this move…he shorted at 1115, then 1127…I wonder if he will short more at 1135?

  7. Gary

    If the 200 DMA was declining you would be right but it’s not. So there are no selling oportunities in bull markets. One can go to cash if they feel a correction is coming but shorting bull markets is a flawed strategy and one that will end up costing one money.

  9. Anonymous

    Gary,
    What happened to false break out from the coiling pattern you previously mentioned? What you said would suggest false break down then rallying on the USD.

  10. Gary

    Like I said in one of my reports last week about 30% of the time the initial move is the CORRECT move.

    Since the dollar is in a secular bear market I think this is going to be one of those times.

  11. Anonymous

    Seems like there is still a lot of dollar bullishness out there. A correction is just that until it isn’t… Did we just form a weekly swing high?

  12. Gary

    Of course there is. It’s why the dollar is probably heading into the intermediate cycle low. Bullishness recently was higher than it was at the March 09 top.

    That’s the recipe to run out of buyers.

  13. Anonymous

    Gary,
    do you have an expectation of how long and how far this correction into the daily cycle low will go? Couple of days to a week? No more than 4%?

  15. Anonymous

    Don’t get to complacent here…Gold will go lower…dawler higher and of course equities lower…

  17. Gary

    Trying to be “right” will just end up costing you a lot of money in the long run.

    It’s best to wait till the 200 DMA turns down before shorting stocks or gold. Plus the fact that gold is in a long term bull market is working against you.

    Now if gold was stretched 30% above the 200 DMA and miners 60% then you would have an edge.

    As it is, right now you are just gambling, and heck you can get much faster action at your local casino if that’s what you want to do.

  18. Blake

    Anon, you sold at 1115 and 1127! that doesn’t sound like it is looking very good. You could get out now for a small loss though

  20. Gary

    The dollar completed the weekly swing high. Another one of the confirmations can now be checked off.

    The only one left is for gold to re-phase the last intermediate cycle low.

  21. Gary

    If the Dow closes here it will wipe off the nonconformation that’s been in place for the last few days.

    That’s a big positive. Although we still need to drop inot the daily cycle low, probably starting next week.

  23. Blake

    I am putting on a full position long gold and silver here. I will reconsider if the dollar closes back above 80 today.

  25. Anonymous

    Silver and silver miners seem stronger than gold and gdx, I wouldn’t be surprised if it didn’t correct much and may continue to go up.

  27. Gary

    If it wasn’t for the stock market being so darn overbought and sentiment pushing extreme bullishness I would jump on the bandwagon. But the market is setting up for a sharp pullback soon. I just doubt that miners will be able to resist the pull of that.

    They never have in the past.

    I would say the odds are high the gaps in GLD, SLV and GDX will get filled when the markt corrects.

  29. Anonymous

    Wow, this thing is running nicely now! Just wait until the weak hands like Gary who panicked out of the trade jump back in for fear of missing it. 😉

  30. Gary

    Just waiting for the final confirmation and the stock market to correct before Jumping back in.

    If this is going to develop into a runaway move we will have several months of upside ahead. Plenty of time to wait for the last confirmation before piling in.

  31. Anonymous

    Bada bing…bada boom…south we go…
    Hope all you Nobama lovers like the 53% tax increase coming on cap gains…

  32. Gary

    I doubt the market will top until after options expiration. After that though we can probably expect a pullback to reset sentiment before the next big push higher.

  34. Anonymous

    Blake
    I call it how i see it…tomorrow i could be long gold…and if i was would you thank me even more…

  36. Anonymous

    < Heading for a double-dip.,, If I am wrong then I will gladly re-post and admit it. Thanks for letting me share my bearishness. >

    Gary, I was wrong! My last few stops are cents away now. The close should set me in total cash.

    Ok, About your premium service,
    I trade in my IRA and do not have a margin account. When I buy or sell it takes 3 days to settle. So, how do I find out more information on how you’re methods could help me? TIA. my email is: [email protected]. Anyone that uses your service feel free to send me your thoughts or recommendations as will.

    Peace

  38. Anonymous

    Anybody have recommendations for what to buy if/when we get a correction or decent pullback?
    TIA

  39. Anonymous

    Wow, just at about break even on the blood bath that was my portfolio after G-man’s all in call in January!

  40. Anonymous

    tomorrow will be lower in gold…i believe we need to test 1075 or lower before going higher…When not if gold is going much higher…I believe gold/dow ratio will sometime in the next couple of years be 1 to 1 or less…

  43. Gary

    Like I always say as long as you don’t place a time requirement on your positions the bull will always correct any timng mistakes.

  44. Anonymous

    Gary
    I do keep stops on long and short positions all the time…not always tight…one needs room because no one (especially me) gets it right…i always leg into a position gradually and most times take off gradually…unless the shit does hit the fan..

  46. Anonymous

    Going down from here, start getting back in once things pull back. Trading here, wouldn’t sell for long-term. May have to pay for a higher re-entry point if I am wrong.

  48. Anonymous

    Yo Gary, what happens to the dawler if the markets pull back as your expecting…just wandering….!

  49. Gary

    I am expecting a 1-2-3 reversal pattern to play out in the dollar as the markt corrects.

    Folks the dollar IS going to move down into an intermediate cycle low at some point. It is getting very deep into the cycle so the weekly swing high that just formed has good odds of signalling the beginning of that process.

    I will note the dollar has now also broken the trendline.

    My expectation is for the dollar to bounce as the market corrects but that bounce will be unable to move to new highs. After that the dollar should resume the secualr bear trend into the next 3 year cycle low due sometime next year.

  50. Anonymous

    Gary- Do you think the stock market correction is going to start this week? Do you anticipate the spx getting to its 50 dma or will 1150 be a deep enough pullback?

  55. Gary

    LOL hardly. Year over year PPI is up 6% and that is the governments adjusted prices in order to suppress COLA’s.

    The real number is probably over 10% and if the CPI and PPI were still figured the way they used to be I’m sure it would be over 15%.

  56. Anonymous

    Gary
    Absolutely agree 100%…you hit the nail on the head with last statement…
    The question really is what do we do about it…so much number manipulation that really nobody knows what the real numbers are…we do know the government issued numbers are NOT true…
    Most Americans saying “everything is good”… for now…

  61. Anonymous

    Gary-

    Any comments on the dollar rally this am? Could this be the bounce out of the intermediate low we have been looking for?

  63. TommyD

    The dollar just climbed. I wonder if I should add to my other currencies now. Everbank IRA that I have allows currency investing. I have presently .02% in each – Canadian, Norwegian, Swiss and Singapore. Maybe grow it a little more. Then when dollar bottoms maybe I move back into the dollar?

  65. Anonymous

    Jayhawk –
    I see the link to that article is down. I also highly recommend this blog http://jessescrossroadscafe.blogspot.com/
    I found the link to the other article on the left hand side of his homepage.

    I believe the writer of Jesses Cafe lives in Europe and he is usually spot on with everything! Even his market timing has proved to be most accurate, although I don’t think he is a “trader”. Whenever I feel doubt or fear, I gut check with his material.

    – KB

  66. Anonymous

    PZG on sale today and I picked up some more. Very speculative so do your own DD.
    Embrace volatility and prosper.

    – KB

  67. Anonymous

    Tommy D

    Remember it is not the dollar average that determines dollar up or down via other currencies. You have to check the strength for each currency against the USD. CAD is up over 20% for the last 52 weeks.

  68. Jayhawk91

    KB-

    Yes, I’ve got Jesse on my blog list. Good stuff there usually and I have not been by lately so I missed the link. He always has some great photoshop work as well.

  69. Anonymous

    TommyD,

    Do you Interactive Brokers for your currency trades? I use them and have considered longer term moves like that.

  71. Anonymous

    Algos kicking in the last 30 min to run em up boyz…33 Liberty says full throttle ahead…shorts have been vaporized…none left…up on no volume…no players left…market may never see a down day again…

  72. Gary

    No the dollar has only just begun the trip down. Right now I’m expecting a 1-2-3 reversal as the stock market corrects.

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  75. Gary

    I am because there is ALWAYS and intermediate cycle…ALWAYS.

    Sometimes it can stretch long and sometimes it’s short, but human nature never changes so we will get a drop into an intermediate cycle low and when it does unfold it’s going to convince everyone that the dollar is toast, whether it is or not.

    That’s just how human nature works.

  77. David

    Gary,

    In your Mar 15 update you talk about the length of cycles. (I will not divulge more here.)

    My question is, why does the low in early October not represent a daily cycle low? It would certainly affect the analysis.

  79. Gary

    I’ve already answered this question multiple times now.

    Toby is the ghost writer for my new partnership and the GS blog was kept separate so we could track marketing efforts.

  81. Anonymous

    Gary…I like your style and your
    very realistic. I’m going to subscribe for 6 months.
    How often do you show your positions held, daily or weekly?
    Joseph

  82. Gary

    I publish my portfolio every weekend. I will tell you right up front that I’m not a short term trader. So if you are looking for someone to give you daily or weekly stock picks I’m not going to be your guy.

    Mostly I buy ETF’s so as to avoid company specific risk.

  84. Anonymous

    this post is the wrong call….

    yes, dollar will begin decreasing eventually, but the short term move (1-2 weeks) is market correction, led by a jump in the dollar….

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