Monthly Archives: August 2010


We have a potential coil forming on the gold chart. As I’ve mentioned before about 70% of the time the initial thrust out of a coil tends to be a false move soon followed by a more powerful and durable move in the opposite direction. If that holds true then it would be preferable for gold to break out of the coil to the downside.

Today will be the 24th day of this daily cycle. The cycle can last up to 30 days and not be out of the ordinary, so it is possible that the daily cycle didn’t bottom on Aug. 24th. I was expecting a push to $1240 before a pullback. We were a bit short of that target on Aug. 18th, but have now tagged it.

If the stock market continues to drop into the Friday jobs number we could see gold drop into another corrective move this week.

Last week silver broke out of a triangle consolidation. It’s not unusual to see a throwback to test the upper trend line.

If gold does have another move down into the latter part of the timing band we can probably expect silver to drop back down to at least the $18.70ish level and test the triangle breakout.

There are also two gaps on the GLD and SLV chart that are begging to be filled before continuing higher.

If the coil breaks down watch gold for a swing low this week as a sign of the bottom.


The better than expected GDP numbers threw a slight monkey wrench in the trading plan (for you traders out there). I was expecting a gap down open that would break through the 1040 pivot. The plan was to buy into that gap with a stop under the morning intraday low. The market did break slightly below 1040 (1039.70) so in theory if one was quick they could have jumped in right there. I doubt anyone was that quick, so I suspect almost no one caught the exact low. Perfect timing isn’t critical though if this is a daily cycle bottom, as we should have at least 2 to 3 weeks of upside ahead of us. I’m assuming the market doesn’t drop back down to test the lows on next Fridays jobs report.

I really doubt it will. I think the jobs report has probably lost its ability to move the market at this point. Until we start to roll over into the next recession we are probably going to continue to see mildly positive jobs numbers for now. When we start seeing 200,000 and 300,000 jobs being lost again then we can look for the monthly jobs report to start affecting the stock market. Until then I think it’s not going to have much effect on stocks. With that in mind I really doubt the market will be coming back down next week in order to bottom on the employment data.

Now before everyone gets all excited let me point out that today was in fact an outside day and as such we don’t officially have a swing low yet. We can’t have a daily cycle bottom until the market forms a swing low. That being said, today was a 90% up volume day. That is a panic buying day and this late in a daily cycle that usually means smart money has recognized a bottom and is rushing to get back in the market.

I realize almost everyone is now convinced the bull is dead and we’ve started back down in the next leg of the secular bear market. Now maybe we have and maybe we haven’t. I’m reserving judgment until I see the last two of my bear market signs come to pass. Namely the 200 day moving average has to turn down and we must get a Dow theory sell signal (BOTH the industrials and transports must close below the July lows). Neither one of those things has happened yet. Until they do we are in no man’s land. As a matter of fact, according to strict Dow Theory the primary trend is assumed to still be in force until a sell signal is given. Since we obviously don’t have that, and aren’t really even very close to it yet, I’m going to abide by the rules and assume the cyclical bull is still alive.
Next I’m going to point out we don’t even have a confirmed down trend yet. So far the market is still making higher highs and higher lows. That is the definition of an uptrend. In order to reverse that the market would have to break below the July low or it will have to bounce out of this daily cycle bottom, stall out, and then move back below Friday’s low (I’m taking some liberties here and assuming Friday did in fact mark the cycle bottom.)

Now let me show you what no one is seeing. And when no one sees it that makes it all the more likely to play out. Of course we do still have the inverse head and shoulders pattern in play. That one actually has been spotted by a few hopeful bulls, but it’s certainly not mainstream yet like the regular head and shoulders top was and still is.
The real pattern, and one I put a lot more faith in than a head and shoulders top or bottom is the 1-2-3 reversal that is in play.

Notice how the initial rally into the August top broke the down trend line. That was #1. Now we are in the process of #2 testing the lows. As long as today’s bottom holds that test is going to be successful. The final piece in the puzzle is a move above the August highs. If that occurs we will have a confirmed trend reversal and the April highs will then be in jeopardy of being surpassed. I know that seems impossible at this point but I would point out that everyone assumed we were back in a bear market in mid `04 also. The market had been making lower highs and lower lows since March. Needless to say everyone was a bit surprised when the Fed cranked up the printing presses into the elections and the market broke out to new highs. I forget, what is happening this year? Oh that’s right, mid-term elections. Hmm…
There is also a yearly and 3 year cycle low coming due in the dollar (more on that in the dollar section of the report). Suffice it to say there will be plenty of liquidity the next several months.

More in the weekend report for subscribers…


In February I warned the bears that the market was just putting in a profit taking correction and that we would see another leg up in the bull. They didn’t listen.

In late June I warned that the daily and intermediate cycle were deep in the timing band for a bottom and overzealous bears risked getting caught in a powerful rally. They didn’t listen again and they got caught in an 11% rally.

In July I warned the gold bears that this correction was just a normal intermediate cycle pullback. One that happens like clockwork every 5 to 6 months. Again they didn’t listen. Gold  proceeded to rally 15 out of the next 17 days.

So here we go again. The stock market is now on day 37 (average length 35 -45 days) of it’s daily cycle. Sentiment is again at bearish extremes.

Again just like in February, June and July all we hear are technical reasons for why the market has to go down. Folks I’m going to warn you again. Cycles and sentiment work, and they are much more powerful movers of markets than technical chart patterns.

Cycles and sentiment are now warning that a bottom is fast approaching. On top of that institutional traders began to accumulate stock today (large buying on weakness data).

As soon as the dollar rolls over, and it will roll over into its yearly cycle low, it is going to put tremendous upwards pressure on virtually all assets (with maybe the exception of bonds).

There are another two signs that a bottom is approaching. First off we have another Bollinger band crash trade in play.

I’ve noted before that these panic selling days often occur either very near or at cycle bottoms.
Also the market dipped down to and bounced off of the 75 week moving average.

As you can see this has acted as strong support and resistance in bull and bear markets. If the cyclical bull is still alive then the market shouldn’t drop more than marginally below this level.

This late in the daily cycle I expect this will be the case.

This will be the fourth time I’ve warned bears to beware of an impending cycle bottom. They ignored the warning three times to their chagrin.

Are they going to make it 4 for 4?

Bears would be wise to cover shorts as soon as a swing low forms. Of course if Bernanke happens to mention the Q word shorts risk getting caught in a huge gap up.

Like I said, dangerous times for the bears.


I’m going to make the weekend report available to everyone one more time this week along with the discounted yearly subscription offer.

I suspect quite a few traders and investors were unable to buy the dip last month as gold put in the intermediate cycle low. These intermediate cycle lows only come around about every 20-25 weeks and are the single best buying opportunities one gets to enter or add to positions in a secular bull market. If you miss it you will have to wait another 5 to 6 months for the next one … or you will have to chase.

Gold is now due for a pullback into a smaller daily cycle low soon (it may have started on Friday). This will be the next best buying opportunity one will get to enter or add to positions in this bull market.

If I didn’t convince you last month to get on board the bull I’m going to try one more time this week.

Here is the link to the premium home page. I’ve unlocked the link to this weekend’s report.

If you would like to take advantage of the discounted yearly subscription offer click here and follow the Paypal link.

Current subscribers can add one year to their subscription at the discounted rate as long as they didn’t already do so last month.


Gold is now due for a corrective move. Its rallied 15 out of the last 17 days and is now moving into the timing band for a cycle low. My best guess was that gold might make it to around $1240 before that corrective move began. Today was pretty close.

If stocks have one more leg down before the final daily cycle bottom then a move down by gold at the same time does make for a tidy little theory.
More in the nightly updates.


A while back (I can’t remember when, and I’m too lazy to find and link to it) I mentioned that the daily cycle in oil runs about 50-70 days.
The energy sector is one thing weighing on the stock market right now. Oil needs to turn the corner and join stocks in a new uptrend. As soon as oil puts in the cycle bottom it should provide a big boost to the general stock market.

Today’s intra-day reversal comes right in the middle of the timing band for a cycle low. If we get a swing low tomorrow there’s a good chance the energy markets may be ready to join the party.
Another requirement for rising stocks, in my opinion, is a falling dollar. Bernanke probably realizes by now he isn’t going to be able to print prosperity (I’ve said all along that simply printing money won’t heal the economy or create jobs). However I don’t expect that to deter him from further debasement of the dollar. He knows that asset inflation is the next best thing, and I have no doubt he will do everything in his power to keep asset markets inflated.

Ultimately this is going to lead to a currency crisis either late this year or early next as the dollar works its way down into the three year cycle low. But I’m confident unintended consequences are the last thing on the Fed’s mind at this point. As is invariably the case politicians are only interested in the short term, which is a big reason why we have such huge long term problems right now.

I think we need to see the dollar break back below 82 in order to push the S&P through the 1100 resistance level.

Once we do that then its just a question of when the dollar breaks through long term support at 80. When it does it will fulfill my last two requirements and signal that the 3 year cycle decline now has its hooks in the dollar.

The other signal besides a break of 80 is a left translated intermediate cycle. A break to lower lows anytime in the next 9 weeks will meet that qualification.

If the dollar happens to do that in the next week or two it will form an extreme left translated cycle. And those tend to turn out extremely bad.


Today will mark the 15th day of the current daily cycle in gold. Gold has been up 13 out of the last 15 days. It’s getting overbought.

Usually the daily cycle runs about 20 -25 days. At this point it is probably too late to chase the move.

There are also a couple of gaps on the GLD chart that need to be filled. The first one is filling today. I expect both will get filled at some point during the coming cycle correction.

If you already have a position then just hang on. If you still need to add I would advise waiting till we see the dip down into the cycle low.

Whatever you do don’t short. Remember in bull markets the surprises come on the upside. I think the recent 3 week move has demonstrated that, probably painfully so to anyone who fell victim to the technical chart pattern and shorted the break of the May pivot.


Unless something happens in the next couple of hours the S&P is going to form a swing low this morning. That is a prerequisite but not a guarantee of a daily cycle bottom.

Last week  I called attention to the volatility coils forming in the S&P and silver. About 70% of the time the initial thrust out of a coil ends up being a false move that is quickly reversed by a more powerful and durable move in the opposite direction.

We are seeing that play out right now in silver. As of this morning silver has completely reversed the initial break and is now in the process of breaking through the $18.50 resistance level.

With the formation of the swing low this morning in the S&P the odds are starting to look favorable that we are now putting in the daily cycle low in stocks. If the coil pattern plays out here like it is in silver, and like the historical stats would suggest (and I think it probably will) then we should see a powerful surge out of this bottom.
The fact that the advance/decline line has already made new highs is a big plus for the bulls.

Usually new highs in the AD line will act to drag the market higher. As you can see in the chart this is exactly what happened after the February intermediate correction.

I wouldn’t rule out a move to new highs during this next daily cycle. Remember we are coming off one of the most depressed sentiment levels in the last 10 years. That kind of extreme sentiment can be a powerful base for a big push higher.

Finally I’m watching the dollar closely. Since I don’t think stocks can sustain any significant rally in the face of a rising dollar we will have to see the dollar quickly break down. To do so now would not only indicate an extreme left translated daily cycle but also a left translated and failed intermediate cycle.

If you remember the last two requirements I’m looking for to determine if the 3 year cycle decline has it’s hooks in the dollar is a move below 80 and a left translated and failed (drops below prior cycle low) intermediate cycle.

If the dollar breaks down here we are going to have confirmation that Bernanke is running the QE presses again and I think we will then be on our way into what will probably be the first of several currency crisis for the US dollar.


In June I warned the bears that it was dangerous to remain short as the stock market was in jeopardy of putting in a major intermediate cycle low. Most, not understanding cycle theory, didn’t listen. The result they got caught in a 11% rally.

Three weeks ago I warned the gold bears that an intermediate cycle low was coming due. Again the bears chose to concentrate on technicals instead of focusing on cycle timing and sentiment. The result? Strike two for the technical traders.

I think strike three is coming. I’ve warned again that the market is now in the timing band for another cycle low. That doesn’t mean it has to bottom today or tomorrow. What it does mean is that the deeper we get into the timing band the the greater the odds become for a bottom followed by a strong rally.

As a matter of fact if the market can add a few more down days it will form a much better right shoulder in the inverse head & shoulders pattern.

I’m afraid the technicals are going to suck in the bears again right as the market puts in a bottom.
If we had seen a large selling on strength day I would be a lot more confident this is the beginning of something more significant. Absent that I think we have to assume that we are just seeing the normal move down into a daily cycle low that occurs like clockwork about every 30-40 days.
On Friday we started to see the McClellan oscillator begin to compress.
Often these compressions are followed by a large move in stocks. As we move deeper and deeper into the timing band for the cycle low the odds are going to increase that the move when it comes will be higher forming the right shoulder of the H&S pattern.
The prudent thing to do is either wait in cash for the cycle to bottom or cover shorts on the first swing low.
Longer term it would be much safer to wait for the Dow Theory sell signal before getting aggressively short, especially absent a large selling on strength day or days.
Ask yourself, do you really want to make the same mistake three times in a row? Selling into a bottom is a tough way to make money…even in a bear market.