Contrary to what some would have us believe the dollar is still in a secular bear market. Yes I will be the first one to admit that it is currently in a cyclical bull phase (I said so when the 50 crossed above the 200 and the 200 turned up) …the same applies to the stock market by the way.

But there is nothing on any chart that suggests this is anything other than a really big bear market rally. The pattern of lower lows and lower highs is still intact.

I’ve marked the 3 year cycle lows with red arrows and drawn in a line at 3 year cycle tops. So far each red arrow is lower than the last and each top has failed to move above the previous one.

In order for the dollar to end it’s bear market it will have to break that pattern.  We do have a window of opportunity in the next year. If the dollar can hold above the April `08 low at the next 3 year cycle bottom then we will have half the pattern broken. It would then have to rally above 90 in order to completely reverse the secular bear trend.

However the current 3 year cycle is again extremely left translated (topped in less than 18 months). Most of the time left translated cycles move below the prior cycle low. You can see the previous two cycles were also left translated and both dropped below the previous 3 year cycle low.

Cyclically speaking the dollar is now in a weak position and the odds are greater than 50% that we will see the dollar drop below 71 sometime next year.

Also contrary to what some would have us believe sentiment on the dollar is hardly bearish. The 6 month rally has done it’s job and skewed sentiment back to the extreme bullish side of the boat. At the recent top sentiment was as bullish as it was during the brief deflationary period in `08/`09.

Chart courtesy of
As you can see in the above chart even the virtual collapse over the last two months hasn’t pushed sentiment anywhere close to the levels that are needed to put in a major bottom. I suspect that won’t occur until we drop into the 3 year cycle low and generate some real fear that the dollar is toast.
As a reminder we saw exactly that kind of sentiment on the Euro recently. At the time virtually everyone had become convinced the EU was going to unravel and the Euro was going to fade into history. We need to see that kind of sentiment in the dollar before we can put in the 3 year cycle low. As you can see we aren’t even close yet.

So for the time being it’s still a secular bear market.

63 thoughts on “STILL A BEAR

  1. Onlooker

    Thanks Gary. Interesting perspective on the larger cycle picture.

    It is interesting that sentiment has not taken a huge dive as the dollar has fallen off a cliff from the recent high. We need to see/hear more of the “dollar is dying” news stories again; as we were hearing last year. Then we can think about a major bottom, it would seem.

  2. Gary

    No because it isn’t the 3 year cycle low. We have to put in a higher 3 year cycle low before we can say the pattern of higher lows has been broken. I think the dollar is probably on it’s way down into that low but it isn’t due till next year.

    Until that major cycle bottom is in place we can’t know if the pattern has been broken.

  3. Justin

    That sentiment chart on the dollar is kind of comical in my opinion. I can probably name a half dozen stock market forecasters, at maximum, who are bullish on the dollar. The investment universe is so skewed to the bearish side on the dollar it is funny. If someone disagrees with me go ahead and start rattling off people who are bullish on the dollar, maybe I will be enlightened but outside of Prechter and a few others there are no fervent dollar bulls out there.

    I think the left translation in the dollar cycle is merely a result of the heightened volatility off of the stock market crash and wild currency fluctuations. Putting that aside, the most important thing to look at is we have a potential trend change and if you look at other markets (bonds, the Euro), they are also aligning themselves with that trend change.

  4. Gary

    I think I’m going to have to go with an ACTUAL poll as opposed to your (biased) observation that no one is bullish.

    Notice how the ACTUAL opinion poll spotted tops and bottoms.

    Justin you are making up data to support your bias. I’m giving you real data and historical cyclical observations. If the actual data supported your opinion I would be happy to post it, but it just doesn’t.

    Rather than delude myself to support a bias I prefer to invest based on actual data. (My odds of making money are a lot greater if I accept reality rather than live in a fairy tale.)

  5. TZguy

    I’m still out. The $50 rally up to here is still in midair. No congestion pattern to buy for a continuation. No pullback (yet) to buy and enter. I missed the low that gary bought, but I also believed it was not *the* low and i’m still not fully convinced. I’ll get in likely if we pullback to 1175-80 with assumption that gary’s low was correct. But if that doesn’t hold, then i think we are looking at 1130 for a low.

  6. DG

    I’m with gary on this one, Justin. I like some of your technical comments, but I do completely get what your opinion is on the dollar. At this point it might be better if you shared actual data or clear reasons rather than just speculation and guesswork. The chart Gary posted is from Jason at and he’s the best sentiment guy on the planet. You’d need to do better than “I don’t know of anyone who…” to beat that. I’d love to see new studies or data from you. Otherwise you’re just saying the same thing over and over without any more or new evidence.

  7. TZguy

    I think fed and guys in charge want to break the uptrend in gold (starting jul 09…hitting all the bottoms) before they QE2. They can print back-door style and hold up futures or have the administration crank out more case with housing tricks in the meantime.

    For now, however, i think gold is too high for them. (And silver never cracked either).

    I’m really suspicious that the low is in, but I won’t hesitate to change my mind should we continue higher convincingly.

  8. Gary

    I still don’t know what this fasination with gold manipulation is.

    It’s a meaningless shiny metal. The dollar isn’t backed by it. The Fed can print to their little hearts desire and anything gold does is absolutely meaningless.

    I can’t think of one rational reason why the powers that be would give one hoot what the price of gold is?

    Oil, maybe as rising oil prices will eventually destroy the economy, but rising gold prices will effect nothing other than the price of one’s engagement ring for their sweetie.

    I really doubt the government is all that worried about rising jewelry prices.

  9. Anonymous


    Do you think silver’s move lower today is the false move out of the coil before blasting higher?

  10. Anonymous

    Gary’s chart is empirical data.

    Justin’s statement that “everybody” is bearish on the dollar is anecdotal at best.

    But since Justin puts more stock in anecdotes than data, here’s an anecdote: a few weeks ago I was having lunch in Santa Monica. Seated next to me were three middle-aged secretaries. They were talking about how the Euro was falling, how it might fall apart, and how this was “good for us because our dollars are worth more”.

    So there’s my anecdotal (and therefore useless to everybody but Justin) evidence. When the idea that the Euro is toast filters all the way down to clerical workers paid by the hour, you should probably stop congratulating yourself for your “contrarian” long-dollar-short-euro trade.


  11. Keys

    I guess Ben doesn’t subscribe to SMT.

    Fed says it will be buying long-term treasuries. This is going to get really freaking bad in real life. Another reason why I haven’t put a short on bonds; the Fed will make that bond bubble last until it explodes…timing is a big one.

    Anyways off to buy more bonds, because I am sure deflation will eventually win out! Keep looking at those rates fall, as the fed buys them up to justify their inflation outlook.

  12. Keys


    You probably didn’t get my sarcasm. I give more probability of Ben walking out naked when giving his next speech then I do in sustained deflation. 🙂

  13. Anonymous

    LMAO! Bond bubble???!!!! That is the funniest thing I have ever heard!

    Thanks. That gave me a great laugh today!

    Next to someone predicting a dollar bubble, I have to say that a bond bubble is hilarious. Ha ha ha ha ha!

  14. Keys

    First off I am not predicting there will be a bond bubble, I am making the claim that there is currently a bubble. One that will be made worse by Fed purchases. An easy bubble to look at when regarding the risk reward of the yield. So bad is the bubble, that even if deflation were a fact, the yield is not justified when compared to holding cash.

  15. Justin


    I use plenty of actual data its called price action. Sentiment data is just a derivative of price action, so if you think your second derivative is more important than a primary indicator I guess it’s your own loss. You’ve also stated you believe wholeheartedly in the Bernanke fairy tale yet you can’t figure out why QE 1 didn’t even stop the dollar’s uptrend.

    This QE 2 stuff is going to be interesting, the market is falling back into the old pattern of relying on the Fed as it did in 2008 which only served to increase volatility when the Fed didn’t deliver. I’d expect that scenario to repeat again, but most people probably won’t learn from history.

  16. Frank

    Well, it gave the PM sector a kick in the pants. NGD was down 5% earlier and is now green. Damn, I was thinking of picking up some calls.

    Ben Shalom to the rescue…..

    “The Fed, in a statement issued after its policy meeting today, said it will use money from its investments in mortgage securities to buy government debt on a small scale.”

    So this means that the Fed will use any interest paid on the MBS for the QE2. That’s pretty mild and does not further increase the money supply.

  17. Keys


    Maybe sooner than later, or later than sooner. I don’t know. But with the Fed sticking its fat finger into the mess, I don’t know when that thing will finally tank. But my best guess is to believe that all the majors will fall at once. Horrible times ahead, if we finally get some real rates in the system. The only way is for the fed to keep buying. Both situations are nasty.

  18. Nap Boy

    How about that I’m here all morning and gold is down the whole time, and after I take my nap, my accounts are nicely in the green again. 🙂

  19. Anonymous

    Ah nice, the Not Federal & No Reserves criminals gave their cute statement. The criminal scum on Wall Street did their pumps and dumps on cue. Yawm.

  20. DG

    I think Daniel is right. At this point there are no good options. Ireland has cut way back on gov’t spending and is near a Depression without that support. Once you have jumped off a cliff and are half way down, asking “What’s the best thing to do now” is not likely to result in a great solution. We needed to let this thing deflate years ago but the politicians were too greedy.

  21. pimaCanyon

    Anyone have an opinion on long term bond prices as a result of Fedspeak today?

    TLT rallied hard after the announcment and then collapsed and then recovered to where it had been prior to the Fed announcemnt. So no real net change so far. But what about tomorrow, next week, next month? Does the bond bubble continue to grow or start to deflate?

  22. Anonymous

    The criminal Fed is going to punish bond shorts for some time. Eventually they’ll collapse, but why get in front of the F-train, when you can hop on the G-train?

  23. Nap Boy

    Only 14 minutes left in the trading day. I’m trying to squeeze in a power nap to drive gold higher, who cares about stocks, anon? 🙂

  24. Keys

    My belief is that the Fed will continue to keep rates as low as possible for as long as possible. I don’t believe in growth in the country. In order to keep rates low the fed will need to keep buying treasuries. The question then becomes, in my view, at what point will the investor bail on the fed. Then what happens, the fed buys all bonds and completely monetizes the debt? Rates should be much higher, but the fed still has a strong hand. I mean the housing collapse would have never happened if the Fed had decided to pay 1 million dollars for each home. That is the problem with this bubble, I see it like many others here I presume, but I for one am not sure how to profit from it as an investor. Pms are still my strong investment, but it is hard looking at a bubble and not profit from it.

  25. Keys

    My belief is that the Fed will continue to keep rates as low as possible for as long as possible. I don’t believe in growth in the country. In order to keep rates low the fed will need to keep buying treasuries. The question then becomes, in my view, at what point will the investor bail on the fed. Then what happens, the fed buys all bonds and completely monetizes the debt? Rates should be much higher, but the fed still has a strong hand. I mean the housing collapse would have never happened if the Fed had decided to pay 1 million dollars for each home. That is the problem with this bubble, I see it like many others here I presume, but I for one am not sure how to profit from it as an investor. Pms are still my strong investment, but it is hard looking at a bubble and not profit from it.

  26. DG

    Fortunately I did not short into the gap down opening (shorting into gap downs is often a very bad idea). Had a nice day though with stocks down and gold up. I shorted a little more into the mid-day rally as well. We are unfortunately not done on the downside yet. These intra-day rallies just don’t let the built in weakness play out and get resolved, kind of like the Fed refusing to let us deflate. I believe there is more sharp down to come. Gradual is fine with me as I get to stay short. I will probably be mostly out on the first bad looking close, though, as I am not really bearish except for a trade.

  27. Gary

    Looks like the S&P is coiling also. An initial break lower would likely be reversed by a more powerful and durable move in the other direction.

  28. DG

    I agree with you, Gary, about the possible false break down and coil. Thus, I am not planning on holding my shorts past one more bad break. If the break is nasty enough I will likely go long, but I don’t mind being flat while waiting for another set of extremes, if need be. My best guess is a rally into late August and then quite the drop (but I am much better at this short term stuff than multi-week guesses) We zoom up and get overdone, then zoom down and get overdone. This is a good market for my style. In the meantime, go gold!

  29. Marc

    To those who are waiting for gold to drop before buying in…

    I do this by scaling in over a period of time. This way I don’t watch the price go up while I’m in cash and if the price goes down, I can pick up some more at lower cost.

    Gary is right that bull markets leave a lot of people behind waiting for the “inevitable” lower price (which never happens). Eventually those folks pile in at much higher prices and put the finishing top on the rally.

    Heck, gold spent most of last year below $1000, how many people are waiting for it to drop back to those levels before buying?

    Ride the bull…yahoo!

  30. Anonymous

    Is gold peaking on this daily cycle now Gary? Meaning, we may have one small dip before things really get moving?

  31. thedocument

    One may note that the S&P formed a swing high today AND punctured its daily cycle trend line… two technical developments which usually mark the commencement of a decline into a cycle low. If we see further weakness and a close below the trend line, that decline will be all but assured. Perhaps the drop will be shallow, followed by a surge to new highs in a new daily cycle… that would fit the coil setup. However, if the coil broke higher, I would be inclined to fade the pop as a daily cycle decline wold be still likely to take hold.

  32. Anonymous

    Not sure what is meant by “public” sentiment, but my subscription service shows only 6% of traders as bullish on the dollar. Incidentally it was 3% at the last major bottom.

  33. Gary

    I would be nervous about trading off a trend line without at least one SoS day to go along with it.

    As far as I can remember there has only been one intermediate cycle top in the last 5 years that did so without one of these big negative money flow days. Not too mention sentiment still isn’t even close to being extreme yet.

    Until those two conditions are met technicals take a back seat IMO.

    In bull markets trend lines get broken all the time only to be recovered. Often they are broken on purpose by big money traders in order to get into large positions.

    But if you are just talking about a slightly short daily cycle bottom and not an intermediate cycle top then maybe so.

  34. Gary

    Sounds like your subscription service is Precthers EW.

    Bob is notorious for making up phoney sentiment data to support his sky is falling, shock and awe marketing scams.

  35. Justin

    The recent pullback on the dollar (at least measured by the UUP) shows low volume on the pullback, so even though the sentiment might not be bearish enough for some, the volume shows a pattern typical of a pullback and not a primary move.

    The most important thing coming up for the dollar is a higher low, then a pickup in volume on the next advance. Also if the Euro confirms a top below 136 then it’s probably safe to assume the dollar’s uptrend is intact.

  36. Gary

    UUP trades less than 5 million shares a day. The Cubes and SPYDER’s trade 100 to 200 million shares.

    I think it’s probably safe to say that UUP is strictly a vehicle for retail traders that aren’t sophisticated enough to trade the Forex markets.

    I wouldn’t attach a lot of significance to the volume levels in the UUP ETF.

  37. Justin

    Considering the fact that UUP is a widely followed ETF proxy for the dollar I don’t think it’s a bad idea to gather information from how it trades. Especially when it forms volume patterns that confirm the trend.

    If you could please post that sentiment chart when it reaches a bearish extreme on the dollar, I’d like to see at what price level that coincides with.

  38. Anonymous

    Hi Gary, just want to say as a new subscriber I am impressed with the daily notes, you offer ely refreshing perspective. I already paid for it through your recomendations.

    Regarding today, AEM is looking strong, a long term hold for me, and I added a bunch of Sept SLW options yesterday. AGQ is looking like a bull flag is forming, and I will add Sept Options on them this week.

    Thanks again.

    Bob K.

  39. Anonymous

    Hi Gary –
    Quick question on the ETFs you would recommend for riding the Gold bull…am not looking @ individual juniors since am not a full time trader / investor and have a pretty small portfolio. So ETF’s are the best option in my personal case. Have come up with:


    any others you would recommend?
    thanks as always,

  40. Anonymous

    Sentiment data is supposed to be from

    Accusing Prechter of providing false sentiment data, that’s quite a claim. Do you have any evidence?

    UUP is composed of dollar index futures minus whatever fees are involved. While it would be better to have a trade-weighted dollar index, one has to make due with what is available.

  41. Gary

    Those are all the biggies and should be sufficient for your needs.

    I would very much suggest you go out to at least Dec. or January ( the probably end of the intermediate cycle) and buy deep in the money options with a delta of at least 85.

    If you don’t know what I’m talking about you probably have no business trading options and I pray you aren’t leveraging up with these things.

    Please, please, please read the options document on the website and take everything I say there to heart.

    If you don’t know what you are doing you will destroy your account with options and you will do it even though you are on the right side of the trade.

    There are right and wrong ways to use options. If used to control risk they can be wonderful tools. If used for leverage they will destroy your portfolio.

    Unfortunately most novice option buyers do exactly that. They have stars in their eyes envisioning huge profits but what they end up getting is a lump of coal.

  42. Anonymous

    I think UUP’s volume profile is useful. Of course it doesn’t wag the forex dog, but I’m not convinced it’s all dumb-money retail players, either (what home-gamer wants to mess around with such a unsexy, low-beta ETF like that, really?). The daily volume explosion around last year’s low (as well as some six-figure call trades, as I recall) were well worth paying attention to, imo.

  43. Anonymous

    Thanks Gary, I have been trading options for 17 years. I am primarily a credit spread trader (I live off of my trading), but will make directional ITM bets when I see a short term opportunity. Silver looks ready for a breakout to me, loss and trailings are in place.

    I also own a very sizeable miner postion, equally weighted small caps TRE, IAG, GDXJ and NAK and Large AEM and GDX. All comfortably profitable. I four Bagged SLW in 2008/2009 and starting to look at them again.

    I very much know what I am doing, but thanks for your concern.

    Bob K.

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