DOLLAR CYCLE STRETCHING

The dollar just sliced right through the 76.50 pivot this morning. Today also happens to be the 28th day of the current daily cycle. The normal timing band for a cycle to bottom is between 20-28 days, However the Fed’s threat to print, print, print appears to be going to stretch the dollar cycle slightly long this time.

We will look for the next swing low to mark the bottom of the cycle and the beginning of what should be a counter trend bounce. That bounce should be of the dead cat variety as the intermediate cycle still has 8 to 12 weeks yet before an intermediate bottom is due.

The next support zone now that 76.50 has been violated would be the rising trend line off the last 3 year cycle low in 08.

Once the counter trend bounce begins it should pressure the stock market down into the now due daily cycle low. In theory gold should also drop down into it’s now overdue daily cycle correction.

134 thoughts on “DOLLAR CYCLE STRETCHING

  1. thedocument

    I’d be careful about the assumption that the dollar has 8-12 weeks to go into an intermediate low. The timing band is 15-22 weeks, so the current cycle may have as little as 5 weeks remaining.

    The distinction is important because it is conceivable that the intermediate cycle ends with the next daily cycle. In 5 weeks, gold will be on Week 16 of its cycle and so could easily begin the descent into a low.

    Personally, I think we will see two more daily cycles before the intermediate dollar cycle finds a low, but we should keep all possibilities in mind to be safe.

  2. Gary

    I tend to think the yearly cycle will bottom with a test of the 08 lows. If that happens during the next cycle then that’s probably going to be the bottom.

  3. Elaine

    Now that gold has moved well past $1300 do you still anticipate a test back to $1265 or do you think that the $1300 level is the low?

  4. Wes

    I am showing “strong market” signals for the stock market again. This will end someday, but it can can certainly cause performance anxiety in under invested bulls.

  5. razvan

    Gary,
    why cant we count the swing high in the dollar which lasted 4 days as the dollar rally and start counting a new daily cycle low which using 21 days would put us into Nov 3rd when these thieves are getting elected?

  6. Gary

    I don’t think we rallied enough for that to have been a cycle bottomj and we certainly didn’t get a correction in the stock market which should corespond to the bounce out of the cycle low.

  7. notGreedIsGood

    Gary

    with the FED likely intervening to keep the market propped up, (and thus depressing the dollar), what makes you think that the dollar can get a meaningful bounce upwards, and a meaningful correction in the markets?

    Eg. everytime the market appears ready to croak, the dollar gets crushed to support the market

    fyi

  8. pimaCanyon

    It’s possible today’s low marks the low for this daily cycle. The low touched the lower TL of the descending channel drawn off the June high. It may be that bouncing off that lower TL will be enough for a move up that lasts a few days.

    Gary, I believe you’re expecting the bounce up after the daily cycle low to last only a few days because you’re expecting the next cycle to be left translated, so the high will come in on the left side of that cycle, correct?

  9. Gary

    Not,
    We are already putting into place the conditions needed for the dollar to bounce. Has anyone else noticed how many comments there have been lately speculating on the impossiblity of a dollar bounce?

    I’m already seeing a lot of talk on CNBC expressing the opinion that QE is not needed. That will always occur as long as the market is rising. For some reason most people and analysts equate a rising market with an improving economy.

    Of course the oppostie is true. When the market dips down into a cycle low everyone will think it’s predicting a double dip and they will start shrieking for QE.

    So when the dollar does bounce the market will interpret it as the Fed will not print and that will be the excuse the media will use for why the dollar is rallying.

  10. Gary

    We now have a swing high on the S&P. At 33 days into the cycle the odds are high the short term top is in.

    I’m still amazed we haven’t seen any SoS days yet though.

  11. Robert

    Good day for holding 4000 SDS πŸ™‚
    πŸ™‚
    πŸ™‚

    Wish it was FAZ! I guess you could say the same thing about SVM…

    You bring up a good point Gary, front page, Wall St Journal, ” US Dollar Dealt Another Blow “… time for reversale!

  12. Peter

    Gary .. quick question re. the Gold Intermediate Cycle due some time in Nov. Assuming, and I think this is a pretty safe assumption at this point, that we are in fact in a runaway move in Gold … would you expect the Decline in Gold ( and by extension Silver and Miners ) to be the typical 30$-45$ “correction” or would you anticipate a more significant correction to occur at that time.

    As a side note, where do you think the bottom is now ? What price level do you feel a D Wave Decline would bring us down to ? 1300$ ?

  13. Gary

    Peter,
    I’m not entirely convinced gold is in a runaway move yet (I hope it’s not). If gold can hold to a $40 correction even during a dollar rally then I think we can say with certainty that it is a runaway move.

    D-waves usually retrace at least 50% of the previous C-wave. So we will just have to see where the C-wave takes us.

  14. Robert

    It seems the market has been acting ahead of the dollar.

    This would indicate that before Monday afternoon we’ll see a significant bounce upwards.

    I bet it will follow through- Just my feelings. Also the timing is right too. We should then see some follow through for a few days. Hopefully we can get our miners down for some more cheap shares before the HUI really takes off.

  15. DG

    Now we’re talkin’ Gold up stocks down. I don;’t expect this to continue (I expected both down), but so far so good. My sell signal from Tuesday may still work out even after the 75 point up day yesterday.

  16. Poly

    It’s almost universal now, almost every site, blog and comments section you read is full of talk that the dollar can’t muster even a little rally and that risk assets will just keep rising because the FED is doing QE. I can’t turn a page without the “QE reference”, enough already.

    All risk assets may indeed be header much higher in the near future, but if there is something I do know, it’s that something has to happen to wipe that smirk of the bulls faces, it’s not and never is going to be as easy as just buy, hold and watch it all shoot for the stratosphere!

  17. Robert

    Gary,

    Do you feel that the silver miners will catch, or possibly outperform AGQ as this C-wave advances?

    I am still picturing the dam bursting, and for some reason it still feels like we’re eking away the final cracks. But damn does this dam hold strong!

  18. Gary

    Some might and some might not. All in all I would split my silver money between SIL and AGQ and not worry about trying to guess which one will beat the other.

  19. Poly

    Gary, am I mistaken, but wasn’t your original (before it began) C-Wave target around $1,450-$1,550 to begin with? At this pace it’s seems to be trading days, not weeks/months away!

    If we’re not talking about this not ending until the spring, then are we saying it we could be looking at a much more higher target now? Or does the pace just slow?

  20. Gary

    My target for this particular intermediate cycle was $1450 -$1550. That should coincide with the yearly cycle low in the dollar.

    We should get another leg up this spring as the dollar moves down into the 3 year cycle low.

  21. Wes

    I won’t be a bit surprised if the stock market makes a higher high before it rolls over. Usually, the dip buyers don’t give up easily.

    If I get a buy signal about the crack of noon tomorrow, I’m taking it.

  22. Robert

    Wes, there’s no way we’re going to make a higher high this late in the cycle. I think we’ll be choppy for a few days but over the next week or two all markets I think will correct a little (gold probably the least, silver is more volatile).

    How is the S&P going to go from 1169 where it is now, and jump over again 1184 when we’re already at, what is it day 29 of this daily cycle?????

  23. oa92000

    Wes,
    “If I get a buy signal about the crack of noon tomorrow, I’m taking it”

    I do not have patient wait till tomorrow… Already take back some of TYH I sold yesterday. (avoid finance)

  24. Shalom Bernanke

    Wish I scooped some of that TGB at $4.80 or so!

    Looks like some huge volume today, but the puke came right off new highs. Odd, maybe flash crashes are visiting miners next?

  25. Nick

    Wes, The VIX closing higher than yesterday and back inside the Bollinger band, does suggest a stronger pull back rather than new highs @ this time. Maybe new highs after a drop into the daily low instead of new highs before a daily low.

  26. n1tro

    Seems a lot folks here are in physical stocks or indexes linked to the metals. Am I the only one using leverage on a forex account? 10K in an account gives you $2 million buying power. Thoughts?

  27. Gary

    That kind of leverage also gets you margin calls if the trade doesn’t do exactly what you need it to do.

    And margin calls are a great way to lose money in a bull market even when you are on the right side of the trade.

  28. Jerred

    n1tro – your leverage is insane.

    If you are consistently making money with a 10k account then adding leverage is ok. However, most traders/speculators that make consistent money have much larger accounts then 10k. So, I am guessing that you are new to the markets and got talked into the forex leverage idea.

    If I were you I would start on on Simulator and then move to small account size trading 2-3k. You will probably blow it out 5 or 6 times but it will allow you to learn.

    Best of luck with that type of leverage.

  29. razvan

    stock market tanked today, down 0.01%
    hmmm tomorrow we have POMO i wonder how much we will tank after that.
    I am beginning to think we will see $1500 by November 3

  30. David

    “stock market tanked today, down 0.01%”

    down 0.01% is “tanking”?

    this comment alone indicates how unprepared people are for a real decline.

  31. Gary

    Look at that move on a 5 year chart and you will see that this is one of the most aggressive selloffs of the last 10 years.

    The dollar is already extremely stretched below the 50 and 200 day moving average. I don’t think it will be picking up much steam at this point. the next period to look for an aggressive move down will be at the yearly cycle low.

  32. n1tro

    200:1 is my potential leverage amount.By no means am I close to using it. My point is that most people are buying physical metal or stocks and can’t maximize on the bull run. For example, lets you have $25,000 to invest, sticking that in HUI or 20 ounces of physical gold is going to get you what in the end? Double your money? I think you can make more using leverage properly. Ie. buy 1000 ounces of silver at today’s price of $24.50 with your 10K funded account and as you get more money, keep funding the account, you’ll be better off than waiting to to gather $24,500 and to have silver be at $30/ounce when you are ready to buy.

  33. David

    Most novices who play with futures or leverage get completely wiped out. If it were easy to turn $25k into $1 million, every experienced futures trader in Chicago would be doing it. Do you imagine that you know more than they do? Because that’s who you’re up against. They’re better at it, and they trade on better information than you.

    Smarter thing to do is buy something like SLW or SIL. Your 25k buys 1000 shares, which could easily become $150-250k before the bull market is over.

    If that’s not enough for you, well… as the saying goes: Bulls, bears, and pigs.

  34. Jerred

    n1tro,

    if it was only that easy. Leverage = stress and the draw downs will cause you to liquidate the position.

    You have to ask yourself are you really that good of a trader to make money on every trade.

    Where is your risk management on each trade?? Discover that $ amount and subtract from your total account. How much do you have left? The do it again until you reach zero. That will give you max trades to be wrong. Use excel or a graph. It should answer your questions.

    If you will focus on the process of trading and not the outcome then you should do much better. Right now you are focused on the money.

    Markets love it when you focus on how much money you are GOING to make.

  35. Gary

    Like I said heavy leverage ends in a blown out portfolio 100% of the time…there are no exceptions especially by novice traders.

    I’ve been doing this a long time and I can assure you I would blowout my account if I tried to use that kind of leverage.

  36. n1tro

    problem is most people, these days don’t have $25K on hand. I don’t think I’m better than pro traders out there but I know the fools handling my mutual funds, stock-linked insurance funds, and bond funds, with their “MBA/CFA” have done a donkey of a job for in terms of ROI. So you think $25K in SIL would give a better return than 1000 ounces of silver for the same period of time?

  37. Gary

    If you want to leverage up a bit just buy $25000 worth of AGQ. You will do double what silver does.

    You could even use a bit of margin to increase leverage. Just don’t use so much that you end up getting margin calls.

    BTW with silver stretched 35% above the 200 day moving average now is not the time to be leveraging up in silver. Now is the time to take some exposure off the table.

  38. Jerred

    n1tro,

    then dont act like the fools that managed your funds. Educate yourself on the market, have patience, and learn as you go.

    Pick your shots with leverage but dont go crazy.

    If you double your account in 1 year with good money management then you are on your way to making money for years to come.

    Again, dont focus on the money focus on the principles and process of the market and speculating.

    IMHO – stay away from forex, OTM options, and futures until you get a grasp on what is taking place in the market.

  39. n1tro

    the guys I call fools handling my “safe” funds are fools not because they take big risk but rather they take no risk. I’m not that big of a novice. Was a day trader (scalper)for a year trading on average 1 million shares a day. You definately don’t need to know what going on doing that, just got to be quick and spot the games that other day traders are doing to make money. Turned 10K to 90K last year in stocks playing on other traders emotions. This year trying to crack the forex puzzle. Got knocked out twice already but thats how you learn I guess. Been reading up a lot and doing ok since summer.

  40. TommyD

    n1tro,
    Your style of action was what I did with the lady’s back in my day.

    No, day trading and shorting got me in deep trouble.

    I am no saint but I have learned to trust in God.
    Gary is not God but he has me making some gains and I am also losing weight in the process.

    Maybe I will get a 2 seat sports car and head back lookin for the Ladies again…. hmmmmm

    GL

  41. John Fuller

    Just had a thought about there being an absence of SoS in the S&P’s likely swing high.

    Perhaps it’ll go sideways for a week or so to reduce the oversold readings…. so no need to exit.

  42. Gary

    daily cycle lows don’t unfold as a sideways movement. They have to dip far enough to cause some fear in the market. A sideways move doesn’t do that.

  43. Peter

    Gary, seems like the Dollar is the main point of disussion, so, let me continue on the topic du jour.

    With the overhang of QE2, it seems that currently, there is an enormous lack of confidence in the USD. What are the odds that the U$D Actually topped 3 days ago, when it hit 78 and is in an extrememly LT Cycle, which ends at the start of Novemeber with the announcement of QE2. A sell the news type event … leading to a BIG bounce in the USD from whatever level it settles at to under 78 and also coincides with your intermediate cycle window for Gold. Possible or impossible ?

  44. Shalom Bernanke

    Of course I’ll print. Always have, always will. The only difference is these are extraordinary times caused by my buddies ripping off the public so badly. In this case, I need to really put the pedal to the metal.

  45. Gary

    Peter,
    I don’t think we’ve seen the cycle bottom yet.

    I like to be able to look at a 6 month chart and clearly see a cycle trough. That was not the case last week so I’m assuming we still have it coming.

  46. Mr.Mom

    What are these bankers smoking? “…additional monetary stimulus may be warranted because inflation is too low…” First off prices of everyday things like food etc. barley went down the past couple years. Now he wants to add to an already exorbitant
    inflation of commodity prices? How does me paying $3 for a dozen eggs help the economy?

  47. notGreedIsGood

    The FED has basically promised that they will print more money.

    Aside from cycle analysis that determines that a low for the dollar should be coming soon, what would actually cause the bounce in the dollar?

    Eg. Is Goldman Sachs trying to buy up some dollars or sell some stocks and gold to trigger a correction in the markets?

  48. Gary

    Not,
    People buying the news that the market has been discounting for months.

    This is just how the market works. It often does the exact opposite of what seems logical because it’s already discounted the move long in advance.

  49. Robert

    HUI falling like a rock.

    Correction going to be steep but quick?

    I know there will be updays in the correction too, but imagining this cycle low going for two weeks with this as the start is difficult.

    HL 7.17 (or thereabouts) to 6.85 in what 6 trading hours?

  50. Shalom Bernanke

    It’s hard not to book these great profits here, but I just remind myself to be patient and instead look to add more gold into these pullbacks.

    Besides, I have plenty of paper and ink, with my inkjets ready to rip!

  51. Gary

    I would wait till I think gold and the stock market has bottomed. Stocks have pushed a long ways. That usually leads to a fairly severe corrective move into the daily cycle bottom.

    That always affects moners to some extent even if gold holds up well.

    So just be patient and wait till we see panic in the stock market.

  52. Shalom Bernanke

    Alright, you haven’t steered me wrong yet. No matter where miners settle, even if they stayed right here or higher, I’ll let the general stock market work off this overbought sentiment before adding.

    So far it’s been one helluva ride! πŸ™‚

  53. Brian

    Gary, Do you think these “out of the US” bullion banks like Kitco, Swiss, etc will be safe in the event of a US hyper-inflationary event?

  54. Wes

    Anyone looking for this stock market to just fall apart is likely to be disappointed. There are a number of big earnings reports due from companies like Apple, and the markets are likely to react positively to them in anticipation if not actually to the results.

    QEII will eventually be priced in, but those betting it already has have been disappointed repeatedly.

    I’m seeing at least several more weeks before we see market lows. I’ll regard anything less than that as a big surprise. After all, it’s going to take some time to convince the bulls that all is not well.

    I’m beginning to wonder if this daily low and the weekly low due in November won’t somehow line up with an early intermediate low in the dollar.

  55. coolkevs

    Looks like Dollar swing low has been put in – the up trend line worked. But will probably be sliced through like butter on the next wave down leading to a quick downdraft…

  56. DG

    Boy, I am just not in tune with this damn market! INTC reports great earnings rallies then caves in. GOOG reports and just keeps going. I am playing small until I start winning again. Shrinking size when you are making mis-steps is the way to go, IMO. Hoping for that quick gold dip to add to my longs there. Bought some TLT at par this morning as that is WAY overdone and ought to at least bounce. But overdone doesn’t seem to mean anything anymore as the Fed manipulations are creating moves that just don’t end. Reversion to the mean ain’t what it used to be.

  57. Shalom Bernanke

    I know what you’re saying, DG. I’d short the board (except miners) for a couple day play, but not holding ahead of rAmPPL earnings Monday. Better trade is to just sit back and buy dips in miners/gold.

  58. Wes

    DG,

    The earnings reported so far point to real increases in the the outlook for most of the companies.

    Now maybe the market will simply continue to compress the P/E ratios as it has so far this year, but maybe not. Maybe it will recognize the worldwide real growth in business that is taking place.

    Gary is right about being short in a bull market. It’s hard to profit.

  59. Daniel

    Tommy –
    I own TBT and TMV– Bought long ago when I thought rates were too low. I still own and will keep- Interest rates are going up big time sooner or later. Just a rather small position though!

  60. TommyD

    Daniel,
    Thanks for sharing. I will watch it next week and figure out a good entry. If I see that TLT is heading down big then I will jump aboard.

  61. TZ (7006)

    The cutoff for those charts is always end of trading TUESDAY of each week. Results of actions wed/thurs/fri always show up the next week’s reading

  62. DG

    I already posted I went long TLT at 100.01 this morning, so that’s my opinion. But that’s just for a trade. I often play mean-reversion for a trade when a maximum extreme gets reached, and TLT maxed out to the downside in my opinion. Longer term you won;t find anyone buying lots of gold who wants to lend the Fed’s money at 2 or 3 % for 30 years!

  63. Gary

    Brian,
    We don’t need to worry about hyperinflation right now. It’s at least several years into the future.

    Jay,
    Yes yesterday’s swing high has been negated.

    DG,
    See what I mean about ignoring Jason’s INTC data πŸ™‚

  64. Rosabarba

    I see the same thing as Nick, I think … with the swing high actually on 10/13, established by yesterday’s lower low and not surpassed by today’s high.

  65. Wes

    Gary,

    It looks to me like this stock market daily cycle low will also be the intermediate (weekly) cycle low.

    Am I off with this reasoning ?

  66. Gary

    It’s probably way to late in the daily cycle for this to turn into the intermediate cycle low.

    Usually an intermediate cycle low takes 4 to 8 weeks to unfold. That usually calls for a daily cycle to be left translated and top by day 20. It also typically unfolds with the daily cycle moving below the half cycle low.

    This daily cycle is unfolding as an extremely right translated cycle.

    I wouldn’t count on this intermediate cycle topping until the yearly cycle in the dollar bottoms and it’s still way too early for that to happen.

    We should still have at least one more daily cycle down in the dollar and maybe even two.

  67. Wes

    One of the reasons I asked was that “strong market” signals such as I’ve been getting recently, while rare, also occurred in the February-April period. As I recall that daily cycle lasted more than 50 days.

    Something like that again would place the low in the second half of November and allow at least 4 more weeks.

    Otherwise, I’d think we need another mini-crash to change sentiment quickly.

  68. Gary

    Sentiment hasn’t reached the levels of April by any stretch of the imaagination so there is no expectation for a crash of any sort at this point and I really doubt we will see another crash for the remainder of this 4 year cycle.

    Let’s not forget the fundamentals. Way too often traders get wrapped up in their favorite techanical analysis and completely ignore the fundamental picture.

    Ben has promised to print money. This is the same thing that halted the last bear market. Ignore that at your peril.

    If Ben prints then money is going to have to find somewhere where it can get a return. That invariably ends up being asset markets with special emphasis on commodity markets as liquidity will leak out of paper markets and into hard assets at an accelerating rate as the printing spree continues.

    This is the same process that caused oil to rise to $147 and it’s the same process that is driving this C-wave in gold.

    Don’t forget that the May crash was followed by another complete daily cycle before the intermediate bottom was occurred in July.

    No I think the most likely scenario is a normal cycle bottom sometime in the next two weeks and then a bounce to new all time highs followed by a 1 to 2 month decline into the next intermediate cycle low in Feb.

  69. Wes

    Doesn’t that skip one intermediate cycle ? Or, are you suggesting a super long current intermediate cycle ?

    The current intermediate cycle is already 15 weeks long. The examples you provide average 17 weeks.

  70. Wes

    When I mentioned a “mini-crash” I was talking about a technical event like early May, not a traditional stock market crash.

  71. Gary

    Yes I know you were. But we don;t have the conditions neccessary for that to happen.

    In April the market had rallied so strongly that put buying has completely dried up. When that happens the market loses it’s safety net and we typically see some kind of crash as a result because everyone heads for the door all at once.

    We don’t have anything even vaguely close to those conditions at this time so the liklihood of a crash is minimal.

  72. Gary

    The Fed’s extreme monetary policies are distorting the markets and most cycles have been running either long or have been stretched. Sentiment has also been stretching on both the up and downside for the very same reason.

    Ben really has no clue to the damage he’s causing and I’m competely convinced the powers that be will find some way to blame China when the currency crisis hits this spring.

  73. Wes

    Thanks for the discussion. I’m still not clear on what will turn sentiment quickly. I use a multi-week average sentiment level as a measure of complacency, and this indicator is at multi year highs.

  74. Gary

    You really should subscribe to sentimentrader.com if you want to monitor sentiment.

    Senitment is definitely too bullish but not at the same levels we saw in April.

    In April the percentage of sentiment indicators at bullish extremes reached over 45%. Currently it’s at 25%.

    At the April top dumb money confidence was over 75%. Currently it’s at 58%.

    So yes things are starting to percolate a bit but we have a long way to go to reach the kind of sentiment extremes that can produce a crash. Usually it requires a powerful runaway move to achieve those kind of conditions.

    The stock market is a long way from a runaway move.

  75. Gary

    I think sentiment has reached levels that should force a daily cycle top but not so much as to form a more lasting intermediate cycle top.

  76. Gallo

    Gary, This may sound like a stupid question but where does the money go once it’s printed by the Fed? I don’t see any in the form of checks. πŸ™ So does it go to the banks? I heard it goes into the “system” but I really don’t know what that means. What’s the process? Thanks.

  77. Gary

    It can go to several places. First the Fed can buy treasuries from the government. The governement then spends that money on stimulus and numerous other bills to get it into circulation.

    The Fed can also buy tocxic assets from banks (TARP). The banks can then either loan the money or more likely in this economically depressed period they will just put the money to work in asset markets. This is why stocks and commodities have been rising.

    Banks can also borrow freashly printed money from the Fed and buy treasury debt. (Why the bond market has held up despite obvious inflation pressures).

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