It has been my theory that this year we would see one of the worst performances by the stock market since 2008. However that has always been dependent on Bernanke not being able to break the dollar’s rally out of its three year cycle low. As of this morning the dollar has printed a failed daily cycle. More often than not a failed daily cycle is an indication that an intermediate degree decline has begun.

I have begged and pleaded with people not too short the stock market over the last several weeks. For one it’s very hard to make money on the short side for the simple reason that markets move down differently than they move up. Now I’m going to give you another reason not to short the stock market.

If the dollar has begun an intermediate degree decline then we should see it continue generally lower for the next 7 to 10 weeks. If this turns out to be the case then we are not going to see any meaningful declines in the stock market during this period. As a matter of fact the risk is great that the stock market could enter a runaway type rally if the dollar has begun the move down into an intermediate degree bottom.

As you can see in the chart below the last runaway move in 2006 lasted almost 7 months.

Runaway moves are characterized by randomly spaced corrections, all of similar magnitude and duration. As you can see in the chart above the corrective magnitude in this particular runaway move was about 20-30 points.

Keep in mind we don’t have confirmation that a runaway move has begun yet. We would need to see how the first correction unfolds. If it is mild and brief, followed by the market moving back to new highs, then the odds would escalate that a runaway move has in fact begun.

Another big clue will come when the dollar bounces out of its daily cycle low, which is now due at any time, and if that bounce fails to make new highs before rolling over. If that happens it will reverse the pattern of higher highs and higher lows and confirm that an intermediate decline has indeed begun.

The scary part is that this may also signal the top of the three year cycle. If so then we are looking at an extremely left translated three year cycle that should generate huge inflationary pressures by the time the next three year cycle low is due in the fall of 2014.

It has been my expectation that we would see another deflationary period in 2012 before the cancer infected the global currency markets. As of this morning I’m not so sure that process hasn’t already begun and the deflationary period has been aborted. Bernanke may have broken the dollar rally yesterday.

If this scenario unfolds it has the possibility of generating the bubble phase of the gold bull market. I elaborated on this in last night’s premium report.

96 thoughts on “BROKEN DOLLAR

  1. sophia

    AAron, I didn’t, but even if I think that this DX selloff is too fast, I am not ready to try to catch a falling knife…I sold the DX at 81.79 on the 16th, quite happy to have bought it back at 80.03, so I think that we moved a lot in the space of 9 working days!

  2. ease

    Arun, I don’t know if WW saw your last request from previous blog page. I did, before I saw Gary’s NEW POST.

    I will ask him again, can you tweet your trades and updates real time.

  3. Danno

    I’m not going to argue with Gary this time. He may be right. But I’m tired and will just stay in cash for a bit and wait n’ see.

  4. intelliblue2000

    Does anybody remember when QE1 and 2 started and when they ended?

    I wanted to see how stretch the equity cycles were. I remember Gary talked about it before, but I can’t remember the details.

  5. Aaron

    1)Late enough in the cycle. 2) The announcement of the Fed is usually a one or two day event. 3) support and resistance all over the place. I believe the odds are good at this point.

  6. Gary

    Well I didn’t actually bet as I had no idea what was going to happen. I was content to just wait for confirmation, but yes it does appear he was correct about Dec. 29th marking an intermediate bottom.

  7. William Wallace

    There was only one person on the entire planet who predicted EXACTLY where the first day of the new intermediate cycle and A-wave would start, and it wasn’t Gary or Doc. And that guy doesn’t eat burrito’s, so he is willing to give it to Gary. 🙂

  8. ckpc

    Gary wrote:
    “It has been my expectation that we would see another deflationary period in 2012 before the cancer infected the global currency markets. As of this morning I’m not so sure that process hasn’t already begun.”

    I don’t understand this statement. Your post seems to make the argument for inflation this year, so the sentence saying that you’re not sure the deflationary period hasn’t already begun is confusing. Am I reading this wrong?

  9. William Wallace


    Im not sure what his name is, but he was saying before gold’s C-wave even topped that the A-wave would begin on the 300dma. If you take a look at the first day of this intermediate cycle and A-wave, it begins right off the 300dma as predicted, almost to the penny!
    He goes by the alias WW 😉

  10. ease

    Can you share where we can find that post or information…

    “who predicted EXACTLY where the first day of the new intermediate cycle and A-wave would start”


  11. sophia

    oh la la! Careful, your head is going to explode!!
    Just kidding my friend, you have been doing great since the summer/september…

    What I like the most in your posts is the define moment when you type ” the bottom is in”…Exquisite…You did it around 1532 last dec, and around 1535-36 in Sep….

  12. William Wallace


    Let me say this, I would not be suprised if gold never touched the 200dma again, but it’s too early for me to say, I would have to watch in real time as gold is correcting.

  13. St. Deluise

    i can confirm WW nailed the bottom in gold.

    i had my finger on the buy button as well but held off because i thought it would go like $40 lower. one of my biggest bonehead moves of all time.

    i have still yet to buy. lol @ me!

  14. Feel

    Question about the possible aborted dollar rally:

    If the rally is aborted (failed cycle, extreme left translated, etc.), are you saying it’s b/c Ben “opened his mouth”?

    And by opening his mouth do you mean him saying that he will extend ZIRP another 1 1/2 years from the already announced mid 2013 to late 2014?

    Because that’s almost like doing next to nothing. Or more of nothing. Or letting things remain the same for longer.

    So, if I’m on track here, Ben busted the cycle (broke the dollar) and possibly lit a match under another huge bull run in equities and maybe gold just by saying he’ll extend ZIRP?

    Or was there something more that was said that no one is mentioning? Seems like I’m missing something, surely.

    If it’s as simple as more ZIRP then QE3 whenever will be a hell of a sight to behold!

    All responses welcomed!

  15. Unknown

    WW said:

    “There was only one person on the entire planet who predicted EXACTLY where the first day of the new intermediate cycle and A-wave would start, and it wasn’t Gary or Doc.”

    You are exactly right, WW. You nailed it exactly…… which is why I now follow your posts with great interest.

    And you know what else? I like moving averages. I’m not a sophisticated TA guy but using even my limited TA knowledge, they have worked for me in the past.

  16. Gary

    Folks we entered GDX when the swing formed a month ago at $51.20. We exited when the miners printed the reversal at $53.53. We reentered yesterday at $53.12. We have caught the entire move other than waiting one day for the swing to form.

    I don’t see anything wrong with that performance even if it doesn’t earn me a burrito.

  17. sophia


    I think that a great majority here agrees that you are providing a fantastic service. But, you know how it is: every 2 months, there are some whingers….

  18. William Wallace

    BTW, thats if we see another B-wave bottom. I mentioned a while back when talking about the 1980 bull, the ABCD wave pattern will break down (I believe Gary mentioned this) and gold will launch into a mania, then consolidate for a long period, before the ABCD pattern resumes.

  19. Greenspansconscience

    Does anyone hate gaps as much as me? Hopefully the HUI can bull flag and fill that small gap when gold and silver get their inevitable corrections. Up till September ’11 the HUI had near zero gaps or black candles for the entire 11 year bull run. Now they are all over the place and it is annoying as hell because if it runs away after one of these gaps you are left to wonder when it will get filled if it ever does. Just adds that extra degree of uncertainty…

  20. ease

    This is what I found from an email from Dec 22, 2011, asking about an entry for a mini gold trade and your response was:

    “Whether or not this is an ICL or a DC will be determined by the MA’s, if gold is to bottom on the 275 or 300dma, we will see another DC to get there. If gold has bottomed already and this was an ICL, it will have been on the 250dma.”

    WW, you must have posted somewhere around the 29th, back in the blogs somewhere, between the 22nd and 29th.

    I know I took a large position long in TGLDX on Dec 29h.

  21. William Wallace

    You see how gold is just consolidating now as the SPX declines, this just began to slowly happen again recently. Watching a 5 min chart side by side every time the SPX would dip, even the slightest, gold would be right behind it, at first it is immediately, then as the DC progresses gold lags the SPX moves, before you know it its going in the opposite direction. Like I said a couple weeks ago, when gold bottoms it could care less what the market and the dollar are doing.

  22. St. Deluise

    WW i’m waiting to see gold at 1604 or above 1751.

    i am NOT in the “runaway move” camp and think that idea is sort of absurd given how strong bonds are still. so i’d like to see how gold does when stocks correct, i.e. the original plan.

  23. William Wallace

    at ease,

    Me and you were talking about the D-wave bottoming on the 300dma back in september, I guess you forgot. Remember when I sent you the charts of the 300dma? Take a look at the charts I sent you if you still have them. I sent one to Poly also.

  24. Greenspansconscience

    Us treasuries are setting up for a move lower i.e. higher yields.. Maybe my focus on them is misplaced but i really do believe a mass exodus out of bonds drives other asset prices higher while sending the USD lower and not the other way around. The US treasury bubble has popped. you heard it here first (i first felt this way in early January).

  25. William Wallace

    at ease,

    How funny…I actually just found the chart that I sent you of the 300dma back in September, and in the snapshot in the right corner is your AOL instant message box with you responding to me. The date was 9/29/11 and gold was at $1611. Im going to email it to you now.

  26. RJM

    Some time ago Gary dismissed the analysis of Tim Wood. For all I know, his objections to Mr. Wood’s approach may have been perfectly valid. I was highly sceptical of Mr. Wood during the first part of the rally out of the August-October lows. For the time being, Mr. Wood is looking pretty good.
    I am inclined to the viewpoint expressed by St. Deluise above with the exception that the possilbility adressed by Gary in this post is of the utmost importance and cannot be dismissed as absurd. I doubt if this what St. Deluise really meant to imply.

  27. Gary

    My only problem with Tim is that he’s too focused on a horde of indicators. I’ve never believed one can indicator their way to success in this business.

    I prefer to combine cycles with sentiment, fundamentals and a dash of technicals.

  28. Greenspansconscience

    The gap up on the HUI this AM completed the 123 reversal, so it just may be one of those instances where the gap never gets filled. I would be less leary about adding here on that basis. Of course you have an extended stock market and gold and silver to worry about also…

  29. mikezza

    i know the short answer is that anything is possible but i was wondering how unlikely it is that the dollar could make a new high after failed daily cycle. also how improbable is it that we have not seen the top of the 3 yr cycle if this does turn out to be a intermediate decline. i’m asking this because didn’t we have a similar red flag when the dollar collapsed back under the 200dma in october. appreciate it

  30. thedocument

    WW: Actually, I don’t eat burritos either because I generally avoid carbs, but I’ll still keep them on the asset side of my personal balance sheet!

    slw fiend: The burrito bet is a moot point. Whether or not Gary recognized the dollar top / gold bottom at a later date did not stop him from getting on board once he recognized the turning point within his own methodology. That is smart trading.

  31. fubsy_cooter

    Agreed. Gary sticks to his methodology and does a reasonable job of not being swayed by others. When his theory was disproved, or rather became significantly unlikely, he proved not to be biased by his expectations and followed what the market was telling him. An excellent model for all to follow.

  32. fubsy_cooter

    Yesterday convinced me, as well. I had been expecting a deeper drop than most, thinking that Gold may even briefly fall into the high 1300s to cleanse the bull market crowd after the almost three year run from the last D-Wave. Now I’m anxiously awaiting the next dcl to add to positions. Hoping to get to 70%-80% invested.

  33. coolkevs

    DeMark update
    Kevin Depew posted a Buzz on Minyanville today identifying that a S&P futures MONTHLY SELL signal has been recorded – good for 12 months. Depew is looking for a 10% or so decline in the indices over the next few months. As a reminder, the NQ futures recorded a similar signal in May 2011 which will end in April. So, lots of dispersion going on in the market.
    Lots of corresponding BUY/SELL signals going on in the market on a DAILY basis given the recent market run:
    BUY: DXY will record a perfected BUY Setup 9 tomorrow – good for the next 4 days after that.
    SELL: Well, everything else, SPX, NDX, RUT, GLD, 6E (Euro futures) are on Bar 8 of 9 of a DAILY. GDX/GDXJ not showing much exhaustion though – only on Bar 2 of 9.
    So, expect short-term pullback next week. Not expecting the S&P MONTHLY to take hold immediately – that’s too easy!
    Anyway, appreciate your insights Gary!

  34. fubsy_cooter

    Thanks WW.
    That’s nice to hear.
    I’ve mostly been viewing the market through a periphery since August. Making a few trades here and there but w/o conviction and mostly breaking even. I suspect I’ll be popping in more now that we have an A-Wave under way. Looking forward to sharing the good times of a charging gold bull again. I guess enough riders are shaken off its back for it to run for awhile.

  35. Gary

    I noticed that Demark thinks the German DAX is going higher, but the S&P is going lower. I have no idea how one can rationalize those two opposing views.

    It seems very unlikely that the DAX would decouple from the S&P.

    It almost seems like he is hedging his call, either he’s going to be right on the S&P or right on the DAX. Either way he can point to one of those calls and claim victory.

  36. St. Deluise

    “I noticed that Demark thinks the German DAX is going higher, but the S&P is going lower. I have no idea how one can rationalize those two opposing views.”

    Euro printing? Or perhaps Germany leaves the EU.

  37. St. Deluise

    Here’s a crazy idea i’ve seen discussed:

    Since the financial industry is now backing Romney, this rally has been orchestrated explicitly to generate a market crash, and it should trend down and bottom just ahead of the election.

    Obviously pretty far fetched (dare to dream!), but it would A) get their guy in the office and B) give them yet another chance to pick up assets for nothing.

  38. Gary

    The media doesn’t control the markets. If it did we would never have had 2008/09.

    The media follows the market not the other way around.

  39. William Wallace

    SPX 50dma is now sitting on the intermediate cycle trendline. The market is extremely stretched over the 50dma now, even during the cycles that stretched during QE 2 the market still managed to pull back to the 50dma.

  40. Captain Morgan


    Your 300 dsma was great call for a gold D-wave bottom. Way to go.

    I’m seeing topping tails today for /ES, /TF and big time for GDX (more like a gravestone doji) and a bottoming tail for /DX. This makes we want to take that nice GDX gap-up profit now, let my metals holdings run, but try for a better entry later for miners. What do you think?

  41. mikezza

    clearly you’re a treasure trove of knowledge too but do i really need to tell you that. i don’t want anyone feeling slighted though :o)

  42. St. Deluise

    “the media” is not to same as the group of TBTF investment banks that are more than likely the ones responsible for many of the trending in /ES that happens overnight.

    they wouldn’t even have to actively sell this market. they could just withdraw their liquidity.

    anyway all just silly talk, but they should be aware that the big O is going to be gunning for them bigtime between now and november and if he wins, they’re going to get clipped one way or another. which is why of course they are (no longer) financing his election.

  43. William Wallace


    If the SPX dips into a DCL, possibly even an ICL, its possible we see gold trade sideways to slightly lower until the market bottoms, but im not so sure miners will hold up. If the market just continues to grind higher with small dips gold and miners are absolutely flying.

  44. ease

    We have so much talent on SMTP as so many contribute their gifts to Gary’s site. Gary has provided such an open and sharing forum as well as affordable site for anyone who wants to learn how to trade cycles, make money and share their skills and insights along with others.
    Ditto what John says “UNIQUE”
    We are family… dadadada, sisters and brothers are we…
    Thanks Gary! 🙂

  45. james r

    The VIX is showing a nice white candle. Could be up for a few days and give those people looking for a better entry point to deploy their cash

  46. Unknown

    Getting a little ‘flip floppy’ around here these days…..last week we had the arrows pointing the other direction in the dollar and stocks cycle so……….

    This market is doing all it can to confuse all….cycles…elliot….trendlines….moving average crosses etc….

    I cant really support a ‘small dip below a trendline as ‘failed’ these days…but as Gary has pointed out…we will see how the dollar performs coming out of its coming cycle ‘low’.

    Elliot wise….many believe this latest run to be the final portion of corrective ‘wave 2’ with impending P3 coming soon…and taking us lower lower per Gary’s previous charts……

    We are right on the cusp most indexes are challenging new….this is a big one here….and now….and ‘they ain’t makin it easy’!

    My personal take….head fake in dollar cycle….false breakout in gold….and stocks fall hard here in coming weeks as dollar continues rally…but….so we will see!

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