I’ve said all along that if the Fed didn’t get out of the way and let the market correct naturally it would have serious consequences. Well they have not let the market correct naturally. On the contrary ever since QE3 ended there have been more interventions than ever before, and more aggressive. This has kept the market propped up but it’s also built up extreme complacency. We now have a bubble in central bank confidence. When this bubble pops it’s going to unleash a tsunami of selling as everyone runs to the exits all at once.
From time to time I’ve published charts and articles warning that we are moving into the timing band for a major multi-year cycle low in the stock market. Something of the same magnitude as 2009, 2002 and 1998. Those were all multi-year cycle lows. We are due for another one of those at any time. And considering the multi-year cycle has played out as an extreme right translated cycle, those typically correct as some kind of crash scenario. Examples of extreme right translated multi-year cycles are 1987, 98 and 2009. Now because of Fed intervention we are currently in the most extreme right translated cycle in history. At this point the Fed has virtually guaranteed this 7 year cycle will end in a crash event.
Based on the previous daily cycle low having occurred 26 days ago, the next cycle low will come due sometime between the first week of September and the FOMC meeting on September 17th. So as unlikely as it seems right now there is a scenario that could generate that move down into the 7 YCL over the next 3-4 weeks.
I’m of the opinion that tomorrow is likely to be a key day. We’ve already seen two interventions fail in the last week. If the market breaks hard to the downside tomorrow then I doubt there will be anything the Fed can do to stop the train at that point. If the market drops hard tomorrow or Thursday, then traders will start to lose confidence in the Fed and the run to the exits will begin.
Keep in mind that in order to confirm a 7 YCL the market has to drop far enough to break this multi-year trend line. The following chart gives you an idea of the magnitude of the fall that is due. Stocks could conceivably lose three years of gains over the next 3-4 weeks.
It’s been my belief that the S&P will probably test the 2000 and 2007 highs at the final 7 YCL.
If this scenario unfolds over the next 3-4 weeks then not only will the Fed not raise rates, but they will be forced to initiate QE4 to halt the crash. As soon as QE4 begins then the bull market in the dollar will be over, and the consolidation that would otherwise be destined to breakout to the upside will instead break lower and the next bear market in the dollar will begin.
If this plays out then gold isn’t just starting another bear market rally. Instead it is anticipating QE4 and will have already formed the final bear market bottom a couple of weeks earlier.
Either way, gold has begun an intermediate degree rally that should last at least a month and a half to two months. And if stocks deliver the move down into the 7 YCL then gold is starting a new bull market. Whichever scenario is in play, now is the beginning of a trade able rally in the metals sector and the longer one waits the harder it’s going to be to chase
…and you might be getting in at the very bottom of the bear market depending on what happens to the stock market over the next several weeks.
Oil is tied to China’s economy as well, but it is part of commodities.
Your opinion on its direction?
It is due to bottom any day now. And if it does continue down to new lows then the bottom is likely to be the 3 year cycle low and oil would become a longer term hold for at least a year or more.
I follow you loosely over the last few years. I remember this chart and it coincided with my thinking at the time. I am not criticizing you but wondering if you could explain what happened to GDX from this chart:
Do you think that the move you anticipated was delayed and is perhaps starting now?
I never imagined the manipulation in the metals could continue as long as it has. But we are getting close to a final bear market low. It’s either happening now or will happen at the next ICL in Dec or January.
Surprised we dont get more news about isis in this country..Do they just shut their ears & eyes in white house
Lots of news on isis. You are just not looking in right places. ie; Yahoo News, or Google isis.
But but but …. the FED is going to raise interest rates in September!!!!!!!!!!
I’m not sure I’m onboard with this prognosis. We have yet to see a ‘parabolic move’ in the stock market and I think that needs to happen to pull everybody in for the final inning.. and then watch out below!
Also.. I’ve said this before and I will say it again.. I don’t think the FED will be raising rates this year boys! And I’m not pulling this out of my ass to cause a ruckus in the comment section.. Other publications I follow (Steve Sjuggerud from Stansberry Research is a long time favourite) also share this opinion with the research and common sense to back it up. And as far as QE4..? I could be wrong on this one, but not yet convinced that scenario’s gonna play out.
The parabolic move can’t begin until we get the big correction to completely cleanse bullish sentiment. Notice how the parabola didn’t start in tech until the big correction in 98. It didn’t begin in oil until after the big decline in early 07.
Once we get the big move down that will put in play the forces to produce the bubble phase in stocks.
If the Feds do raise rates, it won’t be by much. Say, 5 to 10 basis points. Anything more will sink the global economy, IMO.
Considering what is happening now, what scenario do you see happening in Dec or Jan that could stop gold’s advance and force it to a final low?
If stocks don’t drop into the 7 YCL over the next 3-4 weeks then the Fed will not have to start QE4 yet. The dollar would break upwards out of the consolidation and that would pressure commodities down one more time into the final 3 YCL late in the year or early next year.
It really all boils down to when the 7 YCL arrives in the stock market as that is the event that will trigger QE4.
Gary does THE BEST chart porn. 🙂 Hands down, no question.
It’s certainly plausible, we’ll see. Gotta take it one step at a time, as even he would say.
Gary, that’s a very thorough analysis once more. But generally when studying the stock market crash events in the past, the dollar was rising while the stocks were plunging, acting as a safe heaven and also because when people sell, they are in cash. And usually the QE things start at the bottom of the crash, like in early 2009. Bottom line: don’t you think that there is also a good chance that gold continues to crash along with a stock market crash?? Thanks again for sharing your work.
I think gold is strating to anticipate QE4 and will not follow stocks down this time.
Here we are, 10 am Wednesday, and the great Diagonal Triangle for last Oct is breaking down. In the SPX the only flaw in the pattern was that wave 5 in July did not make a new high. (It’s always something) But some call it a wedge, this pattern sat up there for almost a year screaming THE END. Take a simple lesson.
Gold would never survive the equity market rout that you describe. (NB: I understand you are talking about potentialities here). Gold will do what it always does: initially it will hold up as we move into such a decline, then become volatile during the decline, then finally succumb. It won’t matter when, or if, the FED does a new stimulus package.
But I would grant you this: if we get a huge global stock market rout, and new central bank stimulus, then all assets including gold would put in an important bottom that would at least start a 12-36 month cyclical rally.
If China is pulling out all the stops to keep capital in the country, wouldn’t the only alternative for their citizens to protect themselves be to buy gold?
The individual Chinese citizen does not have the kind of money to put any type of immediate dent into the gold consumption numbers compared to what hedge funds can do in one day.
Regarding the U.S. market, ‘day traders’ are buying now and bringing the market back a little. As Gary says…tomorrow will be key….even still…the shakeout, may go on for awhile. Keep your powder dry….too much noise right now.
You could also turn that around GOTTOWEARSHADES and question whether in a Chinese stock market crash whether its citizens would be forced to sell gold.
As Paul comments, the markets are moved by the big banks, hedge funds, etc, and not by Joe Doe or whatever the equivalent is in China.
you may want to look at gold in a currency application to see a larger picture
Fed to the rescue mid-day once again.
Sold GDX for a nice profit 🙂
BTW – does anyone here uses Yahoo – Portfolio Tracking. Since the dummies discontinued the service, what do you guys use to track / add transaction??
I think the crash already occurred…..in DUST!….didn’t someone on this board call for $50 to $60 in DUST by the end of last week? Maybe after the reverse split! 🙂
Market reversed nicely today. We go up from here!
DOW didn’t even get to 10% down – well, not yet.
No sign of stock market intervention ever failing to work.
Does Wednesday’s successful intervention mean the crash event in the next 3-4 weeks has been postponed?
Strange prediction for USD. In case of Wall Street crash, I would expect first USD rally into March highs or ever higher and then QE4 🙂
The coming September is fraught with dangers like a financial crash and a new world currency , warns Lindsey Williams: