Most of the time this is about as far as the daily cycle stretches. So either Wednesday is going to turn out to be the cycle bottom and we are going to get another swing low anytime now or this cycle is going to stretch a bit. If I had to guess I’d say we are going to see one more move lower. Just enough to spike the S&P up into that 1120 range we’ve been targeting. While I doubt there are hardly any bears left at this point I expect one more move to break out of the recent three week consolidation phase will put any bears that are left into a coma.

Gold:

I’ve received many emails asking if I think the daily cycle decline could have been compressed into one day on Friday. Hmm it’s possible. We did see a very short cycle decline in Oct. `07 that only lasted 3 days. The problem is the intermediate cycle is on week 21. If we were on week 10 or even 15 then I could consider that we just got a very abbreviated decline in a powerful momentum move. But 21 weeks into the intermediate cycle and that possibility probably doesn’t have very high odds. No I think we are still trying to put in the final top to the first phase of this C wave.

I’m going to start off by showing you the final daily cycle up that topped the June intermediate cycle.

That particular daily cycle rallied for 30 days before topping out. Today was day 24 for this daily cycle. That extended cycle marked the top of the intermediate rally. I expect this top when it comes is also going to mark the top of the intermediate rally. So could we see another 54 day cycle like we did from April to July? It’s possible, although that particular cycle has extenuating circumstances.

Keep in mind that this was the cycle that was aborted by the Fed’s liquidity campaign. During this period the stock market was in the process of completing a failed daily cycle that had already moved below the half cycle low.

This was setting up what should have been a failed yearly cycle and a continuation of the left translated 4 year cycle down into a final bottom in 2010 or 11. The Fed aborted what should have been the next leg down in the bear market. And in the process they also halted what was shaping up to be the single most left translated 4 year cycle in history. It’s amazing what 10 or 20 trillion freshly printed dollars can do.

So we can see how that particular gold cycle got stretched extremely long. It was supposed to be a failed cycle just like the stock market but gold also got caught up in the hurricane of fiat money.

We now have about 20-25 days left in the stock market daily cycle. And since we appear to have just skipped over the half cycle low this time, it’s probably more likely we just see a sustained move down into the daily and intermediate cycle low in everything once the decline starts and that includes gold and miners. Remember, intermediate term corrections tend to take everything down when they unfold. During the last intermediate correction in the stock market in July, the 9% correction in the S&P translated into a 23% correction in mining stocks. As our historical precedent is calling for a 10-14% pullback once this second leg up in the stock market tops we could easily see another 20%+ move down in mining stocks.

The miners are so stretched at this point, that a 20% correction wouldn’t even reach the 200 DMA. As a matter of fact it would only take the HUI back to the 400 level and that would still represent a higher low and stay within the uptrend channel that miners have been trading in for months.

I actually expect miners to break out of this channel during the next phase of the C-wave and move up into a parabolic rally that will probably take them 60-100% above the 200 DMA.

So when the correction comes what should we expect? Well I will say that every intermediate pullback has at least corrected back to the 38% retracement level. Even the `07 C wave, first phase, which just happened to be the second longest intermediate rally at 19 weeks, managed to correct back to the 38% retracement level.

The correction in April of the A wave intermediate cycle moved down to almost the 50% level.

The short intermediate cycle into the July bottom corrected slightly more than 62% of the preceding intermediate rally.

So once we get a top in place gold should pullback to at least the $1100 level.

However if we want to see gold hit the $1500+ level during this C-wave it would be much better if it could pullback to at least the 50% retracement. That kind of serious correction would likely generate the kind of negative sentiment that could power a move up to and well past $1500.

Like I said this morning I expect gold to have a bit more trouble getting through $1200 as easily as it did $1100. We could of course see it pierce that level intraday or even for a few days but this deep in the cycle I expect gold is going to need a breather before it can get through this level for good.

Today’s action left another large gap on the GLD chart. That’s a gap I’m confident is going to get filled when this daily cycle finally tops out and moves down into the next cycle bottom. Another negative is the large volume today on GLD. This far into the rally there’s a decent chance that we are seeing an exhaustion move as everyone finally panics into long positions.

This kind of heavy volume is a big positive if it comes right as gold is moving out of a cycle low. Not as positive 24 days into the cycle and on a big gap up.

We’ve got the same big emotional gap on GDX as GLD. This one will get filled also.

After today’s rally all the short term indicators are now extremely overbought.

Gary

www.garyscommonsense.blogspot.com

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