Like I said yesterday, if we break back below Mondays intraday low we would then form another swing high which should have very high odds of marking the daily and intermediate cycle top and certainly the short term top leading to the move down into the half cycle low.

Again I’ll note that it is possible that the October decline was in fact the intermediate correction. Heavy emphasis on possible. I don’t think it’s probable though. Most intermediate declines last from 1-3 months. The decline in October only lasted two weeks. It’s much more likely that was just a daily cycle bottom. Also we didn’t see anywhere near the kind of negative money flows at the top of that cycle that we got today. Today’s outflows have the mark of a significant intermediate trend change coming.

Breadth:

Dollar:

As I thought might happen the dollar did break to new lows. As a matter of fact it broke hard enough to move all the way down to the next major support zone.

I suspect almost everyone is going to look at this move today and see a break of a major support zone and infer that we are on the brink of a waterfall decline. They are going to position heavily short the dollar or long gold. And they are going to be wrong. Well at least the odds are heavily in favor of them being wrong. It’s way too late in the cycle for this move to be the beginning of something. Odds are heavily in favor of this being an ending exhaustion move. Once this move starts to reverse we are going to see panic short covering and that is the fuel that ignites the bounce out of an intermediate cycle bottom.

All that being said, I wouldn’t be surprised to see one more down day Friday or maybe even Monday to put in a slightly lower low. That would shrink the intraday range and allow for a much easier swing low to form. As I said yesterday we are now just waiting for a swing low to signal the bottom of the cycle.

Next I want to go back to a longer term chart of the dollar and look at the yearly cycles.

I‘ve marked the last two yearly cycle lows. They have both arrived in March. I’ve also marked the expected bottom for the current yearly cycle in the March to April time frame. Just to jog your memory what usually happens around this time? That’s right gold usually tops right around this period. I expect we are going to see this C-wave top pretty close to the time when the dollar forms it’s next yearly cycle low. Now what happens when a C-wave tops? That’s right it’s followed by a damaging D-wave decline. The largest rallies tend to come out of yearly cycle lows. I expect when the dollar bottoms in the spring it’s going to bounce hard as that should be a much larger yearly cycle bottom. Much harder than the bounce out of the intermediate bottom that we are putting in now. That bounce is what will trigger the end of the C-wave and beginning of the D-wave decline.

I also expect the next intermediate cycle to take the dollar to new lows. That will be the impetus to send gold through the roof. I also think that this will not be the end of the dollar like everyone will be predicting at the time. Bear legs usually only move to slightly lower lows before bouncing. So I expect the yearly cycle low to bottom somewhere in the 67-68 range. Definitely not the collapse to 30-40 that will probably be bandied about at the time. The currency crisis when it comes will probably come in 2012 or so. That’s when the next 4 year cycle low for the dollar is due.

Gold:

The first thing that I want to comment on is the selling on strength numbers in the GLD. Normally I wouldn’t pay any attention to them as I haven’t found anything but the SPY ETF to have any predictive value. But now that we have a sell signal on the SPY and thus the market in general I want to pay attention to those GLD numbers. For the last week and a half big money has been coming out of GLD.

Smart money is exiting. Who is the smart money selling to? Retail investors of course. Investors who are buying into the parabolic advance instead of selling it like they should be. I don’t have much desire to be the stooge left holding the bag. At this point it’s safer to follow the big money and hand off the hot potato to someone else.

I’ve gone over my expectation for the second phase of this C-wave several times. I don’t think I need to rehash that. I do think I will explore a few possibilities though. The first one goes back to the dollar. After the expected dollar bounce rolls over and as soon as it breaks below the current bottom which should come any day now. So let’s say as soon as the dollar breaks 74 gold is going to start going nuts. It will certainly be pushing $1200 and probably $1300 or maybe even $1400.

When we get to that point this rally is going to look huge. It’s going to look like it’s time for the C-wave to be done. However the preceding consolidation is way too big from March 08 to the recent break out in September for this to end at $1300. At about that point I expect we will get some kind of midpoint consolidation or pennant formation. Some kind of continuation pattern.

That consolidation should most likely mark the midpoint consolidation of what will likely be a T1 pattern originating at the coming intermediate low. At this point many investors are going to be jumping off and locking in profits… and that is going to be a huge mistake. At that point the move should only be half way over. Everyone that loses their position is going to be scrambling to get back on board as the second leg unfolds. That is what will fuel the final parabolic move into the C-wave top.

Greed and self control:

Finally today I want to talk a bit about greed and self control. Now don’t get me wrong there is nothing wrong with being greedy. As Gordon Gecko would say “greed is good”

Now there are times when we need to be greedy. I’m talking rabid, foaming at the mouth greedy. Greed is how millionaires and billionaires are made.

But 20 weeks into an intermediate cycle isn’t one of those times. The tops of C-waves are not one of those times. Folks let me assure you that I will almost always be a bit early in my exits. If you are one of those people who cannot control greed then you are going to have an almost uncontrollable urge to stay on the bull too long. You are going to be one of those investors that just has to catch the last few pennies and just can’t stand to watch the bull continue up without you. Even if you know logically that 20 weeks into an intermediate cycle is not the time to put the pedal to the metal. 20 weeks into an intermediate cycle is the time to exercise self control.

If greed makes millionaires then self control is what allows one to remain a millionaire. I’ve seen this happen over and over. It happened to many investors during the topping of the last C-wave. And I’m not just talking novice investors. I watched as people with 10, 20 & 30 years experience rode the last D-wave all the way down because they didn’t have the self control to exit and stay exited. Many of them even knew that all they had to do was wait for a 100 Blees rating before buying back and still they couldn’t control their emotions.

I watched last year as virtually every energy bull rode that implosion all the way down before finally admitting that maybe peak oil wasn’t quite here yet and even if it was a global recession kind of trumps peak oil. Even Boone Pickens, a seasoned investor with 40-50 years under his belt got blinded by greed and couldn’t exit as the parabolic move got stupid. Anyone with a lick of common sense could see that one coming a mile away. Anyone with a lick of common sense could see the final outcome for the housing market. But out of control greed short circuits common sense.

I can see it right now by the many comments on the blog and the many emails from subscribers that are afraid they are missing the boat. Even if one went to all cash and ignored my suggestion to take only partial profits. Cash in no way means you are losing money. For heaven’s sake some of the e-mails I get you would think these people are losing their life savings. They haven’t lost a thing, as a matter of fact they are up big from when they started. The problem is that they are watching the market go higher without them and they are rationalizing that missed opportunity as a loss. Folks go bang your head against the wall a couple of times so you can think clearly. A missed opportunity is not a loss! A missed opportunity is simply that, a missed opportunity nothing more. There will be literally hundreds and maybe thousands more of them during your investing career. Picking a top is almost an impossibility so quit worrying if you don’t get it perfect.

What’s more important is that we are in position to take advantage of the next opportunity. The next one in the precious metals market is going to be a doozie in my opinion. That we don’t want to miss. The last few dollars of this phase of the C-wave is an opportunity that I will gladly pass up in order to be positioned for the next leg.  

Now let me tell you right now that exiting the top of the C-wave is going to be infinitely harder than exiting this phase. Why? Because we are going to clear out every position. When the gold bull continues higher without us and it almost surely will for a while, it will really be without us, because we won’t have any position. And I can assure you that at the top of the C-wave we are going to see countless stories about peak gold, gold shortages, mines drying up, etc. etc.

And if you think that’s bad wait till the top of this bull market. I guarantee there will be every fundamental reason in the world for why gold will continue to rise forever. But let’s face the facts, gold really has no inherent value. When you really think about it, is gold any more valuable than say Tulip bulbs? Granted it does have some vanishingly small industrial uses. But in the big picture gold only has value because we say it does. If all the gold in the world were to vanish tomorrow would it have anything other than a temporary effect on the global economy? No it would not. Now can you say that about oil? If all of a sudden all the oil in the world were to vanish civilization as we know it would cease to exist. If all the copper in the world were to vanish the world would come to a grinding halt. The same for wheat, corn, rice, rubber, maybe even coffee and sugar. I know my world would come crashing down if I couldn’t get my daily chocolate chip cookie fix.

But the stone cold reality is that gold really has very little true value. And as we move into the top of the secular bull market investors, one by one, are going to come to their senses and start asking themselves why in the world they are paying 1000’s of dollars for something that it really doesn’t matter if it’s in short supply or not. They are going to look over at stocks which at the time will be selling for pennies on the dollar and realize that these are companies that actually make something. Often something that the world can’t do without. They will realize that the crowd is giving away true wealth for nothing and they are going to start selling their gold to the Moe Ronns of the world.  Then they are going to use those profits to buy true wealth …stock in great companies.

Our job as investors is to be quick to come to our senses and not get caught at the top. Our job is to make sure self control overpowers greed when the time is right. At the moment it is time for some self control. Sometime next spring it’s going to be time for a huge dose of self control. Look at this period as a dry run for what’s coming in March.

Short term indicators are still stuck in neutral.

Everyone have a Happy Thanksgiving.

Gary

www.garyscommonsense.blogspot.com

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