The market seems to be divided between the traders pushing the long side for the move up to 1120 vs. the ones who don’t care if they catch the last 20 points and are selling positions.

Remember most of the time the initial move out of a coil is a false move followed by a more powerful and durable move in the opposite direction. If the market can bust out of the coil and spike up to that 1120ish level the odds would favor it being an ending move and not the beginning of another leg higher. That would probably succeed in drawing in the last bulls and push the sentiment levels back into true extremes.

Now let me say this again, if you are going to try shorting into what should be an intermediate decline wait for a negative money flow day. We know that every intermediate decline except one has seen at least one of these days at or very close to the top. One can’t get a much better edge than that. Have the patience to wait for it. If it doesn’t come then don’t take the trade. It’s that simple. Don’t worry, a lost opportunity doesn’t cost you anything.

I’ve seen countless technical reasons over the last couple of months for why the market has topped. None of them has worked. What does that tell us? That there is no edge in spotting tops with technical analysis alone obviously. Wait for the sign that big money is exiting and then use technicals to time the exit or short if one is so inclined. That strategy will give you an edge. And in the long run waiting for and acting on our edges is the best we can do in this business.

Those that have the patience to wait for their edge will probably be successful. Those that are impatient will probably contribute to the market. I don’t know about you but in this case I prefer to be a taker instead of a giver.

Breadth:

The internals are now starting to roll over. The shorter 5 day moving average of the new high/new lows has turned down. As soon as the slower 10 DMA confirms we should have the top of this half cycle and probably the top of the intermediate cycle.

Dollar:

The dollar tried and failed again to close back below 75 today.

We are getting late enough in this cycle that the dollar is running out of time to make a big move down. I could see a couple more days of sideways trading followed by a final move down into the bottom. That should mark the intermediate low and those kind of larger scale lows tend to breed explosive counter trend moves. That would mesh with the S&P coil breaking higher followed by a reversal and move down into the now due intermediate correction.

Gold:

Just as the dollar is running out of time to break through the 75 level, gold is running out of time for this daily cycle. In a couple of days gold will enter the timing band for the cycle low.

Now one could certainly roll the dice and try to catch the final gasp higher (if there is one) but they would also risk getting caught as gold tops and rolls over into the daily cycle low. That top should also mark the top of this now stretched intermediate cycle. If that’s the case then the next daily cycle should fail to make new highs. It should also be left translated and probably break below the last daily cycle low.

I think I’m going to change my expectation for this C-wave. I was kind of expecting something similar to the last C-wave. Namely some kind of T1 pattern.

The problem is that the first leg hasn’t rallied far enough. Not by a long shot. The size of the consolidation suggests this C-wave should be huge. Probably the biggest of the entire bull market so far. However gold is now on week 19 of the intermediate cycle and it’s only managed to reach $1150. If we were going to see a T1 pattern unfold like we did in `06/`07 then gold should be closing in on $1300 by now. I think it’s probably more likely that instead of a T1 type consolidation we are going to get a sharp correction followed by a much larger second leg up and one that should be extremely aggressive.

In that scenario I want to have capital available for option strategies. If gold can correct back down to $1050-1070 we will probably see an explosive move of 50-80% in a very short time span (one intermediate cycle). This is the kind of setup up where I want to use a bit of leverage. In order to do that I need to free up some capital. As I’ve noted I’ve already trimmed my physical holdings and about ¼ of my mining positions. I would still like to trim another quarter. I just need to see one of those heavy selling into strength days before I do.

There are several gaps on the GLD chart that should get filled during the correction.

It’s probably a pretty good bet the first two gaps get filled. The third one probably won’t fill as that would mean gold back down to $1000.  I doubt gold is going to break back below $1034.

Short term indicators are still parked in neutral.

Gary

www.garyscommonsense.blogspot.com

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