Dollar:

Since we still didn’t get the heavy selling on strength day we’re looking for there’s probably a pretty good chance the dollar is going to put in one final spurt to lower lows before bottoming.

Gold:

By moving past last week’s intraweek high gold has now officially rallied longer than any other intermediate cycle of the entire bull market. In my opinion that is more of a reason to be nervous than optimistic.

We have a possible exhaustion move on the miners today.

The only thing that makes me hesitant is the lack of a large selling on strength day. Until we get one of those I think we have to assume the stock market is going to continue higher. Miners may lead by a day or two if they smell a top in gold approaching.

The lack of any kind of move lower in gold yet has me questioning whether last week did indeed begin the move into the half cycle low for stocks.  It obviously wasn’t any kind of significant decline for miners. I still expect stocks, miners and gold to roll over together into that bottom. The fact that gold hasn’t begun the trip down yet leads me to believe that low is still ahead of us.

The fact that most of the juniors are not making new highs is also suggesting we have a significant correction approaching.

I know when we get into one of these parabolic moves it does seem like the market is never going to correct but I can assure you it always does. Here’s the chart of gold over the last year. Despite a couple of daily cycles that stretched long we never missed a cycle low. I’m pretty confident we aren’t going to miss one here either.

Next the same chart but this time I’ve noted the duration from the top of a daily cycle to the bottom.

The shortest duration from peak to trough of any daily cycle was 7 days. The longest 24 days. I think we can throw out anything longer than 12 days as this cycle is already extremely right translated. Now for the sake of argument let’s say we expect the decline into the now due cycle bottom to tie the shortest period so far this year and last 7 days. We know that most daily cycles rarely last longer than 28-30 days. Today was day 18 of the current cycle. That means gold probably has 3 days or less left in this rally before it starts moving down into that cycle bottom.

The fact that the GLD chart now has another large gap is also not the most positive of signs. At this stage of the rally these gaps are emotional moves from traders who feel they are missing the boat and are chasing gold higher. I suspect it won’t be long before these Johnny-come-latelies regret their emotional purchases.

Now let me say this. The current move in gold is setting the stage for an incredible rally. This move is building huge amounts of optimism in the precious metals sector and as expected energy bulls are starting to defect from the oil market and are coming into the PM markets. Now what we need to see is a sharp correction to temporarily wipeout all this optimism.

Once that occurs and bottoms we will see gold start to quickly rise again. All those late traders that get taken out by the now due correction will soon be piling back in as the momentum starts to build again. Many more energy bulls will start to jump ship as the rally this time will be many times more aggressive than anything we’ve just witnessed. I fully expect we are going to see gold rally 50-80% from the bottom of the correction to the final exhaustion top and I expect it to do it in about three months or less.

All we need now is the correction to set the stage for the final blast off.

Short term indicators are still mostly neutral.

Gary

www.garyscommonsense.blogspot.com

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