December 22nd, 2012
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A Dollar in decline, a 3 Year Cycle Top, and a “Dollar pummeling into the New Year” all sound wonderful for Gold. Ordinarily of course gold would be rocketing from here as the dollar collapses. For gold to drop this far while the dollar collapses is only masking the true severity of the precious metal decline.
As for the gold Cycle, we officially have to contend with remarking our Cycles to better understand what the market is doing. Remember that Cycles are the true interpretation of what the asset has done, there is no ambiguity, a Cycle by its very definition can never be wrong. The fault lies with the Cyclists, the analyst who attempt to predict the movement of the asset by predicting the type of Cycle we’re going to experience based on pasted evidence.
For this Cycle, clearly the Investor Cycle Low needs to be pushed back to accommodate Gold that is still heading lower. There is just no chance that Nov marked an ICL and therefore I’m forced to look at the next logical Cycle point and work from that point forward. Beginning with the Daily Cycle (which has not changed), we’re either on Day 33 and about to find a DCL or we’re on Day 9 with a good 2 weeks of declines still ahead of us. Technically we’re oversold to the point where this could be Day 33. But on the flip side, this must be the tail end of the Investor Cycle and we know the end of an IC can be an extremely punishing event. By that I mean do not look at the oversold level here and automatically assume a DCL must be coming.
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Basically because we’re now on Week 18 of this newly marked Investor Cycle, we know that these 4th and 5th Daily Cycles can run short and are often extremely Left Translated. The low that occurred 9 days ago marked a top which occurred on FOMC day. It was a top on a day where major gold bearing policy (QE4) was announced which also saw massive buying and then selling volume. That day was a classic reversal day, it was a “Cycle changing” event, and I firmly believe that this event cannot be ignored when one marks the pivots of the Cycles.
Looking at the weekly chart with a whole new lens now is extremely important. Now that we’re in at least the 4th Daily Cycle and approaching an ICL, we’re back in the business of looking for the conditions that would signal an ICL. Namely, some of the conditions we’re looking for are a deep and bruising sell-off that pushes through Bollinger bands, both on the Daily and Weekly charts. An RSI(5) weekly level well under 30, but preferably below 20. Sentiment levels that match prior ICL’s and a much more favorable COT report. Confirmation of a Cycle Low would come beyond that point with a trend line recovery, a Daily and Weekly Swing Low, and a general recovery in our underlying technical indicators.
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The point is that you must transition the mindset from being bullish and seeking to recover any trading losses immediately, to one where we are preserving capital and waiting for the best and most logical new entry point. It’s very easy to enter a phase of denial, please try to acknowledge that the Cycle has broken down and the chart is bearish. Moves down to ICL’s are very dangerous events, there is just no telling how far Gold/Silver can or will drop during the final 10 trading days of a decline.
We should also take note that there appears to have been a significant shift in the market here. Something has changed that is not yet visible in real time, but one that will probably be very clear in hindsight. My gut feeling or opinion is that this bull market is throwing off a major red herring here. I find this action to be very peculiar and quiet honestly “I smell a rat”. I don’t buy this weakness when we have a massive QE4, a dropping dollar, a seemingly coordinate barrage of selling, an assault of negative media/news, analyst downgrades, and bearish newsletter publishers. I believe this newly marked Cycle is fast headed to a major Cycle Low that could be just days away. I feel we’re on the verge of a massive new move higher, but something tells me to watch out, that this Bull has some unfinished and sinister moves to the downside left. I take nothing for granted and when you look at all past bull markets you will see that they are capable of some very amazing moves.