"No warning can save people determined to grow suddently rich" - Lord Overstone

  • 8 hours The Secretive Wall Street Firm Betting On Bitcoin
  • 9 hours ‘Data Is King’: The Oil Industry’s Next Most Valuable Resource
  • 10 hours Google Invests $300 Million To Combat Fake News
  • 11 hours Zuckerberg Dodges A Bullet As Facebook Loses Billions
  • 12 hours Tesla Tumbles As Investors Lose Patience
  • 14 hours Are Alt-Coins On The Verge Of A Break Out?
  • 15 hours What Should Gold Investors Expect From The New Fed Chair?
  • 17 hours Who Will Pay For Trump's $60 Billion China Tariffs?
  • 1 day Vladimir Putin’s Mysterious Fortune
  • 1 day Cryptos Resist Social Media Crackdown
  • 1 day The Death Of Dodd-Frank
  • 1 day Bitcoin Bounces Back Ahead Of G20 Meeting
  • 2 days Trump's Trade War Nears Boiling Point
  • 2 days Will April Be A Turning Point For Precious Metals?
  • 2 days Economic Pressures Weigh On Banks And Borrowers
  • 2 days U.S. Political Uncertainty Keeps Stock Markets On Edge
  • 2 days Gold: The Religion Of Currency
  • 4 days Economists Polarized On Trump’s Tariff Plan
  • 4 days Why Are Investors Overlooking Gold Stocks?
  • 4 days The App That Democratized Trading Is Now Worth $5B
Snap Shares Tank Over ‘Slap Rihanna’ Campaign

Snap Shares Tank Over ‘Slap Rihanna’ Campaign

Snapchat’s share prices tumbled after…

Trump's Trade War Nears Boiling Point

Trump's Trade War Nears Boiling Point

Trump’s trade war appears to…

Economic Pressures Weigh On Banks And Borrowers

Economic Pressures Weigh On Banks And Borrowers

Banks and borrowers are under…

Toby Connor

Toby Connor

GoldScents is a financial blog focused on the analysis of the stock market and the secular gold bull market. Subscriptions to the premium service includes…

More Info

Has the Correction Finally Begun?

Today is a classic example of why I have been warning traders not to push the long side of the stock market. When these creeper trends finally break they often generate a crash or semi crash type of profit-taking event.

The last 2 1/2 months were a classic example of why I have been warning traders not to short the stock market. These creeper trends can go on much longer than many people expect and shorts just end up getting whipsawed out multiple times until they're so shell shocked that they can't hold on when they finally do catch the top.

All in all the correct strategy was to remain in cash until the profit-taking event occurred and then buy as close to the bottom as possible.

If I had to guess I would say this will probably turn into a two step down affair followed by a two-month volatile consolidation as the dollar rally progresses.

You might recall in my last post I mentioned that the dollar would need to get on the upside of an intermediate cycle before stocks had any realistic chance of correcting. I outlined the conditions that would confirm that the dollar had formed an intermediate cycle low. Those conditions have now been met and it appears that the stock market is ready to deliver the much anticipated profit-taking event.

$SPX (S&P 500 Large Cap Index) INDX
Larger Image

During this period gold should drift generally downward over the next couple of months as the dollar rallies.

$GOLD (Gold Spot Price (EOD)) CME
Larger Image

There will be plenty of false rallies (just like last Thursday) to sucker traders back in. But I really doubt gold will put in a lasting bottom until the dollar's intermediate cycle tops. Barring a public announcement of QE3, that is unlikely to happen until sentiment reaches extremes again. That almost always requires a move to new highs and usually takes a minimum of one and a half to two months to generate that kind of bullish sentiment.

As I have been warning traders for months the dollar's rally out of its three year cycle low almost certainly isn't done yet. The rally out of a three year cycle low usually lasts at least a year, and that's the norm in a secular bear market. Since the three year cycle low bottomed in May of 2011 it's unlikely that we would see a final top until at least May of this year. And since the three year cycle low in 2011 held above the three year cycle low that occurred in 2008, there is even a case to be made that the dollar has now entered a secular bull market.

$USD (US Dollar Index - Cash Settle (EOD)) ICE
Larger Image

This would imply that despite Bernanke's best efforts the forces of deflation may be overwhelming the central bank's efforts to reflate. However I'm confident that if 10 trillion isn't enough Bernanke will not hesitate to print 50 trillion. I have little doubt that no matter how this progresses it is going to end in a massive inflationary currency crisis.


Back to homepage

Leave a comment

Leave a comment

Sign Up For The Safehaven Newsletter