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November 7, 2012

Equity Correction Almost Done

Back on October 13 I posted a piece describing the factors within cycle analysis which suggested stocks would decline toward the election. Today's post-election plunge puts a final piece of the puzzle into place with regard to an intermediate-degree correction. I now expect equities to quickly find a footing and begin a rally to new highs.

The key development is a failed daily cycle, which occurs when price falls beneath the previous daily cycle low. Every intermediate cycle decline must contain at least one failed daily cycle.

S&P 500 failed daily cycle

Interestingly, this development took place very late in the timing band for a cycle low. In other words, stocks simply don't have much time to move lower. I suspect we will see one more panic day followed by a quick reversal. Equities should then head to new highs.

With or without a final panic, the equity decline off the September peak constitutes one of the most mild intermediate cycle retreats ever. This reluctance to decline likely betrays the power of Bernanke's new counterfeiting operation.

As with the general equity market, mining shares also enjoyed an unusually-mild decline.

GDX daily chart

As detailed in the Member Letter, gold has just formed its own weekly cycle low. Once stocks turn the corner and head into a new intermediate rally, the dual winds of both gold and equity rallies... fueled by Bernanke's presses... should induce a fervent rally in miners.

 

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