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February 18, 2012

The Stage is Set

As noted earlier in the week, the rejection of a brief dollar rally by a significant overhead pivot should set the stage for a 3-4 week rally across stock and commodity markets. That rejection arrived only two days after the post, and once more traders catch on to the fact that the dollar is destined for another leg lower, I expect to see panic buying emerge in stocks and commodities.

DX Daily

Likewise, gold found support at its moving average, as anticipated.

Gold Daily

Despite being in rally mode, gold is still consolidating the parabolic move into last September's peak. The yellow metal should approach the peak as this rally completes as it forms a larger consolidation to set up a breakout later this year.

I also noted in my last post that the equity rally would "linger longer" than most traders expect.

SPX Daily

Most traders were looking at the 13% rally out of the December low in conjunction with droves of overbought indicators... including bullish sentiment... as a strong sign that a big correction was due. However, the cycle analysis I discuss in the Member Letter suggested these traders would be surprised. I believe a lot of bears are in the process of being trapped, and this squeeze will give rise to a panic buy as the dollar sinks into its low. Once the dollar prints that low, the equity rally should exhaust, and the downside reversal will be even more vicious than the rise.

Commodities have also recently broken out from the 2011 corrective phase, leaving behind a major cycle low and setting themselves up for a rally acceleration.

CRB Weekly

The stage appears to be set for stocks and commodities to rally into the ides of March, at which point exuberance will give way to serious corrections.


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