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More Patience
July 26, 2010

The dollar's path has been so predictable lately, I am beginning to lament focusing all my trading efforts on precious metals rather than simply shorting the dollar. Today's weakness delivers, as expected, the prospect of another failed and extremely left-translated daily cycle:

DX Daily

When the dollar's intermediate decline began about six week ago, I expressed an expectation for the entire vertical move out of April to be erased as the cycle dove into its low. The DX is now a mere two points from negating the vertical move. The 2-3 weeks needed to complete the current daily cycle should do the trick.

Unfortunately, gold still refuses to respond to a weakening dollar. For the sake of prudence, we must interpret this behavior as a warning that gold's intermediate decline may not have finished its work. Members were cautioned last week to be mentally prepared for a blow-out day:

Gold Daily

Now keep in mind I am not predicting a blow-out day, only imploring Members not to panic if one occurs. These summer doldrums have a tendency to end by blowing out stops, and considering the scale of the rally we anticipate into next spring, a severe shakeout just prior to the commencement of the rally would be quite fitting. I will gladly augment positions if such a panic were to occur, but will be just as happy if gold gaps higher and keeps running.

If there was any remaining doubt in one's mind about July 1 having marked an intermediate low for equities (there was no doubt in my mind), such trepidation should have been vanquished by today's rally.

SPX Daily

Now, if this rally is going to fail to better the April high... as my expectation currently stands... the velocity of the move is going to have to be tempered, so don't be surprised to see some choppiness soon revisted upon this market. In any case, we are in wait-and-see mode with regard to equities, at least until the dollar's intermediate cycle bottoms. Therefore, if price meanwhile manages to set a new cyclical bull market high, we have nothing to lose. For now, the most pertinent position in the Docfolio remains heavy exposure to patience.

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