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Preaching Abstinence
September 20, 2011

As expected, the dollar took a breather to consolidate yesterday's gains and to pass time while the world awaits the latest round of FOMC banter. We all know by this point Bernanke is not in a position to unleash QE3. In fact, I've been saying as much since spring. Given the public and political resistance to further counterfeiting operations, as well as the expectation for a general commodity decline into a 2.5-year cycle low, the odds strongly favor further abstinence by the Fed.

It's been a while since I talked about the general commodity cycle, so let's see where we stand.

CRB Weekly

I expect two developments to transpire as the commodity complex works its way into a major low. The first, obviously, is that the 2.5-year cycle trend line needs to give way. Second, the final stage of the decline should become disorderly, as is typical for the ending moves of multi-year cycle declines in any asset.

While gold has been holding up very well, setting new highs as commodities trended downward, I do not expect the yellow metal nor other precious metals to be immune to the anticipated panic phase of the commodity cycle decline. For this reason, in addition to the fact that gold's daily cycle is forming as left-translated, I continue to be reticent to chase mining shares, despite the constructive look of their charts. Perhaps such a view will ultimately prove to be misguided, but I simply believe a more well-defined... and therefore lower risk... entry will present itself once the commodity decline is behind us.

In the meaning, I am building my bet against oil.

Oil Daily

A breakdown from a consolidation pattern makes a lot of sense at this point since I anticipate an accelerated drop as oil approaches the 40-week mark for its intermediate cycle.

As for equities, they had me admiring their resilience into mid-afternoon, and then the bottom just fell out.

SPX Daily

Resolution of the August cycle is still up in the air. While a move above SPX 1230 would confirm September 12 as a daily cycle low, failure to move above SPX 1230 does not negate that interpretation. I am still pondering that labeling, but for now I intend to stick with the interpretation that gives us a low within the normal timing band.

Docfolio Update: Added to oil puts

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