Cycle Trading

After Bernanke dropped the hammer on Thursday, the dollar continued to sell off on Friday

Friday was either day 16 or day 28 of the dollar’s daily cycle.
RSI (not shown) has exceeded levels that marked previous daily cycle lows and some intermediate cycle lows.

A break above 79.25 would form a swing low.
A swing low at any point here holds a good chance of marking the daily and intermediate cycle low.

The dollar is in the process of printing either an extremely stretched failed daily cycle or (more likely) two consecutive failed daily cycles.

Of course, a failed daily cycle is the hallmark of an intermediate cycle decline.

This was week 19 for the dollar’s intermediate cycle.
The current weekly cycle peaked on week 12.
If a bottom is printed before week 24, it will lock in as a right translated weekly cycle.

The dollar tagged 78.60 on Friday, which was the previous intermediate cycle low. Breaking below 78.60 forms a failed weekly cycle.

The dollar has now given back the entire rally out of May and may yet still print a failed daily cycle.

Should the dollar break above 80.25, then it will form a weekly swing low.

I believe that the yearly and three year cycle has topped.
That means that any succeeding intermediate cycles now should form as failed, left translated cycles. Most left translated intermediate cycles peak by week 8, but many peak even earlier.

For instance, once the dollar peaked in 2010 and crashed for nine weeks.
The next intermediate cycle only rallied for 3 weeks before rolling over.

The monthly chart looks very bearish for the dollar

The monthly cycle peaked in July, which was month 5.
A swing high was formed the following month and now September is providing significant follow through.

One signal for a yearly decline is a failed intermediate cycle.
We do not have that (yet).
However there is a break of the rising three year cycle trend line that signals the three year cycle is in decline and the yearly cycle as well.

September is month 7.
Since the dollar’s yearly cycle normally runs 9 to 12 from trough to trough, we can expect another 2 to 5 months to a yearly cycle bottom.

Stocks

Week 14 of the equity intermediate cycle sees stocks breaking out to new recovery highs.
The intermediate cycle normally runs 18 + 25 weeks from trough to trough,
The leaves stocks with another 4 to 11 weeks for the timing band for an intermediate cycle low.

So the equity daily cycle is still young at day 8 and is enjoying a lift from Bernanke’s speech on Thursday.

A new daily equity cycle runs about 7 to 9 weeks (35 to 45 days).
This new daily cycle can take stocks to around week 21 to week 23, which is in the heart of the timing band for an intermediate cycle low.

Along the way equities will need to navigate an oversold dollar that is due for a new daily cycle.
That new dollar daily cycle holds the potential of also being the beginning of a new intermediate dollar cycle. And a rallying dollar usually pressures stocks.

The last daily cycle for an intermediate cycle usually forms as a left translated, failed daily cycle, often peaking before day 20.
So if this is the last daily equity cycle in the current intermediate cycle then we will likely see stocks peak by day 20.
Another possibility is that this new daily equity cycle will not be the terminal daily cycle, meaning that the weekly cycle stretches past week 23.
Whether or not the dollar begins a new intermediate cycle will certainly impact the current equity cycle.

The yearly equity cycle appears to be on month 3 of the new yearly cycle.
Sure the dollar is in the timing band to print an intermediate cycle bottom and the rally out of that bottom is likely to send stocks into seeking out their intermediate cycle bottom.
The backdrop of Ben’s announcement of buying mortgage back securities and forward guidance through 2015 could lead to a short (2-3 week) dollar rally and a mild intermediate cycle sell off.

Currently the four year cycle is on month 42.
Typically a right translated four year cycle declines about 2-3 months into a 4 year low.

Left translated four year cycles tend to decline for 10 plus months.
I think this new QE to infinity is setting that up.
We will see a brief (10 – 12 month) rally out of the four year low and then the mother of all bear markets will follow.

Gold

Nice week for gold.
However gold will not go straight up forever.

Friday was day 21 for gold’s daily cycle.
Gold looks destined here to break above the March high of 1790.30 in this cycle.
That should draw in the last of the retail crowed just in time for a painful daily cycle correction.

With QE 3 on the table I think that we need to keep an open mind that this is week 7.
Meaning gold could continue to rally for another 5 – 10 weeks.

However, a new intermediate dollar cycle will likely send gold into an intermediate cycle correction. With that in mind, a week 17 label seems more prudent.

Gold’s yearly cycle stands at month 4.
The yearly cycle runs 11 – 13 months on average.
Sit back and enjoy the ride.

Miners

Friday was day 10 for the Miners daily cycle.

I have to wonder if gold breaks out in the current daily cycle, will we see miners do so as well?

That type of surge of both gold and the miners coupled with a dollar rallying out of a daily cycle low sets the stage for an intermediate cycle correction.

I think that the Miners are in the same boat as gold.
With QE3 on the table, this week could be week 7.
Meaning the Miners could continue to rally for another 5 – 10 weeks.

However, a new intermediate dollar cycle will likely send gold and the Miners into an intermediate cycle correction. With that in mind, a week 17 label seems more prudent.

And a technical break out of the previous highs are likely to mark an intermediate cycle top.

The miners yearly cycle is looking incredible bullish as it is emerging out of its yearly cycle low.

The HUI is right up against the March 2008 pivot and the December2009 pivot

I expect some resistance as the Miners work through this level.

The CRB Index

Friday was day 7 for the CRB daily cycle.

And like Gold and the Miners, the CRB also appears destined to make new highs.

Last week was week 12 for the CRB index.
The weekly cycle normally runs 11 – 17 weeks so any weekly swing high could signal an intermediate cycle decline.
As noted above, the CRB is running into resistance from the 4 year declining trend line and the 2 year resistance level.

Again, should the dollar begin a new intermediate cycle that would likely send the CRB into its intermediate cycle decline.

The Yearly cycle stands at month 3.
Again we see the four year declining trend line.
After the anticipated new intermediate cycle of the dollar rolls over,
The CRB will be off to the races

Bonds

Where the dollar’s daily cycle masked its daily cycle low over the past month,
Bonds daily cycle where easily indentified.

Friday marked day 20 for the current daily bond cycle.
Bonds now have printed 2 consecutive failed daily cycles.
I think if Ben disappointed the markets on Thursday we would not have seen a second failed daily cycle, but a daily cycle low.

Because the current daily cycle is a second consecutive failed daily cycle
I view that negates the swing low printed in August making this week 25.

The yearly cycle does not look pretty.
Bonds peaked on month 4, printed a swing high month 5 and now month 6 is showing follow through to the downside and now has broken below the 2008 monthly pivot.