Cycle Trading

The dollar rallied again on Tuesday breaking out to a new daily cycle high.

Tuesday was day 9 for the daily dollar cycle. By printing a higher daily cycle high the dollar has now shifted the odds for this cycle to form as a right transleted daily cycle. Quite frankly, the first daily cycle of a new intermediate cycle should form as a right translated daily cycle. But with the dollar printing that reversal candle on day 7 we needed to keep an open mind to the possibility of a left translated cycle forming.

The dollar has now entered the 3rd intermediate cycle of the current yearly cycle. Yearly cycles are normally comprised of 2 to 3 intermediate cycles. Therefore our expectation is to see this cycle form as a left translated weekly cycle. It should peak before week 8 before rolling over into a yearly cycle decline.

Now Joe commented today,
“Yes-wanted to comment on the US$ and commodities too. I think the esteemed blog author has been too biased in favor of commodities / gold and against the US$ for a while. In reality, the move was in the opposite direction since 2011. I think it is safe to assume the commodity bull market ended then and we are looking at the typical ~19 years of a booming economy and stable to down commodity prices, as last 1982-2000 or 1947-1968. The correlation between stocks and commodities that held for the entire commodity bull market 1999-2011 has been broken since:
http://www.thereformedbroker.com/2013/05/14/chart-o-the-day-the-stocks-commodities-disconnect/'”

Yes I tend to focus on the dollar as it relates to commodities and gold.

One of my central themes is that the dollar is in a long-term bear market.

So I would like to review that today. Let’s begin by looking at over 40 years on the dollar chart.

What we notice immediately are the peaks in 1985 and 2002.

Upon closer examination, we see that the dollar has definable cycles.
The biggest cycle is what I term the 15 year super cycle.

Each super cycle is defined by a 15 year low on either side along with a cycle peak.
The 15 year lows are the lowest points in the 15 year cycle.

Embedded with in each 15 year super cycle are 5 three year cycles.

In both super cycles the first two 3 year cycles and at least part of the third 3 year cycle were very bullish as the super cycle rallied into its 15 year cycle peak.

The first 15 year super cycle peaked after 74 months and sold off for 92 months.
The Second 15 year super cycle peaked after 104 months and sold off for 86 months.

Please notice below that the embedded three year cycles formed higher 3 year cycle highs and higher 3 year cycle lows until the 15 year cycle peaked. Then the embedded three year cycles formed lower 3 year cycle highs and lower 3 year cycle lows into the 15 year cycle low.

The most recent super cycle low printed in 2008. As you can see in the first two super cycles, the first 70 – 100 months of the super cycle is wildly bullish as the dollar continues to make higher 3 year cycle highs.

That has not happened since the dollar printed its most recent super cycle low in 2008.

In the above chart the dollar printed higher 3 year cycle highs as it rallied out of the 1992 super cycle low. After that super cycle peaked in 2001, the dollar printed lower highs.

However, since the dollar has emerged from the 2008 super cycle low the dollar has failed to print a higher 3 year cycle high. The dollar went through the 2008 – 2011 three year cycle and printed lower highs. And here the dollar is currently in its second 3 year cycle of the super cycle and has yet to print a higher 3 year cycle high.

The dollar has been printing lower three year cycle highs since 2001. So until the dollar has broken its pattern of lower 3 year cycle highs, it hasn’t.

A signal that the dollar will break its pattern of lower three year cycle highs will occur if the dollar breaks out of the multi year consolidation shown above.

Tying this back to commodities, I am tracking the CRB.

The CRB has yet to confirm that it emerged from its yearly cycle low. Breaking above the declining blue trend line would do so. Breaking above the declining black trend line ushers in an inflationary period. Consequently, breaking below 267.97 confirms a deflationary period.

I still believe that it comes back to the dollar. If the CRB manages to hold above the 267.97 level and the dollar rolls over into its yearly cycle decline,then the inflationary scenario becomes quite likely …