3/24 Daily Commentary

Bonds were down sharply today, the dollar had an explosive rally, and precious metals were dragged down.
The stock market is reacting to strong dollar, poor Portugal.   I1 is up so it is probably just resting. We will have to see if Nasdaq has broken it's downtrend from 2000, jury is still out:

Financials were showing surprising resistance to the decline. IYF is destined for 59+ as animal spirits continue to push the market higher. This bodes well for the Nasdaq to break free of the trendline resistance at 2400.

I expect a couple of trends in April and May.:
1)  Stocks down
2)  Dollar mildly down in wave 2 of primary 3.  This is counter-intuitive and will have the talking heads talking nonsense. 
The following is my dollar model:

The primary point to take home here is that a 5-wave in the dollar is coming to a close on or about 3/26 (blue line).  So, the clock is ticking on my silver trade.
The second point to take home is that with today's breakout we have a pretty 5 wave up sequence.  This implies another 5 wave up at some point, probably starting at the end of May and ending 8/10.  The I1 has a sell signal on 5/24, so a stock market decline would feed into a dollar rally.  This implies that you sell hard assets on 5/24 in expectation of a dollar rally.  My work shows a decline in dollar starting 8/10 and going into October.
As I mentioned earlier the dollar model is down in April and most of May.  At the same time the I1 stock model is down.  Since I1 is the strongest indicator, this scenario can happen in 1 of 2 ways:
1)  The stock decline is not severe and the dollar marks time (sideways)
2)  The stock decline is severe and the dollar goes to the moon, confounding the dollar model.  This would imply an extended 5th wave with relapses timed with the I1.
Since we have a succession of I1 sell signals after 4/22 I would tend to think that the stock market decline would be vicious during the I1 declining periods after this time.  (I1 peak is 4/29 but I believe the top will be earlier).  So we have a window for dollar decline until about 4/22. This would coincide with a muted stock decline up to that point.   So option 1 above would apply in this scenario.

There is a lot of talk of inflationary consequences to the manipulation (stimulus).  The following chart shows treasuries and corporates mid durations.  This is TLT vs. LQD:

Both bond aggregates have returned to stability as of 3 years ago, before the mayhem.  Inflation would knock both for a loop downward.  As can be seen the precious metals rally has not been signalling inflation as indicated by bond prices.  That being said I expect higher rates until well after the stock market has started it's decline.  It takes time for the upcoming collapse in risk-taking to be recognized and to channel money into fixed income, thus reversing bond price declines.  At that point even the U.S. will look good relative to continued losses in other asset classes.

Any wave counts mentioned are my own. Elliott wave theory is an integral part of my trading. For information/training/books on Elliott wave see Elliott Wave International.