Gold operates inversely with the dollar. Gold is not primarily an inflation hedge. Inflation has been non-existent as the deleveraging of the world has progressed, yet gold has risen smartly since 2007, when the deleveraging kicked off. Gold is a risk asset when the world is in financial trouble. So, then the financial system is overleveraged and risk attitude is rising then gold rises. When the financial system is unleveraged (relatively speaking) gold goes nowhere, even if risk appetite is on the rise.
Both the dollar and gold have a relationship with the stock market, which is the ultimate risk machine. Risk appetite drives up stocks and risk avoidance drives them down. Even though the correlation at this time is strong, it is not perfect. Focusing on the risk machine (the stock market) means you are working on the dog, not the tail.
The dollar index has it's own life apart from the stock market. I have worked out a sentiment index for it that correlates rather well. It's indication is for a decline into November. This is contrary to what I would expect, in that the dollar should rally in the presence of a severe stock market decline. Bottom line: Currencies are not something that I want to trade during the upcoming stock market decline. The sentiment forward gauge is surprisingly negative.
.bmp)
Gold is on a buy signal until 9/6 and then is on a sell signal until 10/19. The anticipated stock market decline will put a dent in the buy signal, so don't expect the peak to occur 9/6 (more like 8/18). If gold does not collapse by end of August then I'll want to short it.
Steve
ReplyDeleteI came across this and thought it might make for some interesting reading. http://orvinfive.blogspot.com/ My conclusion is, I (guess) that’s why they call it a theory and not a proof.
Jack c
Elliott Wave offers too many possible wave counts at any point in time to be used in isolation profitably. My subscription to EWI Short Term Update over the years would have produced losses had I taken the advice. They also attempt to use technical indicators to narrow the possible counts, but in general do not succeed. Bob Prechter takes the longer view and warns readers that the market can go against his calls for prolonged periods. This is honest. I use I1 to accurately narrow the choices for the waves and use their end-move behaviors. I'm hoping that EWI will contact me and they can use I1 to improve their forecasting for Financial Forecast and Short-Term Update.
ReplyDeleteSteve
ReplyDeleteThey should put you on the payroll. You have a way of identifying wave patterns ahead of there discovery. Can tell you really have a passion for it.
Jack C
While I'm definitely a fan of EWI I'd say what sells subscriptions for them isn't necessarily the accuracy of the STU, but rather the effectiveness of their marketing :)
ReplyDeleteThe dollar sure seems poised for a reversal, with a fairly clear ABC down from the June7 top. Given your timing though, perhaps the reversal will be an X wave before another set of 3 down in November. That would certainly keep bulls and bears off balance which seems to be the role of an X wave...
-shabs
Steve,
ReplyDeleteWhile we are all getting excited that the I1 peak is nearly in, I had an interesting thought that we may need to consider. Looking back at the I1 peak in early March, it wasn't until late April that the market actually peaked and crashed out. What could tell us that it will be different this time and it will roll over on time? A time frame of almost two months (6 weeks) late would seem to line up better with your dollar timing of falling into that time frame. It would also put it more towards that historical crash period of late Sept/early Oct. Not that I am doubting I1 but as traders we need a plan and contingency plans. Looking forward to the answers.
Thanks,
Charles
shabs
ReplyDeleteWhen the market declines the dollar will rally, overriding it's sentiment. I agree, on the chart we look very close to a bottom. That's why I don't want to play the dollar/currencies because of the conflict between it's sentiment and the larger forces. Dog vs. tail.
At Bloomberg.com there is an interesting interview with John Taylor (manager of the world's largest currency hedgefund) which is very consistent with your analysis as well as EWI. BAR
ReplyDeleteCharles
ReplyDeleteBack in March I created the 2010 Forecast which included the following:
From May through November world affairs will unravel and fear will rise.
My longer-term forecast is predicated on I1 values which, from 5/2010 through 5/2015 will contain only 7.25 months with I1>4, averaging 1.43 months per year. I1=4 is considered a balance point and historically the market averages 7 months per year >4.
So, even back then I was not expecting a declining market until May. My Trade History shows that I1 corresponded with market peaks that were exceeded. My strategy then and now is to commit half of the trade on the I1 turn date, wait for the first 1% drop, then place stop at DJI high +.25% (I used .17% back then).
The first decline beneath the 5-minute, 380-unit M/A -1.35% commits the other half of the trade. This kept my Trade History with miniscule losses on miniscule positions as the bull market found it's top. Now, the bear is in control, I1 is in sub-par levels for the next 5 years, and the rest of the 6 reasons for expecting the decline to materialize in the Weekly Commentary on time (or early as I suspect) are valid. So, to summarize, I1 finds a short-term peak for which the highest probability is 8/13 or ,with much lower probability, the return of I1 to below +4 on 8/20. That peak becomes the pivot for the stop and the break of critical support confirms. I am posting the long-term I1 indicator "Time Elevations" which will highlight the lack of long-term signal until 5/5/2010.
Charles
ReplyDeleteI want to amend my post to your comment by saying that I did not expect the market to begin declining in earnest until May. I believed that we would be in a topping phase from the I1 peaks starting in March.