Last week’s employment numbers allegedly demonstrated that all is well on the road to recovery. This has produced the type of frenzy which frequently initiates intermediate degree tops as this week is the 18th week of the present intermediate cycle. Normally, the intermediate cycle lasts 18-25 weeks from trough to trough. This was actually the time to stop and think about buying since the stock market is in one of these intermediate degree bottoms. But, now, it wouldn’t be so smart to buy because we’re so late in the intermediate cycle, mainly with the NASDAQ extended 9% above its 50 day moving average. According to some, it should be the time for investors to be taking in earnings…not selling short, but shifting to cash. Always keep in mind, though, the history of gold bullion.
The underlying logic here is that selling short isn’t that great because it’s structured to eliminate retail investors’ capital. It would be the very selected traders world-wide or large funds with enormous research departments that have the ability to search out and discover under par or deteriorating companies that will ever make any steady long-term winnings by selling short. Selling short requires the comprehension that markets descend incompatibly to their ascension. In this arena you are quite hindered in accomplishing, and fundamentally, maintaining any profits collected that selling short can offer.
To begin, tops are frequently a wearisome mechanism. They are inclined to pulverize short-sellers. These past four weeks have been a good example of that. Assuming you are one of the lucky ones who catch the top, the intraday moves are frequently so brutal that they knock one out of their positions. Lastly, if you don’t time the bottom well you will eventually be forced to return almost all of your scanty proceeds at some point in the first couple of days of the new rally. The best position for 99% of traders is to turn to cash when a correction is approaching as is the case now. We’re not saying that it will begin tomorrow or even this week, but it does signify that, at this moment, it is too risky to stay in the game with a market that has a sharp corrective move looming too close for comfort.
The trading environment has been altered with the dollar putting in its three year cycle low in May. Profits must be obtained faster as traders have had to become much shorter in duration. This trading condition isn’t going to be modified until the dollar’s major three year cycle tops. So far, there still is no evidence of a key reversal. The dollar is working hard at higher highs and higher lows. It has not even turned the 50 day moving average down yet and is still showing support above an increasing 200 day moving average.
At the point when the stock market begins moving down into its intermediate cycle low, it will surely compel an additional rally in the dollar, perhaps a return to new 52 week highs. Should this occur, it will drive gold to retest the December lows, and if the selling pressure from the stock market is powerful enough we could see another marginal new low somewhere in the high $1400s to low $1500 level. Notwithstanding the powerful rally out of the December 29 bottom, gold still has not broken the pattern of lower lows and lower highs. In actuality, gold is maintaining its downward inclination. When the stock market drops down into its intermediate bottom, gold’s down trend may be reconfirmed. So, it’s up to you what you do with your long and/or short investments, just be cautious and remember that gold bullion is the longest standing within modern (and ancient) history.