Major Bottoms In Stocks, Gold, and Commodities Have Formed (GLD, SPY, IAU, UUP, USO, XLE)
Toby Connor: It is time to do quick recap of the big picture view, which is unfolding pretty much as I expected.
The CRB is now in the process of putting in a three year cycle low (this should correspond with a three year cycle top in the dollar) and stocks have put in an intermediate cycle bottom.
As I expected gold (NYSEARCA:GLD) bottomed slightly ahead of the stock market (NYSEARCA:SPY) and stocks. The trend is now up for all assets and all we are waiting on is confirmation that oil has bottomed. Once oil (NYSEARCA:USO) and energy stocks (NYSEARCA:XLE) join the party the bull will be firing on all cylinders.
The economy will continue to respond to Keynesian economic policies until commodity prices surge into a final parabolic advance and prick the bubble. However that isn’t due until sometime in late 2014 when the dollar (NYSEARCA:UUP) forms its next three year cycle low, so I think the perma bears are just kidding themselves if they think the US is ready to rollover into a recession right now.
The recent stock market decline was just a normal intermediate cycle correction in an ongoing bull market. Yes it was rather severe, but this was just a normal regression to the mean event triggered by an extreme stretch above the 200 day moving average that was generated by the European LTRO and Operation Twist.
I expect stocks will continue to grind higher this year and start to stagnate next year as commodity prices began to pressure profit margins. By early 2013 the stock market should begin rolling over into what I expect will be a very drawn out, and volatile bear market as deteriorating fundamentals do battle with ever greater liquidity injections. This is the prescription for multiple violent bear market rallies in what I expect will be a very long agonizing grind lower as commodity prices gradually pick up momentum and move into the final parabolic spike in 2014.
Gold (NYSEARCA:IAU) has started a new C-wave advance that should at least test the $1900 level sometime this fall. Don’t expect a breakout to new highs until next spring at the earliest though.
Gold may enter the final bubble phase of the bull market in late 2013 & 2014, although I think a more realistic scenario would be that this just evolves into another garden-variety C-wave, topping around $3500-$4000 in late 2014 or early 2015 followed by a severe correction into the eight year cycle low in 2016 and a vicious rebound and final bubble phase of the gold bull in 2017-2018.
Toby Connor is the author of Gold Scents, a financial blog with a special emphasis on the gold secular bull market. Mr. Connor’s analysis skill of the markets is largely self-taught, though he admits to being an avid reader of Richard Russell and Jim Rogers, among several others.