Another Piece of the Puzzle Falls into Place

By: Toby Connor | Fri, Feb 14, 2014
Print Email

Today another piece fell into place in my Great Inflation scenario that I'm expecting for 2014.

Before I begin let me recap. My overarching driver for the Great Inflation scenario is that the dollar would have some kind of crisis, or semi-crisis late this year as it drops down into its major three year cycle low. All other stock and commodity movements will be driven by this impending currency crisis.

For stocks, I'm expecting a final bubble phase parabolic spike over the next 4-5 months, followed by a devastating crash as the parabola collapses in June or July.

For commodities, I'm expecting a stealth rally for another month to a month and a half, followed by a super spike inflationary phase in the latter half of the year as the dollar collapse reaches maximum intensity.

Today the dollar broke through its intermediate trend line confirming that an intermediate degree decline is now in progress.

$DXY US Dollar USDX Index - Cash
Larger Image

Since this intermediate cycle topped on week two in a left translated manner, the odds are very high that the dollar is going to break below the October low before this intermediate cycle bottoms. I'm actually expecting another test of the megaphone topping pattern trend line before this intermediate cycle bottoms sometime in March or early April.

$DXY US Dollar USDX Index - Cash
Larger Image

The real damage is yet to come later in the year though.

The next component is the stock market. The movement in stocks over the next 4-5 months is a very important component for the Great Inflation to unfold. Stocks must enter a final parabolic melt up, bubble phase during the first half of this year. The very mild intermediate cycle low that bottomed last week has set the stage for this scenario to begin. In only five days the NASDAQ 100 has already moved back to new highs. This confirms my expectation that we are going to see the NASDAQ test the all-time highs above 5000 before this cyclical bull market comes to an end.

$COMPQ Nasdaq Composite INDX
Larger Image

At that point the parabolic advance in the stock market will experience its initial collapse, and I expect the S&P will crash at least back to the 2000/2007 support zone at 1550. This is another critical component for the Great Inflation to unfold as it will cause Yellen to panic, reverse the taper, and probably initiate QE5 & 6. This won't reflate the broken parabola but it will trigger a reaction rally before the collapse continues into a massive bear market that will bottom below 666 sometime in early to mid-2016.

$SPX S&P 500 Large Cap Index INDX
Larger Image

QE 5 & 6 will be the final nail in the coffin for the dollar, and will trigger a full break of the megaphone top. I expect a move below the 2011 and 2008 bottoms before the dollar completes its final three year cycle low.

$USD US Dollar Index - Cash Settle (EOD) ICE
Larger Image

Commodity markets have already begun the stealth rally that I was looking for during the first half of this year. They successfully tested the 2012 three year cycle low and have now broken through the multiyear downtrend line. The Great Inflation has begun.

$CRB Reuters/Jeffries CRB Index (EOD) INDX
Larger Image

During this stealth rally I'm expecting gold to test the initial April breakdown at 1520 over the next 1-2 months.

$GOLD - Gold - Spot Price (EOD) CME
Larger Image

That should push sentiment levels to bullish extremes from their current depressed levels, triggering an intermediate degree profit taking event into May or June as the stock market finishes its final parabolic blow off top.

Gold Composite vs Public Opnion on Gold
Larger Image

Source: sentimenTrader.com

As you can see silver sentiment is already recovering nicely and today's move will likely push sentiment to levels next week requiring the metals to pull back and take a breather.

Silver 5000 Composite vs Public Opinion on Silver
Larger Image

Source: sentimenTrader.com

Over the next 4-5 months the easy money is going to be playing the final bubble phase in the stock market. Bubble tops don't come around very often, but when they do traders can make an obscene amount of money in a short period of time.

Once the stock market bubble pops, and Yellen starts QE5 that's the point at which the Great Inflation will begin in earnest, and I believe gold will probably rocket from an intermediate bottom of around 1350-1400 this summer, to test $2000 by the end of the year. This is the phase where the metals become the "easy trade".

$GOLD Gold - Spot Price (EOD) CME
Larger Image

Over the next couple of months everything should generally rise together. But once the dollar puts in an intermediate bottom sometime in March or April, commodities and gold will move down into an intermediate correction as the stock market completes its final blow off top. After the stock market parabola collapses later this summer it will be time to put the pedal to the metal in the commodity markets, and especially the precious metal markets as the Great Inflation begins in earnest.

 


If you are interested in reading my daily and weekend commentary on the movement of the markets, along with accessing the changes in my portfolio positions in real-time and conversing with other investor/traders via my blog, please consider purchasing a $10 trial subscription.

 


 

Toby Connor

Author: Toby Connor

Toby Connor
Gold Scents

Gold Scents is a financial blog focused on the analysis of the stock market and the secular gold bull market. Subscriptions to the premium service include a daily and weekend market update emailed to subscribers. If you would like to be added to the email list that receives notice of new posts to Gold Scents, or have questions, email Toby.

Copyright © 2010-2014 Toby Connor

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com

SEARCH





TRUE MONEY SUPPLY

Source: The Contrarian Take http://blogs.forbes.com/michaelpollaro/
austrian-money-supply/