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Dissecting the US Dollar

By: David Petch | Tuesday, December 11, 2012

This article was published for the benefit of subscribers of December 8th, 2012.


 

Sometimes a very simple picture can replace 1000 words, so as such, this brief update will illustrate what is driving the market. There was a minor shooting star doji put in place yesterday, which suggests weakness into the start of next week before starting to rise towards 81.5. Other charts that will be presented on Wednesday will illustrate that the coming top will be just that and in the process, create a setup for a very sharp decline. After wave [E] completed a long-term triangle, a subsequent cliff-like decline occurred, which appears to take the form of an elongated flat to form wave (A).

Wave (B) underway at present appears to be forming an elongated flat (3-3-5) which is denoted as A-B-C. Wave C is forming a terminal impulse, which is characterized by wave [ii]-[iv] overlap. Wave [v] most likely started on Wednesday, which was characterized by the sharp move off the lows. Based upon expected equivalency between waves [i] and [v], expect 7-10 days of upside...which translates into another 6-7 days. If wave [v] takes on a triangle, then the pattern could extend towards the end of the month. There are several worrying aspects of how quickly the US Dollar Index could fall out of bed, but the most visible thing is the decline of wave [iv] and how high wave [v] must rally to at least reach the top of wave [iii]. If wave [v] fails to reach the height of wave [iii], then it is classified as a failed fifth, which would result in a complete retracement of wave C in an equivalent or shorter period of time.

Based upon the Contracting Fibonacci Spiral (CFS) cycle that I discovered in July 2011, modelling with expected future time posts to indicate tops suggested that development of an elongated triangle or higher order structure (Diametric triangle, which has 7 legs, all equivalent in time and complexity, but totally different with respect to price action between each leg) would be in play until 2020, with a sequential break down in the US Dollar Index. In Glenn Neely's masterpiece book, "Mastering Elliott Wave", he noted that elongated flats and zigzags generally occur as entire segments of expanding triangles or as a segment of a leg within the structure. Both of these structures are in place so far, strongly suggestive that an elongated triangle is indeed forming. The next question on everyone's mind is "What next?".

Wave [A] of elongated triangles are always have the greatest rate of change (quickest decline per unit time), with each subsequent leg usually being longer than the prior wave (up to one leg can negate this trend for the pattern to be valid). Based upon the CFS cycle, a bottom in the US Dollar Index somewhere between 70-72 is expected between July and August 2013, followed by a very sharp move up to 85-90 by late 2014.. Subsequently, a sharp decline in wave [C] to below 70 is expected (65-67) by mid 2016. The next sharp wave of deflation is expected to last until 2018 with a US Dollar move expected to hit 90-95 in wave [D], followed by move down into 2020 to the 55-60 level. This will mark the lows of the US Dollar Index and the bear market in play since 2000. After 2020, expect a shift in longer-term interest rates to occur, along with higher taxation. This is the longer-term theory in play at the moment and so far, it is has proven to be accurate. I modified the CFS cycle recently in order to take into account the gradual breakdown of phi as the number sequences approach 0, which fits will with what is occurring in the market at present.

All of the items covered in the daily analysis of the HUI, XOI, S&P 500, TNX, oil, natural gas, gold etc. etc. are based upon where the US Dollar Index is within the evolution of its development within the CFS cycle. I can not stress enough that causes, rather than symptoms must be sought in order to understand what is going on within the market.

Later on this afternoon or tomorrow, I will update the various stocks we are following and when their expected tops are to be put in place during 2013....it will be a game of musical chairs because when the music stops, there will be no seats and those holding the bag will really be holding the bag.

Figure 1
$USD US Dollar Index - Cash Settle (EOD) CME
Larger Image


Biotech - The Next Major Bull Market After 2020

One final note, while we have a bull market in precious metals, the "other" stealth bull market developing is going to be in the area of biotechnology. By time 2020 arrives, many nations of the globe will nationalize resources in order to preserve their currencies...this fits with human nature and when things appear precious, people tap into their "squirrel mentality and hoard. The final frontier that government will not be able to take is Intellectual Property and this will be the driver behind biotech stocks thriving. North Americans or other countries that have taken on this sort of lifestyle are chronically obese, with symptoms and problems only magnifying in intensity during the later years of life.

My actual career is in the biotech sector, so I am well aware of developing trends and current technological breakthroughs. As such, I finally am going to be putting together a complete list of senior must-own biotech stocks, juniors that have very promising products in the pipeline generating revenue and then microcap biotech stocks that have received awards for their technology platforms, have heavy IP locked in with patent portfolios, promising Phase 1 and 2 results etc. etc.

Participating in biotech stocks can be risky, because Phase 1 and 2 studies can be riskier than buying moose pasture in hopes of finding gold. There has not really been any clear sort of trends in biotech over the past decade because most of the major companies such as Merck, J&J, Pfizer, Amgen, Genentech etc. have been living high off the hog, with little participation in performing new research due to the high costs for adding patents to their portfolio for future drug development. Now, many important money-maker drugs or gene construct systems for product expression (such as Lonza) are coming off patent within the next 2-4 years.

Several generic companies are going to be trying to jump into the pool and participate to try and get a portion of the profits. In order for the large biotech companies to participate, the blue chip biotech stocks are starting to buy out the juniors with promising products to feed their future pipeline and profit streams. As an example, a private company in Vancouver was purchased by Genentech or Amgen (cannot remember which one at present) because of the technology it owned to identify important epitopes (sites on a protein that can be recognized by the immune system). Identifying important target sites (epitopes) and using libraries to select optimal binding for generation of next generation monoclonal antibodies (mAbs) is critical for development to treat pretty much anything. As a twist, antibodies from camels (camel mAbs) are being investigated for brain tumours since they are small enough to cross the blood brain barrier).

Other important areas of development are DNA-based vaccines, which will likely have a similar effect in vaccine and mAb development the first model T had on the horse and cart industry. DNA based vaccines can be used to protect against viruses, cancers, bacterial infections etc. etc., but there will always be a requirement for mAbs to serve as some form of passive immunity, especially if elderly people are unable to generate strong immune responses based upon their health. The entire area of biotechnology is complex and identifying epitopes unique to a cancer or other targets that have little to no cross-reactivity can be challenging.

So, I hope that starting a new segment to what I publish on the site (Biotech stocks) will aid in diversification for investors. Having a strong technical analysis background, coupled to my BScH and MSc. should provide a unique combination for selecting new up and coming stocks.

One huge company that has significant upside is Danaher (DHR) on the NYSE. They own some 30 companies, but recently bought out MDS, rearranged its product profile, bought out Molecular Devices and stuck their BlueShift technologies product in that portion of their portfolio etc. Also Danaher bought out Beckman Coulter, which is huge in the area of providing scientific equipment such as centrifuges, cell counters, liquid fluid handling systems etc. I expect biotech stocks and precious metals to run into mid 2013, so a company such as Danaher has $12-15/share of upside between now and then. This is one example of different stocks that I will be initiating coverage on, so watch for next weekend when I update a list. Hopefully, we can get charts to automatically feed into the site charts section.

This article turned out to be longer than anticipated, so the precious metal stocks we follow will be updated tomorrow AM. Have a great day. There are a significant amount of profits to be made over the coming 6 months, but please be aware that subsequent to a top in 2013, a huge downturn is expected. When everyone appears bullish and think we are going to have hyperinflation, that is when we know a top will have been put in place.

 

Author: David Petch

David Petch
TreasureChests.info

Treasure Chests is a market timing service specializing in value based position trading in the precious metals and equity markets, with an orientation geared to identifying intermediate-term swing trading opportunities. Specific opportunities are identified utilizing a combination of fundamental, technical, and inter-market analysis. This style of investing has proven to be very successful for wealthy and sophisticated investors, as it reduces risk and enhances returns when the methodology is applied effectively. Those interested discovering more about how the strategies described above can enhance your wealth; please visit our web site at http://www.treasurechests.info.

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