Saturday, June 30, 2012

The CRB Just Formed a Final Three Year Cycle Low

[John's Note: This excellent article, written by my business partner at GoldScents and personal friend, Toby Connor, was published yesterday by the venerable Jim Sinclair at JSMineset, Bob Moriarty at 321Gold, Justin Brill at TheDailyCrux, Nadeem Walayat at The Market Oracle, and by many other fine publishers. It offers insight regarding how the precious metals complex will behave in the future and explains why we have a major bottom in place. A trial subscription is offered at the conclusion of the article.  Enjoy and breath easier - you can smile now!] 

By Toby Connor, GoldScents

I think it's clear by the action in the dollar index this morning and the response by risk assets in general, that the bottom I have been looking for is here. 

Today will be the first day in a commodity rally that should last roughly 2 years topping in mid-to-late 2014 when the dollar puts in its next three year cycle low.

The next two or three weeks should produce an exceptionally violent rally from extreme oversold conditions followed by a consolidation period as the dollar bounces weakly out of its intermediate bottom and rolls over quickly signaling that the three year cycle has topped.

The last two three year cycle lows in 2006 and 2009 generated a 20% and 32% rally during the initial move out of the final low.

This is day one of what should be roughly a two year rally into a massive parabolic spike sometime in 2014.

Let me reiterate that the initial rally out of one of these major cycle lows is always extremely aggressive. Today you have a chance to get in on the first day of this initial move. Those that wait will end up chasing into overbought conditions very quickly.

As is often the case, gold sniffed out this bottom early in May. The rally today confirms that we have a daily cycle bottom in place and a new cycle beginning that should last 15-20 days before the next short-term correction.

Miners confirmed this major bottom with a 24% initial rally on huge volume. This should be a multi-year low that will not be violated until the secular bull comes to an end.

To find out how cycles analysis enabled me to predict this major bottom I have reactivated the one week trial subscriptionto the premium newsletter.


  1. John, thank you for sharing so many interesting
    articles with us. This article can be seen at GoldScent signed by Toby Connor and at Smart MoneyTracker signed by Gary Savage. Do Toby and Gary co-operate ?

    Lasse, Göteborg in Sweden

  2. Yes, they co-operate well with each other - in fact, it is as if one is the shadow of the other.
    Thank you for your kind comment of support.

  3. John,
    the only reason we had such a big rally on Friday was the announcement from Europe.truth be told it is very short on details and basically is a lot of nothing --same stuff we here from them every month or so--These markets are news driven, not cycle driven.
    Next week there could be some news that is negative and all these gains wiped out..
    did not gold about 3 or 4 weeks ago go up over $60 and everyone was saying that is the bottom and higher we go --well just the opposite happened.
    My point is no amount of TA or cycle analysis could have predicted what took place on Friday as Gary implies .Unless Gary has a crystal ball there is no way in hell one could of predicted what took place on Friday.Had there been no announcement gold and every thing else would been down--then what would he have said--doubt he would of even posted an article---

  4. Hi Robert - I quite agree with many of your thoughts. The big rally on Friday was absolutely related to the announcements coming out of Europe overnight. I have mixed feelings about your news driven vs. cycle driven assertion. On face value your point seems to make sense as it goes to the concept that every action has a matching reaction. The problem I have with that idea is that a whole lot of times a market will be hit with 'bad news' but instead of acting 'badly' in response, it just keeps going up, and visa versa.

    Cycles theory is not as precisely defined as the action/reaction concept, but I have found it compelling to acknowledge that humans tend to exhibit certain patterns of behavior that are, at best, somewhat predictable. We see stocks become 'overbought' on technical indicators and then they decline, or stocks that fall below two standard deviations (Bollinger Bands) of their price behavior of the past 20 periods and then they bounce. Of course, this does not always happen but when it does I think more likely than not buyers and sellers see that data and behave accordingly (i.e buyers become afraid to buy more and sellers decide to sell less). It is technical data that plays with their psyche and is not a reaction to some news event.

    We also see chart patterns like the head and shoulders develop over and over and over and over again. This pattern need not be mocked as some freak or random accident because it reveals a common metamorphosis of human emotional transition from greed to dispair. The head and shoulders pattern documents a wave of buyer optimism followed by profit taking, then an even larger wave of buyer optimism that is followed by profit taking and finally a third wave of buyer optimism generated by those who simply *refuse* to think their precious investment will stop before it reaches *the moon* while the crowd has already concluded it is heading for *the basement*.

    And, fwiw, I tend to recognize that cycles, like other chart patterns and technical considerations, do indeed tell the story of investor psychology as it ping pongs from one extreme to the other.

    Next week we could get some news that will wipe out of Friday's gains. Yes, indeed, absolutely anything is possible.

    It looks to me that gold, on June 1st in fact, traded in about an $85 range and following that, on June 8th, gold had single day range of about a $40. And neither were the start of the up up and away. I agree.

    As for a crystal ball, I agree that no one has a crystal ball. Certainly I do not, for sure.

    Thanks for sharing your thoughts.

  5. John,
    Good to see you posting with more frequency now that school is out ; ) For a technical take somewhat more "risk off" I would strongly recommend checking out Abigail Doolittle's blog Peak Theories. First heard of it in a forum at TFMetals and have watch with amazement as her bearish take has continued to play out.

    Of course I like your work too.

  6. Hey, comments are back! I wasn't able to post comments for a while there.

  7. Hello John,

    For the swing trader, would you say its more profitable to use NUGT or individual miners like CGR or RD when things start to take off? I'm not really interested in buying and holding, rather, buy-the-dips, sell-the-rips.

    Thanks kindly,

    Steve in Austin

  8. Hi Steve - John near Arlington here

    You know, that happens to be something I have been thinking about lately, now that you mention it.
    The CGR and USSIF I own (some in retirement, some in TSI Trader acct) that is below water I WILL NOT SELL until
    I can do so for a nice profit. If it means holding for quite awhile, well, tough. That is what I will do.

    Which does not answer your question, I understand.

    The CGR I own that *could* be sold for a very modest profit one of these days (purchased at 0.63)
    I am starting to think twice about holding. And the reason is liquidity. And the other reason is
    also that I honestly enjoy trading, using my indicators etc., and seeing it work out consistently.

    Except for a sum total of 3 hours, CGR has traded between 0.62 and 0.65 for the past 7 trading sessions.
    I suppose I could sit here and try to sell at 0.64 then buy at 0.63 then sell at .064 and buy at 0.63,
    but how much fun is that?

    NUGT, meanwhile has had a range, excluding those few melt down hours, of at least a $1.00. Now I can work
    with that if I put my mind to it! A fifty cent gain is a 5% gain and that's decent. The alternative is as
    I wrote above and heck, that is hardly 1% a pop considering commissions.

    And the other thing I like is that I can game NUGT and DUST at the same time - long one then long the other, etc.

    I really think the liquidity issue creates more volatility opportunities with NUGT/DUST vs. CGR .... so to have more
    fun I may in fact switch out once I can sell CGR at a modest gain.

    I hope that answers your question and if not exactly, give me another try, OK?

  9. Thanks for your insight John,

    Yes, I agree - and the thought of one of those beaten-down miners taking off sure is an interesting prospect. Maybe I should do like the Buddhists and take the middle way. If only I weren't such an all-or-none kind of guy :)

    All the best,