While I still plan to take this one day at a time, after Friday’s rally it looks pretty convincing that we are now going to have a fourth daily cycle, which means the intermediate cycle is going to stretch abnormally long. So instead of an intermediate bottom in July it’s probably now going to occur in August, or maybe even early September.
The McClellan oscillator just didn’t drop deep enough to produce a divergence like we often see into a second leg down of an intermediate decline. And after Friday’s rally the McClellan oscillator jumped far too strongly in my opinion for this to be a countertrend move to be followed by a second leg down.
At this point I think there’s a pretty strong probability that the S&P is going to test its all-time highs, and the NASDAQ possibly make it to, or marginally above 8000 before the daily and intermediate cycle tops. As I’ve shown before, sentiment never really got excessively bullish at the recent top. Dumb money confidence never really reached the kind of complacency that usually triggers a larger degree top.
So at least as of Friday it looks like we made the right decision to buy for the stock portfolio based on the sentiment levels rather than worry about the cycle count. Even though the intermediate cycle count was mature and normally I wouldn’t buy this deep into a cycle, sentiment hadn’t reached extremes. I should probably add this to my rules. Sentiment trumps cycle count if one is in a bull market.
At this point I think we can expect this intermediate cycle to run somewhere between 26 and 30 weeks. Last year the intermediate cycle bottomed in mid August, and it looks like it may be setting up to do so again this year. The next FOMC meeting is on August 1 so it’s possible (probable) the Fed protects the market ahead of the meeting and then we get a quick sharp move down into the ICL followed by an explosive rally to bring the market back in time for the Fed to raise rates again on Sept. 26.
We’ll keep an eye on the bullish percent chart over the next 3-4 weeks and see if we can’t push up into that 70 to 80% zone that would signal an overbought market prime for a larger degree correction.
Let me stress though that this is not the time to be buying call options on the stock market. Even though I do expect this intermediate cycle to stretch we are still 22 weeks into a cycle. That’s simply way too mature to be buying call options. The time to buy calls is at an intermediate cycle low and that’s probably still a couple of months away.
Now that we have a cushion on our TQQQ position we will place a breakeven stop at our entry. Which for the model portfolio was at $58.54.
On Friday for the first time in 4 ½ months the dollar made a lower low. Granted we should take everything in the currency markets with a grain of salt, as they are the most heavily manipulated markets on the planet, but barring a major intervention by the ECB we should now have confirmation that the dollar rally is over and an intermediate decline has begun. There isn’t going to be any natural buying from technical traders or smart money with the chart now in a pattern of lower lows. But there is always the chance of a central bank intervention, which is exactly why I’ll never trade currencies.
The rally failed to recover the 100 week moving average and the weekly oscillators have a long way to fall before becoming oversold again.
The euro on the other hand has held above its 100 week moving average and built a nice base from which to start the next leg up. I think these never-ending calls for the death of the euro are still premature.
Based on the 2017 yearly cycle low occurring in September, I think we can probably expect the next ICL again in September or October. This should bode well for our metal trade for at least 2 ½ to 3 months.
So assuming the ECB is not able to derail an intermediate rally in the euro, and the dollar drops down into its yearly cycle low over the next 2 ½ to 3 months we should be in good position on our metal trades.
And this week unfolded exactly as we wanted it to. The mining stocks produced a big green candle with multiple signs of an intermediate bottom. The intermediate trendline was broken. We got a weekly swing low, and both indexes closed above their 10 week moving averages.
Investing is a game of patience. Unfortunately very few people have this trait, but for those of us that do I think we have entered the period of the year where we are going to make money. All of the frustration and aggravation during the first half of the year should soon be forgotten.
Next week I want to see an explosive move that surges through the Bollinger bands, and I think we will.