Within the member reports I outlined that last week's pause below the $1,300 level was very characteristic of the declining Cycles of this past 12 months.  It was at that very point, Day 12-15 where the Cycle would top and very quickly roll-over into yet another punishing Cycle Low.  Technically too all of my tracking indicators and oscillators were at the same level where Cycles typically topped.

But within those reports I’ve also been tracking a bullish secondary scenario that I said held a reasonable (30%) chance of developing.  It was the scenario where the consolidation below $1,300 and the declining Cycle trend-line was part of a Half Cycle Low.  The theory then was that if gold could launch this late in the Daily Cycle, then it would indicate that this could only be a powerful 1st Daily Cycle, and these tend to run between 27-33 days from trough to trough.

Chairman Bernanke rode into Congress on his white horse today and the markets just “ate it up”.  The man just loves double talk, saying all the right things about the economy while quick to point out that if something doesn’t go to plan then they will be accommodating.  In other words, he has found a way to “have his cake and eat it” and the market is more than happy to go along with it.  If the FED is to tapper, then that means the economy is just fine.  If the economy sours, then they keep buying assets (POMO). 

The FED is viewed as infallible and that has bred a lot of disrespect towards the natural Business Cycle forces.  The market (as it always does near tops) is essentially saying that “this time is different”.  But the kicker is that the economy is getting worse and corporate earnings have flat-lined, despite their heavy hand.  What the market is not pricing in is the FED’s inability to avert what will be an eventual Business Cycle decline down into a recession.  After $3T of asset purchases, all they’ve managed to do is sustain this economy at stall speed, nothing more.  But at the same time they’ve help blow yet another massive bubble as the equity markets have now seriously diverged from underlying fundamentals.       

So thanks to the FED, I have no doubt now that June 24th was a DCL and ICL.  This dramatically alters the Cycle makeup as this is now just Day 16 of the DC.  Still overbought on all time-frames, I expect to see no more than a 40 point drop to the 50dma and a HCL before it's off again.  The current double top showing should have the bears thinking that this is finally the big top.  But I believe otherwise, the market is getting speculative and far too overconfident, and this is what runaways are made of. 

A new Cycle puts us on Week 3, and already the weekly RSI is into the “sell zone”.  Typically it takes 7-8 weeks to get up into that region, so any long term bull here should be praying that this is not a new Investor Cycle, they should wish for 2-4 more weeks lower first.  From a breadth standpoint this is supportive of a new Cycle.  The S&P bullish percent index back to 78%, having dipped to only 70%, far short of where an ICL will typically bottom.  Net new highs are healthy at 687, while 81% of S&P 500 stocks are above the 50dma.  Again none of the indicators ever hit traditional ICL levels, so it’s either a new Cycle starting out at overbought levels, or a big bull trap with a very unusual end to an Investor Cycle.    

If Gold’s Investor Cycle Low were behind us, then this would be one weak and lifeless 1^st Daily Cycle.  Typically the rally after a bloodbath Investor Cycle Low is impressive enough where you just know it’s a 1^st Daily Cycle.  It doesn’t necessarily need to be a V like rally, but in general you should see broad buying day after day and strong daily closes.  By Day 10, a 1^st Daily Cycle has typically gone a long way to recovering much of the previous drop, but here gold has barely made a dent into recovering any. 

So to this point gold has not shown any of the strength that has me thinking this is a 1^st Daily Cycle.  I have been a little patient on the Cycle because the dollar was soaring, so I have waited for the dollar to drop to see if gold released quickly to the upside.  Today was that day for gold and unfortunately the dollar’s plunge did not equate into a broad precious metal sector rally.  Again as I observed over the weekend, silver and the miners were both flat again today.  This indicates that there just isn’t any meaningful interest in this sector yet.