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.

So the bullish scenario is now playing out with that massive upside breakout of the declining trend-line.  It occurred on Day 16 of a Daily Cycle, which was exactly where one would expect it to break-down and drop towards a Cycle Low.  This is extremely bullish and signals that we’re now in a new dominate Investor Cycle (These run 20 Weeks in length) and with it should make very quick work of taking out $1,400 and then $1,500 respectively. 

But first we need some more confirmation; break-outs are often fake-outs.  I suggest traders/investors buy this break-out to avoid being shut out of a potential series of powerful lockout days.  But if the break-out fails and gold falls back below the break-out point, then the reason for buying has been negated and selling positions is a must.

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Chairman Bernanke rode into Congress on his white horse again 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. 

So as June 24th becomes the new ICL, that makes the 5 week decline into the ICL one of the shallowest ever, retracing just 33%.  The Cycle barely cleared out any of the bullish sentiment of that massive 6 month rally, so it only reinforced the notion that FED sponsored market is invincible, that every dip should be bought.  Over confidence is everywhere as the mere mention of fundamentals is scoffed at as being completely irrelevant to this market. 

So it’s no surprise that this new Week 3 (of expected 20 weeks) is starting out in overbought territory.  All of the characteristics and emotions that I remember from the big 2000 and 2007 tops are now firmly in play here and we could well be looking at an equity market that is about to go on one last big push higher.  I’m thinking that we pullback slightly here (40 points max) and then rip higher for some weeks into what will eventually be a big 4 Year Cycle Top.  Of course timing a top is difficult, picking a price even more so. 

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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.    

Here is the problem for the bulls and why they need a good pullback.  This ICL was also meant to be a yearly low too.  But obviously that does not qualify; Yearly Cycle Lows take speculative and over leveraged traders “to the cleaners”.  June 24^th simply does not qualify! 

The monthly RSI never dropped below 70 or moved off the top of the Bollinger bands.  From a monthly perspective the needles have barely moved off the overbought levels.  So if we keep going, then any new Investor Cycle has 20 weeks ahead of itself, that’s 5 months into the next low.  I doubt this level of increase can continue for much longer.  Without an ICL and YCL here in the next 4 weeks, this will end up being a short lived runaway or blow-off move that will result in an extended 4 Year Cycle Top.

One thing is for certain, after a 1,000 point 150% rally in just 4 years, this cyclical bull market is right near a top.  I don’t care how much Bernanke talks, recessions are inevitable and we’re approaching the timing for the next downturn.  Markets are cyclical and they always turn right around the time where nobody believes they could.  The bears have capitulated. 

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