Disecting The US Dollar

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.

Click on chart for a sharper image

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.

David Petch

Market Letters Digest

www.treasurechests.info

11 December 2012

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