US Dollar Mid-Term Top Makes Precious Metals And Energy Stocks A Buy

November 9, 2014

I decided to do an important update of the US Dollar Index, because Friday’s rise in Gold and gold stocks alongside oil indicated a likely top. I have been extremely bearish on energy and precious metal stocks the past few months because of the upside strength potential in the US Dollar. I still am bullish on the US Dollar, but as this analysis will indicate, a top has been put in place that should see a correction minimally last until early to mid-March 2015.

Think of Degrees of an Elliott-Wave count as seconds are to minutes are to hours. Each fits into the other, with each minutes a Degree higher than seconds and an hour a Degree higher than minutes. The Elliott Wave structural analysis illustrates that in this update. The short-term Elliott Wave count of the US Dollar Index is shown below, with the thought pattern forming denoted in green. Fibonacci retracements are shown for various waves of the impulse pattern (5-3-5-3-5) that just formed:

  • Wave [v] is exactly 161.8% of wave [i]
  • Wave [iii] is exactly 200% of wave [v]
  • The 50% Fib retracement level of wave A is 84.13.

Wave A was impulsive with five lower Degree segments that had alternation between waves [ii] and [iv] and an extension in time, price and complexity for wave [iii]. The fact there was no 61.8% retracements found in waves [ii] or [iv] alongside waves [v] extension relative to wave [i] strongly suggests a very strong move to the upside once wave B completes. Wave B should be around the same length as wave A, or will be 50% of that in time. I am assuming wave B will be equivalent in time and that wave C to form will be equivalent to A+B. This would put a top of the US Dollar Index around November-December 2015 anywhere between 93 and 95 as mentioned previously. With an impulse forming for wave A, I suspect a zigzag pattern (5-3-5) is forming, which means wave C should be impulsive. With a pattern as strong as wave A, the depth of the correction is only likely to carry down to the 38.2-50% retracement level at the most. So, with time in wave B expected to match wave A that puts the pattern terminating sometime between early to mid-March 2015.  Based upon this, precious metal stocks and energy stocks should shine over the coming 3-4 months. Remember though, that this time period should be viewed as a being a trade. Once wave B is complete, wave C is likely to be 161.8% of wave A, or 12 cents. If a bottom occurs at 84.0, then a top could reach as high as 96 cents by November-December 2015. Based upon the Contracting Fibonacci Spiral Chiral Inversion that happened in May 2013 to the S&P500 Index, a top is due no later than August 2015 in order to comply with the Fib Spiral bottom due in 2016. I have to go back over my numbers, but June 7th, 2016 comes to mind of the bottom. With the Chiral Inversion of the pattern, this was extended by 4 months, so 61.8% of 4 months is approximately 2.5 months. This would put a bottom due in the S&P500 Index around mid to late August 2016. So, in a nutshell, the US Dollar rises too fast and puts a top in the broad stock market indices sometime in August 2015, followed by the US Dollar Index topping out towards the end of 2015.

The long-term Elliott Wave count of the US Dollar Index is shown below, with the longer-term picture seen clearly. A move above 81.70 back in July 2014 invalidated the double Head and Shoulders pattern that had a measured move down to 73.0. This energy was flipped to the upside, with a projected target  of 87.0 for wave A…we overshot by 1 cent, which indicates the entire move higher over the next 12-13 months in the Dollar is going to be very strong. I wanted to post this update because I have been really bearish towards energy and gold stocks the past two months…with the sharp reversal in gold and oil yesterday and the Fibonacci levels hitting textbook levels it appears the US Dollar has put in a top for the next 4 months, or early to mid-March 2015. So, I would now suggest it is safe to go long precious metal and energy stocks, knowing that this trade has a very limited window of opportunity.

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David Petch is a cofounder of www.treasurechests.info which has been in existence since 2003. His technical analysis focuses on Bollinger bands, stochastics (using daily, weekly and monthly charts), as well as extensive Elliott Wave analysis. His recent discovery of the Contracting Fiboancci Spiral the broad stock market indices are trapped in has indicated every major top since its inception in 1932. The CFS cycle also identifies expected major tops between now and 2020. David holds a BScH and MSc in Microbiology.

In 1934 President Franklin Delano Roosevelt devalued the dollar by raising the price of gold to $35 per ounce.

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