Sunday, February 21, 2010


Since November I've been looking for a profit taking correction of 10-14%. The recent pullback managed 9.2%. Not quite the 10% I was looking for but considering the trillions of dollars sloshing around the world that's probably all we are going to get.

All in all I think the odds are very high that the correction has run it's course and we are now beginning the third leg up in this cyclical bull market.

I've mentioned before that the initial thrust out of an intermediate cycle low tends to be very powerful. The average gain is between 6-10% in the first 8-13 days before any kind of meaningful pullback can be expected.

We seem to be right on track as we've rallied 6.5% trough to peak so far.

There is so much liquidity in the market that neither the March bottom nor the July intermediate correction were tested. I don't have a lot of confidence that we are going to test the Feb. 5th low either.

Now I don't know if we are going to rally 17% like we did out of the July bottom but I will say the dollar is way overdue to move down into the daily cycle low and probably begin the move into the intermediate low also.

When the dollar starts down it's going to be like putting afterburners on the markets.

At this time all the signs are in that we are in the initial thrust out of a major yearly cycle low. Holding shorts in that kind of environment is terribly risky. One certainly doesn't have to be long (although this is when the biggest gains come the quickest) if they don't trust the move, but you certainly don't want to get kicked in the teeth standing in front of the bull.

This is one of those times when the best option for bears is to do nothing and just sit in cash.