Monday, July 20, 2009

Another Look At The JJC

In June we looked at the wave count of the JJC so I wanted to follow-up to see if we could gain any insights as the JJC has been a good coincident and sometimes leading indicator for the stock market.

By my reckoning the JJC has just completed wave (c) of B of a flat correction that should lead to a retest of the June low. The wave count for a flat correction is 3-3-5, which is why wave C down is shown in 5 waves. The alternate count shows that the wave (B) or (2) correction completed July 8, and wave 1 of (C) or (3) is nearly complete. In that case wave 2 should follow soon. In either case, we should expect a near term pullback to correct the recent impulse move off of the July 8 low in the stock market.

The interesting correlation is not only with the stock market but with gold. Gold has now either completed wave ii up of wave 3 of (C) down or the bearish case may be in jeopardy. The seasonal cycle calls for another low in August followed by a sharp move up into late September or early October. If the bearish case is correct, then gold must make a new low in August in my view or something else is going on, something more bullish I think. If gold does not make a lower low in August, preferably below 900, then the most obvious solution is that it is forming a B wave of a large (B) wave of a very large and still ongoing flat correction. The reason I say that is the current pattern in gold is beginning to look very much like a triangle, and an upside breakout would almost certainly mean a (B) wave is in play. That doesn't mean that gold can't go to 1400 or higher because it certainly could in a (B) wave, but it is way to soon to be able to make that call.

The bottom line is that the pattern in the JJC and gold is leading me to stand pat with my short gold position until I see what happens in August, barring being stopped out of course. If gold does not close decisively below 900, then I will exit the DZZ and look to go long.

The JJC, gold, oil and stocks should all be near at least a short term top, or we will soon see one heck of a breakout.

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