It is fairly clear that the action in the US Dollar will be the greatest determinant of the direction of gold and stocks over the next few weeks. As the above chart shows, there is a positive divergence buy signal for the dollar index as 9/24, but the question is whether or not wave 5 down is complete. Wave 4 completed as a symmetrical running triangle in my view. A running triangle indicates the strength of the downtrend, and suggests that the current low is insufficient to dissipate the energy that coiled up over a 3 month period. So far, wave i of 5 has only lasted 3 weeks, which is not even 1/3 of the triangle's length, making it too short. Of course, wave 5 doesn't have to go any lower, but we can extrapolate a couple of lower targets as follows:
Wave 5 = Measure of expanded triangle trendlines @ 73.81
Wave 5 = Wave 1 @ 71.95
Wave 5 = 0.618x(Origin to Wave 3) @ 71.96
Should the dollar index break out above both the upper channel line and the December 08 low at 77.69, we would conclude that wave 5 was indeed complete. We would expect declines in gold and stocks to continue if that were to occur.
On the other hand, if the macd signal proves to be false and the dollar index breaks down further, then we would expect one or both of the lower targets to be hit. This would most likely coincide with a top in stocks and gold in October or November. This may be the best timing tool we have at our disposal at the moment.
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