Cycles are really just another way of looking at various trends of various degrees. Also, cycles in the market are really no different than many other cycles in nature. As an example, sometimes we have an early spring and sometimes it’s late. Sometimes a particular bird’s migration is earlier than normal and sometimes it can be a bit later than normal. In some winters the northern states experience more snow than in other years. Sometimes we have very active hurricane seasons and sometime we don’t. The same is true with cycles in the market as they too, fluctuate in duration and intensity.
Back in 2001 and very early 2002 I became very bearish on the dollar and wrote about the long-term cyclical top that was occurring. One such article was published in the spring edition of TradersWorld magazine. In December 2004 the dollar made another long-term cycle low, but the advance that followed was short lived as that cycle failed and soon broke down and even more weakness followed. In the wake of this last long-term cyclical failure and price decline, the bearish sentiment surrounding the dollar has been high, and I too have been bearish on the dollar.
However, in the wake of the overwhelmingly bearish outlook on the dollar the last couple of months, my mood on the dollar has been changing. Reason being, we have once again entered into a window of opportunity for another significant low. The outcome of this low obviously is something that still remains to be seen. It could end up being another failure, or it could be a barn-burner of a rally. Nonetheless, understand that there is a longer-term cyclical low due, and knowing what to watch for as things progress is of key importance at this time.
I have included a monthly chart of the dollar above. In the dollar there happens to be a long-term cycle that has an average duration of some 47 months. Therefore, I refer to this cycle as a 4-year cycle. The equity markets also have a dominate long-term cycle of approximately 4-years, where as silver operates on a 5-year cycle and gold on a 9-year cycle. Point being each market is different, so don’t confuse the 4-year cycle in the dollar with the 4-year cycle in the equity markets because they are separate and independent cyclical events.
Now, that being said and as I referred to in the introduction, it is important to also understand that cycles can contract, they can expand and even skip a beat now and then. It is for that reason that we must look at averages, and in the case of the dollar, the dominate long-term cycle averages 47 months from low to low. Based upon this average, this cycle is ideally due to bottom a bit later this year. However, there is also more to cyclical analysis than just looking at an average and counting from one point to the next. There are also shorter-term cycles involved and the interaction or phasing of those cycles with the longer-term cycles as well as indicators and statistics that are used for confirmation. Not to get too complicated here, but there has been a clustering of cycle lows converging just ahead of that 47 month mark, and it is for that reason that I now feel there is a reasonable chance that the dollar could have made an important low. At the very least, that opportunity now exists. Understand that I am not in any way suggesting that just because we have seen a few good up days in the dollar that it is completely out of the woods. These up days were a good start, but there are other cyclical and statistical benchmarks that must be achieved if this advance is to continue.
The other reason that I feel the dollar could have made an important low is because there is coincidentally a clustering of cycles merging together that could also mark an important top in commodities this year. This too, is something that I have been watching and expecting for several months now and the cyclical and statistical hurdles for the potential top in commodities is coming just a bit later this year. This too is something that I have been and will continue to watch very closely.
In the meantime, the 3-year cycle in the CRB is still positive at this point. The dominate long-term cycle in gold is a 9-year cycle and it too still remains positive as of this writing. Just know that we are now in a window in which things could begin to change and the cyclical and statistical developments over the next several months will be key. I also want to make it perfectly clear that just because we have this long-term cyclical turn points nearing, does not mean that these turns couldn’t be short-lived. The bottom line is that we are moving into a window in which we could potentially see these longer-term cycles reverse. Whether or not these reversals will be long lasting or if we will once again see cyclical failures followed by yet higher commodity prices and still a weaker dollar will all depend upon whether or not the statistical and cyclical hurdles are cleared.
