2013.07.19 Gold Cycle Chart

The target gold price in the August-September time frame is $1460 +/-. However, I would not be surprised if the price overshoots the model prediction at the peak, given its past performance.

2013.07.19 XOI.X Cycle Chart

As predicted by the cycle model, the oil index is rising from its June, 2012 low and heading to 2300 +/-  with a predicted peak occurring in June, 2014.

2013.07.14 DJIA Cycle Model

Saving the least predictive cycle model for last, here is the update for the DJIA. I probably should preface this particular model with some comments about what it represents.  The inputs to  the cycle models rely on  historical data. History rhymes and sometimes even repeats itself. However, the Fed asset buying and bailouts over the past four years are unprecedented in scope, so the model falls apart because there is no way to predict future Fed actions, and right ow the market is focused on Fed actions, rather than underlying business cycle fundamentals like credit, international capital flows, industrial production, etc.  And the market rules.

So why continue to run this model?  Well,  one way to interpret the prediction is that while on a historical basis there is very strong downward pressure on prices, the Fed has successfully, at least for now, inflated equity prices with enough liquidity to push back on seasonal, yearly and decadal patterns of business cycles, all of which have been pointing down for 4 years. Nevertheless, the model might give some quantitative indication of the amount of "pressure" the Fed has to exert to prevent the normal business cycles from re-exerting themselves.  If you look carefully at the Z-score charts, you will see that negative divergences in the  Z-score coincide with Fed bailouts and QE (n+1) announcements. So, if this hypothesis is correct, we should see the Fed announcing a creative way to continue to add liquidity to the banking system without spooking bond holders,  probably in the next few weeks. If the Fed does inject enough liquidity, and the bond markets do not get spooked, then it will provide another point of divergence for the model predictions.  However, if the Fed does nothing, or even thinks about removing liquidity by setting a timeline, the downward pressure on equity prices will reassert itself. 

For those not familiar with Z-scores, it is a way to look at how much variance there is between the predictions and the actual prices over time. A positive Z-score of 2 or 3  indicates that the predictions have exceeded actual prices by that margin 2.2 % of the time and 0.13% respectively.  The reverse operating for negative scores.  The Wiki page is good for a refresher course. The blue line on the second chart shows where we are with the Z-score at the moment, and you can see that on a historical basis it is quite remarkable. But does it mean an equity meltdown is coming up? I don't know, I guess I'll keep my eye on the Fed, like everyone else.

2013.07.12 Silver Cycle Chart

It appears that silver, like gold,  is also in the process of making a double bottom. 

2013.07.11 Gold Cycle Chart

Gold is rising in accordance with the gold cycle model, or is it the other way around? The gold cycle model continues to suggest a "double-bottom" for gold, followed by a rise into 2014-2015. I am not a Elliott wave acolyte, but it even looks like a Wave 1 of a larger Wave V may have begun, which would put the next predicted low  in early 2014 as the bottom of Wave 2, followed by the strong impulsive Wave 3.

2013.07.09 XOI.X Cycle Chart

The XOI.X Amex Oil Index, one of the better performing cycle models as can be seen from historical charts, suggests strong upward pressure for prices over the next year. The usual caveat for this model is that it only incorporates cycles with a period of <15 years. However, given the strength of the signal, I think that the model will continue to perform reasonably well.