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Deric Cadora
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I am currently General Partner and Director of Torchwood Capital Management, a CFA operating in the Atlanta area. Formerly, I was VP and business manager for the HFT group at Citi Capital Markets. I then traded my own capital for several years before founding Torchwood.
My blog:
The DOCument
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  • Is The Gold Bear Complete? - Cycles Suggest A Further Trend Lower

    This post is going to upset some gold bulls. A compelling case can be made that the December low, rather than constituting a successful test of the June low in order to establish a base from which to resume the gold bull, merely represents the second tag of a large, descending triangle. If true, the new year rally may be topping and, in fact, the high price for gold for 2014 may have already been seen.

    Let's begin with gold's potential triangle formation:

    (click to enlarge)gold descending triangle

    So why do I suspect a triangle? Well, observe the shaded area above. This time period represents a left-translated (LT) weekly cycle that did not fail. A LT cycle is one that peaks left of center, time-wise. In other words, a cycle that rallies fewer weeks into its peak than it spends falling into its trough.

    Naturally, with more time to descend than rally, LT cycles tend to fail, which is to say they drop below the previous cycle low. Since the December low held above the June low, the Jun-Dec weekly cycle did not fail, despite being LT.

    An important point is derived from this cycle lesson: most instances in which a LT cycle does not fail involve triangle formations. In fact, the existence of a LT cycle that does not fail often helps me anticipate triangles long before the formation takes a visible representation on a chart. A third test of the $1200 pivot would not only shock gold bulls, but deliver confirmation of a triangle scenario which projects price down to $1,000.

    Before dismissing this possibility as far-fetched, a trader should also consider the fact that the commodity complex in general is due for a 3-year cycle low in the first half of 2015. And while gold, under certain circumstances, could buck the trend and rally on its own, I would not bet the ranch on that outcome.

    Furthermore, a 2013 low for gold would deliver a multi-year cycle low at the 5-year mark for the yellow metal. Gold's multi-year cycles tend to run 7-9 years, so a 2015 low makes much more sense. Finally, silver's recent, negative divergence relative to gold produces a warning signal that the PM market may be peaking. Silver typically outperforms its fellow metal in the latter stages of a weekly cycle.

    A bearish outcome is not set in stone, but several ominous factors are obviously present from the standpoint of cycle analysis. As noted in the Member Letter, I recently exited PM positions to await a more solid setup.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Mar 17 6:58 PM | Link | Comment!
  • Major Commodity Cycle Threatens To Turn Bearish

    Commodity bulls may be destined for another round of pain in 2014. The CRB has moved to within a few points of its 2012 low, a pivot representing a 3-year cycle low for the commodity complex. With a move below that level, the current 3-year cycle will fail, projecting commodities lower for several more quarters.

    (click to enlarge)3-year commodity cycle

    The 3-year commodity cycle actually runs between 2.5-3 years. Still, a failure at this point would require 12-18 months of further downside into the next multi-year cycle low. The chances of such a failure seem to be high since testing a cycle low halfway through the next cycle is highly unusual.

    As discussed in the Member Letter, several commodities such as cotton, coffee, and most importantly, oil, are deep within their own weekly cycle counts. These commodities should soon produce rallies, so the CRB may make a final attempt to defend the 2012 low. But once that low gives way, commodity traders should be mentally prepared for a weak year.

    Tags: commodities
    Nov 11 11:39 AM | Link | Comment!
  • Market Outlook 2013 - Thoughts Of A Professional Investor

    Coming out of 2012, a year which delivered an investment environment more difficult to navigate than any in at least the last five years, composing a forecast for the next year would seem to be a tenuous task. However, by recognizing the character of the action in 2012, expectations for 2013 clarify. Specifically, 2012 saw gold and oil working through massive consolidation periods, and since consolidation periods tend to separate trending periods, we can look forward to solid trends from these commodities once the patterns complete. Commodities in general also completed a corrective period which saw a major low form mid-year while equities extended an aging cyclical bull market

    Precious Metals Outlook

    Following a parabolic run into its 2011 peak, gold began a laborious consolidation. Like the consolidations which followed the 2006 and 2008 runs, the current consolidation has endured longer than a year. In fact, given the magnitude of the rally out of the gold's 2008 low, the fact that the current basing period is set to exceed the 18 months required to complete the 2008-09 basing period is not surprising. However, once the pattern completes... entailing a test of the 2011 high... the yellow metal will be poised to embark on its next giant rally.

    (click to enlarge)outlook for gold price

    Gold's trending move should extend into mid-2014, an expectation which is derived from the dollar forecast, which as described below, calls for a major decline. Obviously, the previous few months have seen a number of periods during which the typically inverse relationship between gold and the dollar has broken. However, these anomalies are typical of consolidation periods. The normal correlation should return with full force once gold is in trending mode.

    Dollar Outlook

    The U.S. Dollar Index tends to set a major low about every three to three and a half years. With the last 3-year cycle low forming in 2011... entailing a decline which drove the parabolic moves in gold and silver... the next low is due in mid-2014. After a third-quarter plunge in 2012, the dollar index clawed out of its September low, and this labored rally should soon give way to an impulsive move lower as the 3-year cycle decline kicks into gear. In fact, the dollar tends to set at least a 6-month high or low each January, so the New Year's rally may prove to be not only the high point of 2013, but the high at least until the 2014 multi-year cycle low.

    (click to enlarge)outlook for dollar index

    A dollar decline certainly makes sense from a macroeconomic standpoint in which the Federal Reserve is printing over one trillion new dollars per annum. And while other major central banks are certainly making efforts to devalue, a currency war will no doubt be controlled and "won" by the United States.

    Crude Oil Outlook

    Like gold, crude oil hashed its way through a major consolidation in 2012. Oil, however, is much closer to producing a breakout.

    (click to enlarge)outlook for crude oil price

    How far crude oil will rally in 2013 is impossible to know, but the 2011 high near $115 for West Texas Intermediate should be challenged, if not broken. Furthermore, the all-time high near $150 is likely to fall as the dollar moves into its 3-year cycle low in 2014.

    Commodity Market Outlook

    As may be inferred from the bullish forecasts for commodity bellwethers, gold and oil, as well as the bearish outlook for the dollar, the general commodity market should be trending higher throughout 2013. In fact, the CCI formed a major cyclical low in 2012.

    (click to enlarge)outlook for general commodity market

    The rally out of last year's low has taken pause while gold and crude oil complete their consolidations. However, the ascent of the new 3-year cycle should accelerate once the bellwethers are on the move, and the rallies should spread to other commodity sectors, as well. The CCI is expected to eclipse its 2011 high as the dollar sets its 2014 low.

    Stock Market Outlook

    With the dollar in decline, stocks should also find themselves on the receiving end of liquidity flow... at least for a time. The stocks market tends to conform to a 4-year cycle, and while the current multi-year cycle appears to be extending, stocks are ripe for a major peak. Much like the 2007-08 period, the equity market will likely keep its legs during the initial phases of a commodity rally. However, commodities should experience an acceleration of their rallies by early summer, and the pressure from higher input prices will eventually topple the cyclical bull in stocks.

    (click to enlarge)stock market outlook 2013

    This cyclical perspective is supported by fundamentals as U.S. corporate profit margins are at a multi-decade high (eclipsing the previous multi-decade high set in 2007). Unless such margins are not yet fully reflected equity prices, profit margins would have to expand beyond already-astronomical levels to support a continued rally. However, if these margins are, indeed, reflected in prices, and profits are pinched by rising costs, as anticipated, equity bulls could be set for quite a jolt.

    That jolt should arrive with the descent into a multi-year cycle low. As with the 2007-08 period, stocks could suffer a meltdown once commodities complete a parabolic move in conjunction with the dollar's 3-year cycle low next year. In this manner, central banks will experience the liquidity trap they set for themselves: any success in spurring nominal economic activity is destined to be self-defeating.

    For ongoing interpretations of dollar, gold, oil, and equity cycles, please visit The DOCument's Member Area.

    Tags: SPY, GLD, USO
    Jan 15 8:11 PM | Link | Comment!
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  • Is The Gold Bear Complete? - Cycles Suggest A Further Trend Lower $GLD
    Mar 17, 2014
  • Holding core PM positions and a modest S&P short. The focus is now on spotting the bottom of the gold correction using my cycles analysis.
    Jan 13, 2011
  • Heavily long gold and silver due to cycle analysis, which I publish on my blog, as well as the macroeconomic backdrop.
    Aug 9, 2010
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