The euphoria phase is where the rate of change starts to accelerate as traders become convinced that the economy is booming, and will continue to boom into the foreseeable future (the last bull market), or in this case that QE3 is a magic elixir with no unintended consequences.

During this final phase the character of the intermediate cycles should change and instead of a modest move above the prior intermediate top we will see a strong acceleration and a significant and sustained breakout above the September high of 1475. All of the traders that have convinced themselves that QE is having less and less effect are about to be caught off guard as we move into the euphoria phase of the bull market.

You can see in the chart below in 2006/07 the intermediate cycle accelerated rapidly past the prior intermediate top at 1326 in a classic runaway move. While this certainly felt good at the time, it was the beginning of the end as the housing and credit bubbles began to implode.

I think we are on the verge of something similar as I believe QE3 will drive the market high enough to test or marginally break the all-time highs. However, it’s also going to start an upward spiral in commodity inflation that will eventually poison this fragile economy and be the straw that breaks the camel's back.

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Toby Connor
Gold Scents

GoldScents is a financial blog focused on the analysis of the stock market and the secular gold bull market. Subscriptions to the premium service includes a daily and weekend market update emailed to subscribers. If you would like to be added to the email list that receives notice of new posts to GoldScents, or have questions,email Toby.

© 2012 Copyright Toby Connor - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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