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 that 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. 

CHRISTMAS SPECIAL 
For the next couple of days I'm going to run a Christmas special, one penny for the month of December. This is only valid for new subscribers. If you have already subscribed to the SMT premium in the past the system will charge you the regular $25 monthly rate. At the end of the month your subscription will convert to the normal monthly charge unless canceled before then. 

SMT premium newsletter. Christmas special.

-- Posted Monday, 3 December 2012 | Digg This Article