Welcome to the weekend, folks. We've got plenty of good stuff for you today, but before we get to any of it we want to remind you Monday is Martin Luther King, Jr. Day, and markets will be closed. Ergo, we won't be publishing. We'll be back at it on Tuesday. In the meantime... We've got our usual market chat today, but before we get to that, we ARE going to be able to dissect the charts of bonds, yields, gold, and the U.S. dollar we teased you with yesterday. Heck, we pretty much have to have this discussion today, given last month's plunge in inflation. You Might Want to Take a Seat I spent great deal of time just thinking about how we can present a ton of information to you in the most effective way today. We really could write a lengthy commentary on everything that's happened this week, but we've decided we're better off - and you're better off - by giving you the condensed version of the whole picture and then leaving you with our conclusions. We'll skip the all the philosophy and skip most of the "why", and let the charts do most of the talking. In fact, we're just going to show you the relevant charts, and save the bulk of the op-ed for last once all the pieces of the puzzle are on the table. First and maybe foremost, the inflation rate fell sharply in December. Most of the drop can be attributed to falling oil prices, although it's worth noting we didn't see any real inflation outside of oil's reach. The overall inflation rate now stands at 0.756%, down from 1.322% in November, and the inflation rate without food and energy factored in slipped from 1.7% to 1.6%. This weak inflation environment suggests the Fed will have to hold off on any interest rate hikes for a while. At one point earlier in the week there was some discussion that the Fed was still willing to raise rate even with modest inflation (a contentious discussion, but a discussion nonetheless), but after today's dire data the Fed is pretty much forced to hold off on any rate hike for a long while. The impact on bonds and yields? This is where things get interesting. Superficially speaking, the unveiling of the inflation news should have pushed yields lower, extending a downtrend. Bonds should have moved higher too. It didn't happen though. Instead, yields were up a little bit on Friday, and bonds fell more than a little bit. What gives? We say this with all due respect to the Federal Reserve, but traders know what Janet Yellen and her coworkers are going to do before Janet even knows! The worst-case inflation scenario has already been priced into bonds and yields, so there's no need to push yields lower or bonds any higher... even with the right prompt. So what does this mean for the U.S. dollar and for gold? This is equally interesting. The rising dollar should be pushing gold prices lower. In reality, since the beginning of November, gold has been rising with the dollar. This may be the market's way of telling us a pullback from the dollar is inevitable, because there's clearly no inflation, and it's not like there's any real room for interest rates to keep falling. The only real reason we can say gold's rising in this situation is sheer fear of the fallout from the delinking of the Swiss franc and the euro, but that didn't happen until yesterday - gold's been in rally mode for more than two months. Besides, I don't see the franc/euro thing being as disruptive as it is just shocking. So what could finally prompt the dollar to pullback from its jaw-dropping gain? Recovery in Europe, for one. Or, rising inflation. Or, some say falling interest rates can drive the dollar down in our current situation. I'm not so sure that would work here, but it's a moot premise anyway - rates can't go much lower. The footnote to that discussion is, the dollar's recent rise may have largely been predicated on the looming rise in interest rates. In the same sense the market has already factored in the Fed's future thinking into bond prices, the market may have also already factored in rising interest rates in the United States into the price of the dollar. As such, once rates do finally rise, the dollar may not need to rise any further. As a matter of fact, one can't help but wonder if traders are thinking the dollar overshot its upside target and is poised to peel back a little no matter what happens with interest rates over the course of 2015. That would sure make sense, given the otherwise-illogical rally in gold prices. We could say more, but let's just get to the gettin'... let's talk about where we think this is all going. Our guess [subject to change at any time]: Bonds and yields are going to level off at current levels, remain volatile for weeks if not months, and then start to move in the other direction later this year. The dollar is also apt to level off around current prices, and perhaps even drift lower. The core reason will be renewed economic growth overseas. Gold should rise this year - albeit erratically - while yields, bonds, and the dollar find a groove. Inflation is apt to remain tame and even a little disappointing in early 2015 and not perk up until later this year and early next year, keeping the Fed's rate hike at bay. Traders basically agree. As of the latest look, the futures market is predicting the first rate hike won't materialize until September. That seems like forever from now, but the timing actually makes a lot of sense. It takes about nine months for any economic tweak to make a measurable impact. We're only just now starting to feel the positive impact of cheap gasoline on consumer spending; that benefit should accelerate in the near future. It's not going to be until September or so, however, that rock-bottom interest rates (on things like mortgages, business loans, credit cards, etc) are apt to lead to a swell in demand. It's also going to be a few more months until American exporters feel the full brunt of an expensive U.S. dollar; we've only seen a glimpse of the pain so far. By September though, the pricey dollar should have cooled off enough to undo some of the damage it's going to do to U.S. companies in the meantime. Seeing the upside of a softening dollar, investors and consumers should see renewed confidence in our equity market. The thing is, all these factors are going to come together in full force at around the same time in the latter half of this year. The first half could be choppy though. That's it. Sorry if it was more than you bargained for, but for your long-term money, sometimes taking a step back and looking at the bigger picture is necessary. Now, about the short-term market... Meltdown Evaded, For Now We'll do this real quickly, mostly because there's just not much to talk about. We have to give credit to the bulls. Things could have gotten ugly today, but the bulls were able to push back and eke out a gain, thus moving slightly away from the edge of the cliff. This still isn't to say we won't careen off of it early next week, but the bulls bought themselves some time and room with today's advance. Let's just look at the chart of the NASDAQ Composite today, as I'm sure a bunch of you are anxious to go do other things. As you can see, the lower Bollinger band was a floor, prompting a bounceback to a close above the 100-day moving average line (gray). I still firmly believe there's a grave risk of a much bigger pullback than we've seen in a while, and there was nothing about today's action to suggest that's less likely to happen now. That is, we're still below the 20-day and 50-day moving average lines, and it would only take one stumble to cross back under huge floors at 4542 and 4568. Until we see it happen though, we have to give the market the benefit of the doubt. Tuesday will clearly be an important day, with earnings likely to rock the boat. One last thing. I owe you an apology. Well, I suppose I actually owe John Monroe an apology. In yesterday's newsletter I mentioned he made a bullish call on gold back on December 3rd, using the VelocityShares 3x Long Gold ETN (UGLD) and Direxion Daily Gold Miners Bull 3X ETF (NUGT). I got the instruments right, but I got the date wrong. He actually made that call on December 24th, which would actually mean Elite Opportunity members would have been up 22% and 77%, respectively, as of yesterday. That is a nice trade. He talked about them on December 3rd, but the actual trade didn't materialize until the 24th. Honestly, I have no idea how I got them mixed up. In any case, my mistake got me thinking about something I'm not sure if I've clarified for you guys - the EO newsletter is more than explicit about its swing-trading ideas. While I usually don't like to give trading-specifics from the Elite Opportunity's newsletter, at this point it doesn't really matter... the trade is well underway. Here's the crystal-clear text from the EO newsletter on the 24th: "Tickers: UGLD or NUGT Entry Level: Between $117 and $113 on the GLD's Target: $121 on the GLD's SSL: $$112 on the GLD's" It doesn't get much more straightforward than that. Now, I bring this up for the sole reason of making sure you understand the Elite Opportunity isn't just some vague, philosophic banter. It's decisively actionable. If you'd like to get that kind of clear guidance all the time, sign up to become an Elite Opportunity member. The big wins on John's gold trades are just a small sample of the kinds of picks he and his team have been finding. Here's how to get them, or just cut and paste this link: https://www.smallcapnetwork.com/pages/SCNEO/v1/ That's all for now. Have a great long weekend.