Welcome to the May edition of the exclusive, members-only bulletin from The Edelson Institute!
In this briefing, I’ll walk you through my detailed forecasts for stocks, gold, silver, oil, the dollar, plus a special feature on gold and silver mining stocks.
So let’s jump right in and get started …
Two hundred and fifteen days … that’s how long stocks have gone without a 5% pullback in the market, which is an extremely rare occurrence. Of course yesterday, volatility returned to the stock market with a vengeance, as the CBOE Market Volatility Index – VIX, spiked almost 50% higher in a single day!
The Dow dropped nearly 2% yesterday while small-caps fell almost 3%. Gold surged 2% higher and Treasury bonds rallied amid safe-haven money flows.
So was this just a one-off selloff for stocks, or just the beginning of a long overdue market correction?
Our E-Wave cycle models say: Look out below … expect more selling ahead!
Dow Jones Industrial Average:
As you can see in the updated E-Wave cycle forecast chart for the Dow above, we expect stocks to remain under selling pressure for the next few months, with the next major cycle low not forecast until August.
Added confirmation for our E-Wave forecast can be found in the chart below showing the Dow (black line) and the percentage of Dow stocks trading above their 50-day moving average (red line).
This is a key measure of market breadth, or the strength of the uptrend in stocks. But as you can see, the divergence is plain as day. While the Dow has been heading higher, the percentage of stocks trending higher stalled out months ago! In fact, less than HALF of the 30 Dow stocks are trading above the 50-day moving average.
This means fewer and fewer Dow stocks are keeping the index near record levels. And the same thing is happening in the S&P 500 Index, the Nasdaq 100 Index, you name it.
You should currently be holding the ProShares UltraShort Dow 30 ETF (DXD) and Direxion Daily Financial Bear 3x Shares ETF (FAZ). We are likely to add to these position OR make a new recommendation to profit from a further correction in stocks. So keep watch for new trade alerts.
Gold:
Our E-Wave cycle chart for gold calls for a further correction heading into early June. It’s too soon to say what the magnitude of the pullback will be, but the yellow metal has support at $1,214 and then $1,190, so the correction may be limited.
As you can see, we expect the next major cycle turn date back to the upside in early June. Stay tuned.
Silver:
The E-Wave cycle forecast for silver below is a bit more bullish than gold.
The more violent decline in April and early May means that silver has likely bottomed already, ahead of gold.
From a fundamental perspective, speculators in silver futures and options aggressively liquidated their long positions recently. And that liquidation is a healthy process that cleanses the market and sets silver up for its next leg higher.
Last week, our E-Wave model indicated a cycle low date and upturn for silver, with the new uptrend carrying silver higher into late July. This bodes well for our iShares Silver Trust (SLV) position. We may recommend more long-side exposure in the silver market on any near-term setback. Stay tuned but please wait for our signal.
Gold Mining Stocks:
The E-Wave cycle chart for gold and silver mining shares looks similar to that of silver, and once again, more bullish than gold. Last week was a major cycle low point, with another minor low indicated for early June.
You can clearly see that mining stocks should trend higher through late July, but keep in mind; there will be some volatile moves both up and down along the way. We intend to take advantage of these swings from a trading perspective.
You should currently be holding the VanEck Vectors Junior Gold Miners ETF (GDXJ), Direxion Daily Junior Gold Miners Index Bull 3x Shares ETF (JNUG), plus Seabridge Gold Inc. (SA), and Sibanye Gold Limited (SBGL). We are likely to add to these positions OR make a new recommendation to profit from a further rise in mining shares. So keep watch for new trade alerts.
On another note: SBGL is in the midst of a rights offering which takes place later this month. Next week, I’ll give you more details about the offering and the recommended action to take. Stay tuned.
Oil:
Our E-Wave cycle forecast was nearly spot-on calling for a bottom in crude oil. The forecast now calls for higher prices into the second week of June – which makes sense given the May 25 OPEC meeting.
Personally, I suspect OPEC and Non-OPEC members will use that time to jawbone the market higher in an attempt to lift oil prices prior to the meeting.
Then, expect a sell-the-news event immediately after, with a cycle high turn date forecast in early June, followed by a steeper decline into late July
This view of higher oil prices near term is also supported by one of Larry’s favorite technical analysis tools – Andrew’s Pitchfork, below:
You can see that crude oil has some room to run higher in the short term – before running into resistance at the top of its channel – this is all within the context of a primary downtrend for oil extending into late summer.
U.S. Dollar:
The dollar E-Wave cycle chart forecasts a rally ahead for the buck in June and July, with a corresponding decline in the euro. The next cycle high should come on or about July 18.
Right now, the dollar is still under some selling pressure, which is handing us a more attractive entry point to profit from the expected dollar rally. Again, my team and I expect to profit from this move higher, when the timing is right.
Meanwhile, continue to hold your ProShares Ultra Short Euro ETF (EUO). Legislative elections in France and the U.K. next month offer the next fundamental catalyst likely to send the euro even lower, and the buck higher.
Good investing,
Mike Burnick
Executive Director
The Edelson Institute
