Our E-Wave cycle forecasts are backed by powerful seasonal factors. And right now, they are signaling a bullish shift in trend for several key commodity markets. That list includes silver, oil and more.
It appears that several commodity markets put in key lows in late June … right on cue with the start of the summer season.
Changing seasons, changing fortunes for commodities!
In light of this, let’s quickly review current holdings. Today we’ll also preview some new trade recommendations we’re watching (and are close to pulling the trigger on).
Overvalued Stock Market Ripe for Reversal
Stocks remain extremely overvalued and overbought at these levels.
A trend reversal to the downside is overdue. When markets do finally reverse lower, we expect them to break with a vengeance.
The market has gone nine months without a pullback of more than 3%. On average, history tells us to expect a 5%-10% correction about two to three times per year!
What’s more, the S&P 500 is trading at all-time high valuation levels in terms of price-to-sales. (That’s one of the most-effective fundamental ratios in all of investing.)
In other words … something’s got to give, and soon.
Unfortunately, emerging-market stocks gapped higher today. This triggered our stop on the Direxion Daily Emerging Market Bear 3X Shares (EDZ). But you still have plenty of profit potential on the short side of stocks, thanks to the ProShares UltraShort S&P 500 ETF (SDS) and PowerShares UltraShort Dow 30 ETF (DXD) positions.
And given this morning’s rally, we’re looking to add to our bearish bets.
This morning’s rally in the QQQ so far failed to overtake gap resistance provided by the June 27 gap-and-go-lower trade. This is a significant level, and we’re close to pulling the trigger on the ProShares UltraShort QQQ ETF (QID) once Fed Chair Janet Yellen’s Capitol Hill testimony cloud clears.
Precious Metals
Precious metals are showing bullish reversal action this week from new cycle lows. And that’s exactly what we’ve been waiting patiently for.
Silver and junior-mining shares look like the best bullish bets moving into August.
Adding more support to the advance was Yellen’s monetary-policy commentary before Congress. This morning, she struck a slightly more-dovish stance on interest rates. Specifically, that she viewed low inflation as a source of concern.
Our gold and silver positions also benefit from a lift in anxiety surrounding the latest political email scandal. That is, Donald Trump Jr.’s email correspondence with Russian “intermediators” about a meeting designed to bolster his father’s campaign.
Now, this could easily grow into greater market uncertainty. That’s because political opposition is likely to capitalize and make it a larger issue.
Finally, sharp downside in gold came with a plunge in net-long speculator positioning. This suggests that downside might be overexaggerated for now — and a relief rally underway. See this chart:
Shifting Gears to Black Gold …
The oil market is also turning higher from this week’s low. It’s being aided by a couple of bullish fundamental factors …
First, was the latest monthly report from the U.S. Energy Information Administration. The EIA cut its 2018 U.S. oil-production outlook to 9.9 million barrels per day. This was their first downward revision since January.
Second, private inventory figures last night showed a larger-than-expected decline in U.S. crude supplies. These figures were confirmed by this morning’s more-definitive EIA report.
There’s additional bullish impetus for oil. And it comes from EIA stats that showed a larger-than-expected decline in inventories held at the Cushing, Okla., storage hub. It shows the lowest inventory reading since November, as well as an uptick in U.S. implied gasoline demand.
This is good news for our U.S. Oil Fund (USO) and Sanchez Energy Corp. (SN) positions. Continue to hold those for more upside ahead.
The energy sector is another area that we are watching closely and looking for the right time and price to up our ante. Stay tuned.
We’re closely monitoring current positions, so continue to hold. And stay alert for fresh updates and trade alerts coming your way soon.
Good investing,
Mike and David
