Welcome to the August edition of the exclusive, members-only bulletin from The Edelson Institute!
In this detailed briefing, I’ll walk you through our E-Wave cycle forecasts for several key markets including: Gold, mining shares, oil, the dollar, Treasury bonds and stocks. Six key markets in all to brief you on, so let’s get started.
U.S. dollar:
The dollar looks to have finally put in a key cycle low and turned higher, as you can see in the E-Wave cycle chart below …
The dollar index put in its cycle low on Aug. 2, and has turned up, notching a higher low and high this week. Apparently the turn date for the buck simply extended out in time due to a shift in global money flows in favor of Europe and Emerging Markets.
Remember, international stock markets have outperformed the U.S. this year, drawing investor money, which also impacts currency markets. Emerging markets as a group have gained 23.7%, while Europe is up 17.3% year to date. That compares to a gain of just 8.7% for the domestic S&P 500 Index.
But global stocks peaked and volatility has been on the rise since late July, due in part to escalating tensions with North Korea, as well as more political turmoil here at home. Expect both of these catalysts and more to drive the dollar higher near-term.
Our cycle forecast indicates a peak on or about early September, followed by a correction in the dollar into month end. Then you can expect the next leg higher in the dollar rally beginning early October.
The September PowerShares DB US Dollar Index Bullish Fund ETF (UUP) call options have regained some lost value, although they are still far out of the money. But you can expect to recover more premium as the dollar rally unfolds.
Better yet, the ProShares UltraShort Euro ETF (EUO) position added recently should produce substantial gains from the dollar uptrend.
Treasury Bonds:
In addition to the euro, I see another excellent SELLING opportunity right now in U.S. Treasury bonds, and for similar reasons. Markets fully expect the Fed to remain dovish on monetary policy; to not rock-the-boat when it comes to unwinding their massive $4.5 trillion balance sheet.
But the reality is that nearly every recession and severe stock market decline has been triggered by a monetary policy mistake by the Fed. Either they tighten too soon, or not soon enough and then are forced to tighten too much.
Do you honestly expect the outcome to be any different this time? Do you really think they’ll finally get it right, even when the long history of the Fed says otherwise? I sure don’t!
In the cycle forecast chart of the 10-Year U.S. Treasury note above, you can clearly see the current rally may extend into September, but then a sharp decline is forecast in October. And it’s quite possible the downturn may come sooner than forecast.
Additionally, the chart below shows a pitchfork analysis that perfectly confirms our cycle forecast. 10-Year Notes are clearly into resistance at the upper end of the channel with nowhere to go but back down.
We haven’t pulled the trigger on a short-Treasury trade just yet, but I’m eyeing an inverse ETF that is designed to gain $2 for every $1 decline in long-term Treasury bond prices. Stay tuned.
Dow Jones Industrial Average:
As noted above, global stocks peaked in late July thanks to a rising risk-off vibe and volatility has been on the rise as well. Of course August and September are seasonally the weakest months of the year for stock markets. Plus, October has seen its fair share of steep market crashes in the past.
The current state of the stock market: Overvalued and overbought, is cruising for a bruising. It has been 19 months now since the last 10% correction. Historically, we can expect a 10% pullback once or even twice per year, on average, so we are way overdue for a steeper sell-off.
The E-Wave cycle chart for the Dow shown above forecasts a decline into September, followed by a rally. You are positioned to profit from the pullback with the ProShares UltraShort Dow30 ETF (DXD) and ProShares Ultra Short S&P500 ETF (SDS). Continue to hold and stay alert for more market updates.
Gold:
Precious metals markets rallied in July right on cue with the E-Wave cycle forecast, with gold climbing about $85 an ounce to a recent high of $1,298.10 on the nearest futures contract. Silver climbed as well, from a low of $15.15 an ounce in early July, to a recent high of $17.24.
Just remember, in spite of the recent rally, gold remains in a longer term downtrend, making lower lows, and so far, lower highs since its D-Day closing high of $1,303.10 on June 6.
Now, caution is warranted, as you can see in the cycle chart for gold above. We see a cycle high forecast this month, and the topping process may be underway already, followed by a pullback for the yellow metal into early September.
The overall pattern appears to be a zig-zag downtrend from now into late October or early November. The good news: That’s when we’ll see the next substantial buying opportunity in gold, silver and mining shares. So remain patient for that signal. I expect it to be lucrative.
The E-Wave cycle pattern for silver looks nearly identical to gold, so I won’t cover it in detail in this briefing. Suffice it to say I expect a much better buying opportunity in both gold and silver later this year.
Gold Mining Stocks:
Also similar to gold and silver, our E-Wave cycle forecast for the junior gold mining stocks shown below expects a peak this month … perhaps even this week … followed by a two-step correction into late October or so.
That’s exactly why I recently recommended placing a sell-limit order to exit Direxion Daily Junior Gold Miners Index Bull 3x Shares ETF (JNUG) into strength during this rally. And this morning, you should have been filled selling JNUG at our $18.88 target. Also, I expect to exit VanEck Vectors Junior Gold Miners ETF (GDXJ) soon, but wait for my signal.
Meanwhile, continue to hold your Seabridge Gold Inc. (SA) and Sibanye Gold Ltd. (SBGL) since I view these outstanding stocks as core holdings, and expect to add to them on any pullback.
Look, I’m well aware my forecast for near-term weakness in the metals and in mining shares is frustrating for you to hear, just as much as it is for me to deliver.
I want to get to the next “back up the truck” buying opportunity in gold, silver and especially mining stocks, just as badly as you do. But we have no other choice than to play the hand we are dealt by markets. It’s simply not in the cards just yet.
By year-end however, you can expect to play a hot-hand in precious metals again. So be sure you are good and ready to make your move when that time comes.
Oil:
As you can see below, there is a minor E-Wave cycle low date forecast for crude at the end of August, followed by a rally to new highs in September and early October.
That’s why I recommended you add to your U.S. Oil Fund ETF (USO) position recently, because I expect crude to trend higher into the seasonally strong fall period.
But the real story in energy markets right now is natural gas. That’s why, as an added bonus in this month’s briefing, I also want to cover our E-Wave cycle forecast for nat gas.
As you can see above, you can expect a substantial upside move in natural gas prices over the next two months. And this forecast is well supported by two bullish fundamental forces:
First, weather forecasters expect a more severe Atlantic Hurricane season, which means greater chances for a natural gas supply disruption in the Gulf of Mexico driving prices higher, and …
Second, hotter late summer temperatures across the U.S. are boosting natural gas demand for power generation to run all those air conditioners.
That’s exactly why I just recommended adding the ProShares Ultra Bloomberg Natural Gas ETF (BOIL) to your E-Wave Trader portfolio.
Bottom line: Our E-Wave cycle model forecasts a bullish trend in the dollar based on a more aggressive Fed. For the same reasons, this is bearish for the euro and Treasury bonds. Likewise, stocks may finally be poised for a steeper correction as the market is now in a seasonally weak period.
Meanwhile, expect precious metals to pull back near term, leading to better buying opportunities at more attractive prices soon. But energy markets are heating up with both oil, and especially natural gas expected to trend higher, creating new profit opportunities.
Continue to hold all open positions and stay tuned for more updates on the markets. Plus, keep watch for new trade alerts when the time comes to pull the trigger.
And please be sure to mark your calendar for our next members-only Edelson Institute
Executive Briefing and Q&A to be held Friday, Aug. 25. No RSVP is required, but be sure to save the date. You’ll receive a special link to view this presentation next Friday; one-week from today.
In the meantime, please send your questions and comments now via the Edelson Institute Editor’s Mailbag.
Good investing,
Mike Burnick
Executive Director
The Edelson Institute
