New Trades, Plus Lots to Discuss …

SCT Issue #243

Nearly all markets are now reaching critical turning points, starting to rev up in anticipation of the soon-to-arrive October convergence point on the macro-economic cycles.

I discuss the key markets below, including reviewing open positions, then my new recommendations.

First and foremost, gold. It is in short-term rally mode, which my models anticipated by signaling getting out of bearish positions last week. You should have exited your DB Gold Double Short ETN (DZZ) with modest gains, against a loss on the December 105 GLD puts.

You did the right thing, as gold has now crept up to the first important resistance level at the $1,139 level.

My work is showing gold’s rally is now tiring, but it is not yet time to re-short with bearish ETFs and/or put options. There is a chance, a slight one, that gold could carry a bit higher to resistance at the $1,150 level.

Since it is still in a major bear market that is not yet over, the right strategy is to let the precious metals rally and then identify a low-risk entry point for new shorts.

Timing-wise, as you can see from this cycle chart, we should see gold pullback in the very short-term, then rally into mid-September, before taking its next big nosedive into mid-November, where if everything remains on track, we should see a final, and major low in the precious metals sectors (and in mining shares).

Bottom line: We will not play any rally in the precious metals or mining stocks and instead, we will look for a completion of this counter-trend rally and then enter new bearish positions.

The big news right now is in the stock market. As expected, it is now rolling over and should be heading lower into an October low. This correction that is unfolding now should be sharp and severe, catching the majority of investors off-guard and putting them in panic mode. That is precisely what you want to see to set up a major low down the road from which the markets can then explode higher all the way into 2017.

Yesterday’s action was very bearish in the stock market. There were over 5 stocks down for every one that traded higher, a very bearish indication of breadth in the market and a strong clue that bears have gained control.

This is important, as more than 67% of publicly traded stocks are already down more than 10% for the year. Yesterday’s bearish breadth – five down for every one up – indicates the major averages are all now rolling over as well.

You are positioned properly so far, with two bear ETFs – ProShares UltraShort Dow30 (DXD) and Direxion Daily S&P 500 Bear 3x ETF (SPXS) that should fare very nicely.

Maintain good-till-cancelled protective sell stops at $19.25 and $15.15, respectively.

We also have the volatility play, ProShares Ultra VIX Short-Term (UVXY), with a good-till-cancelled stop at $20.35, which should also fare well.

NOTE: Subscribers who do not yet own the above three positions, please refer to the new trades section below.

Natural gas: It’s had a pullback over the last few days, which has hit the United States Natural Gas Fund ETF (UNG). Nevertheless, my models remain bullish natural gas and UNG. Hold with a protective sell stop, good-till-cancelled at $11.64.

NOTE: Subscribers who do not yet own UNG, please refer to the new trades section below.

European markets: Now flashing important sell signals. I now recommend a double-leveraged (2x) bearish ETF for Europe. SEE DETAILS IN TRADE SECTION BELOW.

Oil: Very weak, but overdue for a bounce, which I will seek to have you capitalize on. Oil is headed to well below $40, then another bounce, then back down to below $30 early next year. While we have missed the recent decline, there is plenty of upcoming action in oil, so stay tuned.

Grain markets: Collapsing. No surprise here. But stay tuned, if we get a bounce in the grain markets, I may opt to take a bearish position via a put option on an agricultural ETF, but wait for my signals.

U.S. Dollar: Currently in a sideways consolidation that should end soon and give birth to a new rally higher. Looking to establish a long position, but wait for my signals. Same applies to the euro, but in reverse: Looking to establish a bearish position, but wait for my signals.

Economic commentary: In one word, deflation. It is gathering steam. You can even see it in the release of the Fed’s meeting notes yesterday, where the Fed is now wondering about raising rates.

I said this all along: The Fed may hold off on raising rates until later this year or even next year, on concerns the U.S. economy may start to suffer from the deflationary winds that are hitting Europe hard, from the slowdown in China, and due to worries that the U.S. dollar may get too strong on a rate hike, exacerbating the deflationary trend.

It seems the Fed has taken note of all this. Whether it raises rates in December or now, remains to be seen. I wouldn’t be surprised if the Fed holds off, and I wouldn’t be surprised if it doesn’t. The Fed is under extreme domestic pressure to raise rates, largely to help out pensions in this country, which are massively underfunded.

Interesting times indeed, and October isn’t even here yet!

Now, to my recommendation details, new trades …

Stay tuned and best wishes, as always …

Larry