“By Diligence And Patience, The Mouse Bit
In Two The Cable.” — Ben Franklin (1706-1790)
From time to time, I like to harken back to some of the great sayings of people who have come before us. So it is with Ben Franklin’s statement about the mouse. With diligence and patience, the mouse worked its way through the cable – succeeding in an endeavor that at first sight seemed insurmountable.
Often in trading, the same applies: With diligence and patience, you can achieve your desired objective – even when the markets are testing you like never before.
In fact, if there’s one common denominator amongst the best traders in the world, it’s iron diligence and patience.
Perhaps that’s why many great traders come from the military. They know how to diligently and patiently face adversity. By doing so, they not only conquer fear and emotion, they succeed. They achieve their objective.
You have several positions that are in the red. Sometimes that happens. It’s the markets’ way of testing your diligence and patience. Your will to achieve your goal.
If the markets didn’t do that, there would be no markets. There would be no opportunities for profit.
I am very confident you are on the right side of the markets. Yes, the markets are taunting us. But all of my indicators continue to suggest that …
A. U.S. stock markets are on the cusp of a potential precipitous decline.
B. Gold is getting ready to top out – and then head right back down in a very sharp way. Ditto for silver.
C. Crude oil is pulling back, but remains in a short-term uptrend that should soon see it move to the $52-$55 level, before its next leg down unfolds.
D. The U.S. dollar remains in a very strong uptrend, its recent pause and pullback should end any minute.
E. Conversely, the euro is about to give up the ghost. When it does, it will find itself in a very steep decline.
Today I have some important charts I want to show you. We’ll start with the stock market.
This first chart is the S&P 500. This is a neural net chart of all known cycles in the stock market, synthesized, back tested and forecast forward. As you can see, it is in declining mode, with a low forecast for early December.
The fact that the market has not yet rolled over to the downside means nothing.
We had the first leg down, and the bounce.
But that bounce has a major problem to it, which is noted on the bottom of the chart: Volume during the entire bounce has been contracting.
This is a very dangerous condition for the stock market.
If the rally from the Aug. 24 low was the beginning of a healthy uptrend, then volume should have also been rising. But it’s doing the opposite, declining.
This shows that the market is indeed on a very fragile foundation.
Now let’s look at my second chart of the stock market. This is the 7.33-year operative cycle in stocks right now.
As you can see, the market is following its cyclic destiny. This 7.33-year cycle does not bottom until early January.
Clearly these two charts show a market that should soon be heading lower, possibly in a very big way, with final lows not likely to come until as late as January.
What about your existing bearish stock market positions, UVXY and QID? I am confident that these positions can work out. As long as your stops hold UVXY could soar to over $100, QID to the $54 level.
Yes, the decline is taking longer than I had expected. But these cycle charts show the way forward.
Moreover, the U.S. economy remains lukewarm at best. And overseas, Germany’s economy is faltering – with industrial production sliding, major problems at Deutsche Bank and Volkswagen – and the refugee crisis starting to strain not only Germany’s budget, but budgets all over the European Union.
This morning, virtually all of Europe’s stock markets are in the red. This selling should soon spillover into our markets. There remains the possibility for a few more days of sideways action, with an attempt to get back near or slightly above the recent highs before the market completely rolls over and falls out of bed.
Bottom line: Like the mouse, we need to maintain our patience and diligence.
Same for the U.S. dollar: All of my chart work and technical analysis as well as the cycles show the dollar bottoming very soon and beginning a new major leg up. Hold UUP and your call options, with your stop in place for UUP.
Same goes for the euro: Hold the inverse euro ETF, symbol EUO, with your stop in place. Also hold your call options on that ETF.
Likewise, the Japanese yen is rapidly approaching an inflection point where it should depreciate substantially against the U.S. dollar. Of note is the fact that Singapore acted today to further depreciate the Singapore dollar.
Japanese authorities already have their finger on the trigger to print more yen, and Singapore’s move today might just soon prompt them to pull that trigger.
Hold your yen puts, and/or the yen inverse ETF, YCS.
Let’s now look at gold. There are many analysts now claiming that gold can move to $1,250 or $1,300. I disagree.
Just consider the chart I have for you today, which shows the cycles generated from the neural net artificial intelligence models (green line) – which are dynamic cycles …
And the blue line, which shows linear cycles, which are simple rhythms found in the market.
The important point is that both cycle models show an imminent decline in gold …
Possibly a major one heading into the middle of November – just one month from now.
Also, note that the chart shows a cycle high should be in place as of yesterday, Oct. 13.
The only reason I have not opted for you to take profits on the gold ETF – UGLD – is that cycle charts have a standard deviation to them of a few days, plus or minus.
Add in the fact that the stock market could roll over to the downside any minute, and there is the potential that gold may stage one more shot to the upside – and test maximum resistance at the $1,180 level – before the rally fizzles out.
I am monitoring gold and silver very closely right now, as it is entirely possible that I will move to have you take profits very soon and reverse into bearish positions for both gold and silver literally any minute.
Hold UGLD, but be ready to take profits and reverse into a bearish position, any minute.
If all remains on track, I will also be looking to have you establish a bearish position on the mining sector. Many investors are now piling into mining stocks figuring the bottom is in place. But it is not. As soon as gold and silver turn lower, mining shares will get hit yet again.
We are clearly entering a crucial period. Germany’s economy is faltering. China is still working its way through a tough period. The U.S. economy is showing signs that a recession is not far off.
Meanwhile sovereign debts and government budgets are under worsening stress.
The crisis that I have been speaking of is building momentum. We are still in its early stages, so it is normal to expect a lot of noise in the markets.
Please stay alert. The issues could come fast and furious over the next few days.
Lastly, each day I endeavor to answer as many of your questions as I can get to. I will continue to do so. I enjoy hearing from you. I enjoy your questions. And I enjoy answering them.
Best wishes,
Larry
