Clarification: Important Update PLUS New Trade(s)!

Editor’s Note: There were some typos in this morning’s trade alert. Specifically, the name of the SCO ETF, and the gold price references. The issue can be found below, in its entirety. We regret the inconvenience.

We have a lot of ground to cover this morning including a new trade plus trades for new members who recently joined, so let’s get started.

I know what you’re thinking: We’re on the wrong side of the euro and we missed the bottom in gold.

That’s a normal reaction after moves like we saw late last week, the euro surging, and gold up over $28 in a single day.

But that’s not how real markets make bottoms. Spikes higher like you saw last week are typical of short-covering moves. That’s when previous large speculators cover their shorts and take profits, scrambling to get out when some piece of news upsets their trades.

We are not highly leveraged, futures short-term traders. We are speculators, using the MAIN trend to generate our gains. Sometimes, we have to rise out of adverse news. Sometimes, we get caught in. But it doesn’t mean we’re wrong. Instead it’s the market’s way of throwing us a curve ball, so the weak strike out.

Let me show you by way of analysis, first, the euro. Here’s a daily bar chart of the euro and you can clearly see the Thursday/Friday spike higher last week, the last two bars on the chart.

But you can also clearly see the overall pattern for the euro, which is clearly bearish.

As strong as last week’s spike higher was, the euro didn’t even reach the first major level of resistance at the 1.10874 level.

It may yet, today or tomorrow, reach that level. But even if it does, the euro is clearly in a downtrend and there is no change in trend. All that happened was a “news driven noise event.” ECB chief Mario Draghi disappointed news-driven traders who were expecting a more aggressive move from him, and he didn’t deliver. So those very short-term highly leveraged traders, covered their shorts and the “dumb money” took it as an opportunity to go long.

Yet, there was no trend change whatsoever.

So what’s next for the euro? Simple: There may be one to two days of attempting to move a tad higher, or sideways action, then likely down, to steep new lows.

My cycle work confirms it. In addition, you can see my year-end targets for the euro, which stand at 1.02160 and 0.96218, respectively.

In other words, a steep decline lies ahead for the euro.

BOTTOM LINE: Hold EUO and ALL EUO call options. IN ADDITION, in a moment I will give you the details of an additional trade on the euro, longer-term in nature.

But first, gold: Gold’s rally Friday wasn’t all that much different from the euro: Lots of short-covering. Essentially, when highly leveraged short-term traders saw the euro rally, they started covering their shorts while others, typically dumb money, started buying long.

Here’s a chart of gold.

Does that look like the start of a new bull market? Hardly!

It’s far more characteristic of short-covering than anything else. Volume and open interest studies confirm it.

YES, gold did close back above the $1,073.90 level I had pointed out previously, and yes, that constitutes a minor buy signal.

But it is not a major buy signal. All it means is that gold could test the next level of resistance at the $1,089 level. That’s all.

For gold to prove a bottom of a lasting nature was formed at the recent lows, we would need to see gold close above the $1,109 level. Based on everything I am monitoring that does not appear likely at this time, and instead, a move back down is far more probable.

If I am wrong, we should still see a move back down in gold that holds support levels, and if so, then I will recommend going long gold and probably silver. But we will not reverse and go long at this time.

BOTTOM LINE: Hold your shares in DZZ, with a good till cancelled protective sell stop in place at $6.53.

NOTE: If you do not yet own DZZ, for whatever reason, please see the trade table below.

Now, let’s look at crude oil. As expected, oil plunged last week to below $40 a barrel. The trigger: News that OPEC would keep the pedal to the metal on production.

That’s great news for the SCO position and the options on USO, which are now showing an open gain of better than 36%.

Bottom Line: Hold your position in either SCO or the USO put options.

NOTE: If you do not yet own SCO or the USO put options, for whatever reason, please see the trade table below.

Now, the stock market. There is no question that this is one market that is giving my models a tough time. Nevertheless, all of my models continue to point to a severe decline occurring at almost any moment, and there is simply no way I am going to defy those models and recommend that you go long the stock market.

In addition to my models being bearish, every indicator I look at tells me the stock market is crumbling at its foundation, which itself is also very bearish. Therefore …

Bottom Line: Hold your shares in UVXY with a good till cancelled protective sell stop in place at $22.24.

NOTE: If you do not yet own UVXY, for whatever reason, please see the trade table below.

According to my models, that next few weeks heading into the end of the year are going to be especially wild for the markets. That’s typical near the end of any year, but I think it will be even more wild this year.

Three simple reasons: First, the cycles that I have been telling you about that started converging in October are picking up momentum. That’s already clear from the market’s themselves, in addition to Europe’s plunging economy and the rise in terrorism.

The second reason is not that clear to most, but I do believe it will soon play an important factor. Next year is an election year. There are plenty of hedge and pension funds that typically make portfolio adjustments and tax maneuvers at the end of the year, and since next year is an election year, I believe that portfolio jockeying will be even more intense in the coming weeks.

Third, we have a strong likelihood the Fed will raise rates on December 15/16. Although I believe it is already largely factored into almost all markets, when it occurs, it is bound to cause widespread swings.

The most important thing to remember however, despite the above, is that MAJOR trend are never changed by such news or fundamentals. Trends change when they change, and only a minority of investors are aware of trend changes when they do indeed occur. Investors like you, will be on the leading edge.

Now, to today’s trades. Please follow the recommendations below that pertain to your portfolio…

Go ahead and act on the above recommendations that pertain to your portfolio, as soon as possible!

Stay tuned and best wishes,

Larry