Welcome to the June 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 gold, silver, oil, stocks, the dollar, and precious metal mining shares.
There’s a lot of analysis to cover, so let’s jump right in …
First the bad news: We’re fast approaching a temporary period of weakness for gold. So, we will want to exercise some caution. Stay alert for volatile swings in the yellow metal – with a downside bias – over the next few months.
The good news: Gold’s temporary correction, although it will be frustrating to many, sets up a sizable rally into year-end and early 2018. This will provide lucrative buying opportunities for patient gold investors.
In the meantime, we will be looking to sell-the-rally in gold, with inverse ETFs, in order to profit directly from the expected decline. Stay tuned for our signal.
In better news for silver, the E-Wave cycle chart shown below remains a bit more bullish than gold.
After some up-and-down price action over the next few weeks, we expect a tradable uptrend for silver starting in July and continuing into August.
From a fundamental point of view, silver could get an added boost in demand as an industrial metal with economic conditions improving again in China.
What’s more, the technology sector, also a big consumer of silver, has been on an upside tear in recent months, which should mean increased capex spending, translating into more demand for silver.
We timed our sale of the iShares Silver Trust ETF (SLV) pretty well considering SLV has fallen another 5% since then. And now we are very close to pulling the trigger on re-entering a silver trade from the long-side to profit from the expected rally into August. Keep watch for fresh trade alerts when it’s time to make our next move
Gold Mining Stocks:
The best news of all in the precious metals space is the positive relative strength I’m seeing in mining stocks, compared to gold or silver.
The junior mining shares in particular bottomed in early May and the VanEck Vectors Junior Gold Miners ETF (GDXJ) has been in an uptrend since then, even as gold remains under selling pressure…
Our E-Wave model does expect another short-term decline for GDXJ, perhaps beginning this week and persisting through mid-July. Then we expect another decent move higher for mining shares into late-July and early-August, as you can see above.
Fundamentally, the rebalancing of the GDXJ portfolio was completed at the end of last week. This means the stocks that make up the index are no longer under selling pressure from Wall Street fund managers. And this should provide an additional boost for GDXJ near term.
In fact, the last time GDXJ did a major portfolio overhaul, the ETF soared 25% higher just one month later!
So, after some expected weakness near term, we’re looking for new trades that will profit by taking advantage of the next big move in mining shares.
Continue to hold your open positions in VanEck Vectors Junior Gold Miners ETF (GDXJ), Direxion Daily Junior Gold Miners Index Bull 3x Shares ETF (JNUG), plus Seabridge Gold Inc. (SA), and Sibanye Gold Ltd. (SBGL).
We are considering adding to these positions when the timing is right, plus making new recommendations in the sector. But please wait for our signal.
On another note: SBGL completed its rights offering last week, handing us the opportunity to purchase 193 more shares at just $3.48 a share. I hope you took full advantage because I expect the stock to rebound very soon.
Dow Jones Industrial Average:
As you can see in the E-Wave cycle chart for the Dow above, our model is still forecasting a substantial decline for stocks into August-September.
I have read several mailbag questions asking: Why stocks haven’t rolled over yet, as our E-Wave model predicts? And does this mean a cycle-inversion is taking place?
So, let me address this head on: While anything is possible, we suspect the top in stocks is simply taking a bit longer to form than expected.
Take a look at the chart below and you can see that the best-performing U.S. stock index, the tech-heavy Nasdaq 100 has already broken down, not once but twice.
Another, more fundamental factor that is certainly NOT in favor of higher stock prices right now is the health of the U.S. economy. The graphic below shows the Citigroup Economic Surprise Index (CESI), which simply measures if economic data reports (GDP, jobs, housing starts, retail sales, etc.) are exceeding or falling short of expectations.
The index began rolling over earlier this year. And as you can plainly see above, it’s indicating more negative than positive surprises in the data.
CESI has now fallen to one of the lowest levels on record. In fact, the last time it was this low was 2011, when the Dow dropped nearly 20%!
With the leading sector of the stock market – technology – under selling pressure already, not to mention the dismal economic data, it’s only a matter of time before the Dow and S&P follow suit … to the downside.
You should currently be holding the ProShares UltraShort Dow 30 ETF (DXD) and to profit from a decline in overextended emerging markets, the Direxion Emerging Market Bear 3x ETF (EDZ), added last week. Unfortunately, you were stopped out of the Direxion Daily Financial Bear 3x Shares ETF (FAZ) just yesterday for a small loss, but that’s no big deal.
We are likely to add additional inverse ETF positions to profit from a steeper correction in stocks. So watch for new trades at any time.
Our E-Wave cycle forecast was nearly spot-on, calling for an early May bottom in oil, then a cycle high late last month, followed by another decline into mid-June. For energy bulls, your patience is about to be rewarded because the E-Wave forecast now calls for higher prices into early July.
As you can see above, expect one more sizable pullback for black gold next month, which should form a bullish double-bottom pattern for oil, followed by a strong rebound rally into late August.
The forecast of higher oil prices is also supported by one of Larry Edelson’s favorite technical analysis tools – Andrew’s Pitchfork, below:
You can see that oil is at the lower end of a downtrend channel where we can expect buyers to come in supporting a bounce higher, toward the upper end of the channel once again.
Energy stocks may have bottomed already, and like mining shares, oil and gas stocks could lead this next rally, during which we expect to bag profits. Stay tuned.
The dollar E-Wave cycle forecast still calls for a sharp rally for the greenback in June and July, with a corresponding decline in the euro.
The next cycle high should come in late July, giving us plenty of time to profit with our positions in the September call options on the PowerShares DB US Dollar Index Bullish ETF (UUP), plus the Direxion Daily Emerging Markets Bear 3x Shares (EDZ), since a rising dollar typically puts emerging-market shares under selling pressure. Continue to hold.
Supporting evidence for a bullish call on the buck can be seen in the pitchfork chart below of the U.S. Dollar Index. It clearly shows the recent decline losing momentum, which was crystallized by the sweeping bullish outside day reversal to the upside following the June Fed meeting.
The above chart highlights multiple attempts to break the lower support line to no avail. A bottom in the U.S. Dollar is confirmed on a drive above $97.78.
Bottom line: An important trend change is at hand for the U.S. dollar (uptrend) and getting closer for stocks (downtrend). Meanwhile, gold faces headwinds into mid-July, but we expect gold-mining shares and silver to both rally starting very soon. As for crude oil, the decline predicted by our E-Wave cycle forecast is nearly complete, and we expect a good buying opportunity in energy sector stocks next month.
Our aim, as always, will be to take advantage of the moves predicted by our E-Wave cycle charts with timely trade recommendations. So stay tuned for more updates and trade alerts soon.
In the meantime, please plan to attend our next members-only Edelson Institute Executive Briefing and Q&A this Friday, June 23. No RSVP is required, but be sure to save the date. We will send you a link to view this exclusive presentation on Friday. Plus, send us your questions in advance via the Edelson Institute Editor’s Mailbag by clicking here now.
Mike Burnick Executive Director
The Edelson Institute