Good morning. Once again, thank you for attending yesterday’s webinar, and for all your well wishes!
Today, I want to give you a full update, adding on my comments from yesterday’s webinar, along with updated charts.
First, the stock market. As I noted over the last few issues and in yesterday’s webinar, although the market has rallied further than I had expected …
The internal structure of the market is rapidly decaying.
– Overall trading volume is declining, not confirming the recent rally.
– The number of stocks advancing is actually shrinking.
– Other sectors and indices in the market, namely the Dow Transports, the Dow Utilities and the Russell 2000, are all either stagnating or declining.
Meanwhile, similar conditions exist in Europe, with most of the region’s stock markets stagnating or falling, while Germany’s DAX – the equivalent of our blue chips – is largely the index that has been rising.
This is NOT a healthy situation for the equity markets. Here, or in Europe.
Moreover, it is typically resolved by a very large, sudden slide in the main indices.
Now, let’s look at a chart of the S&P 500. Notice the blue-shaded triangular formation and how the rally has brought the S&P back to the underside of the triangle. This is an AREA of massive overhead resistance.
Combined with the fractured internal conditions of the overall equity markets, noted above and in previous issues …
Yes, it can poke a wee bit higher BUT the S&P 500 should be topping right now in this general region.
Now look at the amber median line set that I have drawn in for you, a mathematically interpolated “action/reaction” type of trading channel.
It ALSO shows that the market is now in an area where a MAJOR secondary top can form. Moreover, the median line set points substantially lower.
Bottom line: I believe that the U.S. equity and European equity markets are within a few hairs of a major secondary top … and that the next big move will be to the downside.
Hold UVXY maintaining a good till canceled protective sell stop at $22.24.
Importantly:
If we are stopped out of this position, stand aside and wait for my next recommendation for the stock market.
If not stopped out and the market tops in this general region, I will look to add additional bearish positions on the stock market.
Also note: I will NOT recommend going long the stock market until either …
A: The Dow Industrials plunges to a new low below the August 24 low. Or …
B: The Dow Industrials rallies to a new record high and closes above 18,500.
As noted in yesterday’s webinar and as discussed above, however, it is extremely unlikely that B will occur at this time.
Now, to gold: Gold is following the model quite nicely. As shown in previous issues, gold was due to top on October 13. Gold did top on the 15th, at major resistance at the $1,184 to $1,190 level, just two days after the forecast cycle date.
It has since fallen precipitously.
Nevertheless, gold is still at a major inflection point.
To produce a major, final low for its bear market, gold needs to …
A: Close below $1,138 to confirm a continued move lower.
B: Take out the previous major low at $1,073.70 (December futures contract).
As you can see from the chart, gold is now in a position to accomplish both A and B.
What if gold declines into the November 12/13 cycle low date, but fails to produce a new low?
That of course, is an excellent question. If that were to occur, it would mean gold’s bear market is going to extend a bit further out in time, into the first quarter of next year. It would also mean that the final low in gold would come in much lower, down in the $865 to $935 zone.
EITHER WAY, gold’s bear market is intact, but lining up for a major low, hopefully on target just a few weeks from now.
Hold DZZ and maintain your good till cancelled protective sell stop at $6.53.
NOTE: If gold closes below $1,138, I will recommend that you get more aggressive on the bear side. But wait for my signals.
Silver is now in a similar situation to gold. Stay alert: I may soon recommend a bearish position for silver.
Now, to the U.S. dollar:
The dollar is yet another example of why I have been stressing patience.
Though the dollar declined in late September/early October, taking its dandy time forming the next leg up …
Since the middle of this month the dollar has exploded higher. It is now in a position to accelerate higher, zig-zagging up to over 100 basis the nearby Dollar Index futures contract.
This is great news for the long dollar ETF, UUP and the March 2016 UUP call options, strike price $25. HOLD, and maintain a good till canceled protective sell stop for UUP at $23.74.
Now, to the euro: Anyone who thinks the euro is not in trouble, or that Europe’s leaders can stem its decline, should simply consider the following:
A. Deflation is starting to ravage the European Union.
B. Germany’s economy – the only economy holding Europe together – is now starting to falter.
C. Deutsche Bank is in serious trouble. So is VW. Europe’s largest bank and largest company.
D. The refugee crisis is going to blow out every European country’s sovereign debts, compounding an already horrendous financial state of affairs.
E. The ECB is likely to start printing more money, as soon as December.
F. Civil unrest is rising all over Europe.
And more.
The euro has indeed started its next leg lower. Looking at the chart, the euro should soon accelerate lower, first to the 1.04 system support level (not on the chart) … then to 1.00 – or parity – to the U.S. dollar … and then, even lower.
Hold EUO and maintain a good till cancelled protective sell stop at $21.56. Also hold the January 2016 EUO call options, strike price $25.
Now, to the Japanese yen: Japan’s economy is beginning to reel again, with industrial production recently plunging and deflation retaining its grip on the economy.
Meanwhile, the Bank of Japan did delay this month any further yen printing, but it is likely to start printing additional yen either in November or December.
The Japanese yen remains in a bear market, which is likely to soon worsen.
Hold YCS and/or the CurrencyShares Japanese Yen Mar 2016 78 Put options, strike price $78 (FXY160318P00078000).
Last, let’s take a look at oil. Short-term, the models called for a rally in crude oil. They still do. But just before oil turned higher, it staged what is typically called a “fakeout move.” You can see it here on the chart.
Notice how oil plunged below the red support line, then immediately turned back higher.
This is a fakeout move that essentially wipes out most of the existing long positions … gets everyone selling … and then the real trend suddenly demerges, with savvy money buying up all those broken long positions and virgin shorts.
This is a frequent occurrence in many markets. They can be capitalized on via short-term futures trading. But with ETFs or options on ETFs, it is near impossible to capitalize on them, and instead, we often will find ourselves entering on the proper side of the trend, but just before, or just after a fakeout move occurs.
With the recommended position in USO, we got in just before the fakeout occurred. Fortunately, the recommended stop for USO at $13.34 held, and now, oil is poised to rally back to the $52 to $54 region, before ultimately succumbing to the large bear market and heading to new lows in early 2016.
Hold USO and maintain a good till cancelled protective sell stop at $13.34.
The strategy will be to capitalize on oil’s short-term rally, then get bearish to aggressively pursue some large profit potential on oil’s next leg down, which should be its final leg lower, bringing oil down to below – possibly well below – the $40 level.
Best wishes and stay tuned!
Larry
