Welcome to the July 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 several key markets including: Gold, silver, precious metals stocks, oil, the dollar, and the broad stock market. That’s a lot to cover, so let’s get started.
Let’s cover the bad news first: The latest updated E-Wave cycle chart remains steadfast in expecting a dollar rally in June and July, but clearly that hasn’t unfolded yet, as you can see below …
In fact, the U.S. Dollar Index slipped to a new 10-month low this week. What gives? It’s possible that the cycle turn date is extending out in time, or perhaps inverting, due to a shift in global money flows into Emerging Markets, and to a lesser extent Europe.
Stock markets in the developing world and in Europe are outperforming the U.S. so far this year, and that’s attracting more risk capital that is chasing performance.
Of course these flows can dry up just as quickly if we get any sort of risk-off event, and there are plenty to choose from: North Korea, Syria, Brexit, Russia, the Middle East, domestic politics … take your pick.
The next cycle high in the buck is forecast for late August, so it’s important to keep a watchful eye on the dollar’s trend heading into that date. Meanwhile, our September call-option position on the PowerShares DB US Dollar Index Bullish Fund ETF (UUP) is deep underwater, but we’re not ready to abandon it just yet. That’s because a risk-off event in markets could easily reverse the dollar’s trend in a heartbeat. Rest assured, we are monitoring it closely, so continue to hold.
Dow Jones Industrial Average:
Another forecast that is not yet playing out as expected is a stock market correction, as you can see in the E-Wave cycle chart for the Dow below.
Our models continue to forecast a substantial decline for stocks into the August-September timeframe; not just the Dow, but also the S&P 500 Index and the Nasdaq have the exact same bearish cycle forecast. So far stocks have stubbornly refused to roll over, but sooner rather than later, something has got to give.
Look, it’s been more than a year since the S&P declined even as much as 5% from a prior peak, the longest stretch without a pullback in over 20-years! In fact, the biggest drawdown this year has been less than 3%.
Care to guess what the average yearly drawdown in stocks has been over the past thirty-plus years?
Answer: Since 1982 the S&P has suffered an average drawdown of 13.6% in any given year. So we’re way overdue for a steeper correction, and our E-Wave cycle models says it’s only a matter of time.
That’s why we recommend you hold the ProShares UltraShort Dow30 ETF (DXD) and ProShares Ultra Short S&P500 ETF (SDS). We may add additional inverse ETF positions to profit from a market decline at any time.
Now for the good news: Precious metals markets have shifted into fresh uptrends, just as our E-Wave cycles foretold, with silver and mining shares leading the way higher. Some caution is warranted with gold however, since it’s the weaker of these trends.
As you can see above, gold is turning up right on target with our mid-July forecast turn date. However, this rally may lose momentum by the end of this month, so we’ll have to remain nimble, alert for a correction into early September before gold’s next rally.
It’s difficult to say what the magnitude of this correction will be however, and it’s possible it may not amount to much of a pullback – best case scenario: Gold may just chop around inside a mostly sideways range.
Silver has also reversed to the upside right in sync with the E-Wave cycle turn date shown in the chart below.
Even better, we expect the rally to continue straight into early August. You can see in the chart below, how extreme bearish investor sentiment marked the lows in silver. That’s a classic contrary buy signal.
Money managers recently went net-short silver for the first time since 2015. And the last time the so-called smart money crowd got this bearish, silver surged 15% higher over the next two months!
You should have added to your VelocityShares 3x Long Silver ETN (USLV) position this week, and we expect the trade to pay-off nicely in the weeks ahead.
Gold Mining Stocks:
The best news of all is in the precious metals mining sector. The miners are leading the way to the upside, as they often do at key inflection points, with junior- and senior-mining shares outperforming both gold and silver.
Our E-Wave cycle (above) forecasts a rally into month’s end, perhaps extending into early August, before another meaningful pullback.
Continue to hold your open positions in Seabridge Gold Inc. (SA), Sibanye Gold Ltd. (SBGL), VanEck Vectors Junior Gold Miners ETF (GDXJ) and Direxion Daily Junior Gold Miners Index Bull 3x Shares ETF (JNUG). We may add to these holdings when the time is right.
As you can see below, there is an E-Wave cycle low turn-date forecast in late July for crude, followed by a substantial rally into late August. Then after a brief pullback in September, expect oil to surge higher again into October.
This should provide our next buying opportunity. Look for a two-step rally that should propel oil, and energy stocks, higher this fall. In fact, the August-October period has historically been a bullish seasonal pattern for oil.
Over the past 30 years, crude oil has typically trended higher in the late summer months, typically making its seasonal price high in early October. More recently, in the past 15 years, the seasonal peak in crude tends to come a bit earlier, in late August.
This seasonal pattern adds extra validation to our E-Wave cycle forecast, boosting confidence in a bullish oil call. That’s good news for your Sanchez Energy (SN) shares. Plus, we’re looking to increase our allocation to the energy sector, but wait for our signal.
Bottom line: Plenty of shifting trends in key markets to be aware of, and cash-in on, thanks to the foresight provided by our E-Wave cycle model. Stay tuned for more updates and analysis on these markets. Plus, keep watch for fresh trade alerts when the time is right to make our next moves.
Until then, our next members-only Edelson Institute Executive Briefing and Q&A is on tap next Wednesday, July 26th, and I hope you plan to attend. No RSVP is required, but be sure to save the date. We will send you a link to view this exclusive presentation next Wednesday before noon. Plus, send us your questions now via the Edelson Institute Editor’s Mailbag.
The Edelson Institute