Earlier this week you should have added to your position in the ProShares UltraShort Euro ETF (EUO) and added a new position to profit directly from the coming selloff in the market with the Direxion Daily Financial Bear 3X ETF (FAZ), one of the most vulnerable sectors.
That’s a good move, because there are plenty of catalysts on the horizon that could lead to an instant flight-to-safety … into the dollar, and out of stocks! Here are just a few of them …
This Sunday is the final round of the French Presidential election, with parliamentary elections following next month. Far right candidate Marine Le Pen has already promised to scrap the euro, but she has slipped in the polls as election day approaches.
Still, even if centrist candidate, Emmanuel Macron pulls off a win, it’s extremely unlikely he will get a majority in a badly fractured French parliament. This means the EU’s second-largest economy still faces plenty of risks which will weigh heavily on the euro.
Aside from the slow-motion train wreck in Europe, there are plenty of other negative catalysts on the horizon: North Korea, Syria, Russia, China, etc. And don’t forget rising partisanship in Washington that could easily result in a government shutdown at some point this year.
In other words, expect plenty of volatility in all markets, with the next major move in stocks decisively down this summer …
As you can see in the E-Wave cycle forecast chart above, expect the Dow Industrials to peak very soon, followed by a lengthy correction for the rest of this month, June, and into July. In fact, this selloff may be underway already as the Dow has tried to reach new highs above the 21,169 peak in early March, and failed several times.
Meanwhile, the more economically sensitive Dow Transportation Index is already down over 5% from the March high, a big red flag for the markets. In fact, it’s really been only a handful of mega-cap stocks in the Nasdaq that have accounted for ALL of the upside over the last two months … Netflix, Tesla, Google, Apple, Amazon, and a few others.
Mark my words, as soon as these overinflated “cult” stocks stumble, the entire market will come crashing down. And you’re well positioned to profit from this decline with the ProShares Ultra Short Dow 30 ETF (DXD), which we could add to at any time. Plus, we expect FAZ to plunge along with the market, and as the yield-curve flattens, hammering the financials.
Commodity crumble …
As for commodities, it’s been a very rough week for the bulls. The Bloomberg Commodity Index tumbled nearly 2% lower this week alone, it’s largest drop since November. Energy, agriculture, copper, iron ore, and of course precious metals were all hit hard with an across-the-board selloff.
Gold closed yesterday at $1.228.70, violating key daily supports at $1,250 and $1,245 in the process. That turns the short-term trend bearish for gold, warning that a further decline is possible.
Watch today’s weekly close in gold, because if the active June futures ends the week at or below these levels, it would confirm a bearish posture near term.
The silver lining is that gold and silver are quite oversold already. In fact, gold has moved sidewise to down since the April 17 high. For silver, the selling has been more intense, down 13 of the past 14 days, ditto for the miners.
Following a sudden, waterfall decline like this, the best trading strategy is to wait for an oversold bounce to re-asses your holdings, NOT sell in a blind panic with the markets so deeply oversold already. And that’s exactly what we intend to do.
First, we do see a bounce in gold, perhaps early next week, so keep your eyes glued to the $1,245 – $1,250 level. That is the new pivot point that gold needs to either close above to stabilize, or … failing at those levels, it would hand us a perfect opportunity to exit the VanEck Vectors Junior Gold Miners ETF (GDXJ) and iShares Silver ETF (SLV).
Second, our E-Wave cycle models indicate more downside is possible for gold and silver after an oversold bounce. That’s why, we’re looking to add new inverse ETFs to profit directly from further weakness, but please wait for our signal.
Bottom line: Markets are at-or-approaching a critical juncture right now. Our models tell us to expect important trend changes ahead for: Stocks to the downside, the dollar up (and euro down), oil and the metals down. We’re eyeing a number of trades to take advantage and are waiting patiently for our timing signals to give us the go-ahead. And we’ll be sure to let you know asap when it’s time to make your next move. Stay tuned for more updates and trade alerts.
Good investing,
Mike and David
