First things first: Yesterday, crude oil failed at an important support level, indicating that a short-term cycle low that was due in this time frame will now extend, probably into January of next year.
This now means that the price of oil could soon plunge through the $40 level and head right on down into the mid-$30s.
Supporting the technical and cyclical pictures for oil, which now point lower, the International Energy Administration announced this morning that total oil inventories in developed nations now stand at all-time record highs of 3 billion barrels.
As a result, you were stopped out of your shares in USO yesterday when it hit my recommended sell stop at $13.34. That stinks, but the loss was modest and it’s more than offset by recent gains grabbed, plus gains on open positions.
Moreover, you now have an opportunity to go short oil with a new trade, which could prove quite profitable going forward. More on that in a minute.
First, an important update …
Gold: Gold has now broken the July low at $1,073.70 (basis December futures), falling to a low of $1,073.00, before bouncing a tad.
Currently trading at $1,083.00 (4:45 AM EST), the bounce thus far has been very anemic, to say the least. Moreover, if gold closes out the week below the $1,084 level today, it will be exceptionally bearish.
As shown in my most recent cycle forecast for gold, gold should continue lower into November 25. If gold closes below $1,084 today, that decline will be dramatic.
On the other hand, if gold fails to close below $1,084 today, it will still move lower into November 25. The only difference being the velocity of the decline.
Hold your shares in DZZ with the recommended stop in place at $6.53 GTC (good-till-cancelled).
Importantly: If gold closes below $1,084 today, I will recommend adding additional bearish positions Monday morning.
If gold misses that signal today, I will still recommend adding additional bearish positions but not until we see a bounce unfold early next week.
The dollar, the euro and the yen: With deflation picking up steam here and abroad, the dollar is gaining another head of steam. You are correctly positioned.
Hold your remaining position in UUP, with a protective GTC stop at $23.74. Also hold your remaining shares in EUO, with a protective GTC stop at $21.56.
Also hold your remaining UUP and EUO call options.
Ditto for any shares you own in ProShares UltraShort Yen (YCS) and/or the CurrencyShares Japanese Yen March 2016 put options, strike price $78.00.
Now, the stock market: As I noted in Monday’s issue, this week was showing a high probability for a downside trend change in the stock market. That move down has come right on cue, with the Dow Industrials falling 462 points since Monday’s opening trade.
So far so good. But we need to see more downside action today or Monday. Downside follow through that takes out support in the S&P 500 at 2029.00 on a closing basis. If we can achieve that, we should see stocks continue much lower.
Therefore, hold your UVXY shares, which rose nicely yesterday and maintain a GTC protective sell stop at $22.24.
Now, have you noticed how since early October the economic and financial picture around the globe has considerably worsened?!
Deflation is ramping up, with commodities plunging.
Europe’s economic nightmare is worsening, so much so that ECB head Mario Draghi will soon have no choice but to print tons more euros.
Meanwhile …
The U.S. dollar is soaring, which will cause even more deflation in the world’s core economy. That deflation will in turn hit the global economy even harder.
And as it worsens, the hardest hit will be the sovereign governments of Europe, Japan and the United States, in a cascading fashion …
Making it virtually impossible for those governments to sustain their massive amounts of debt, and interest on those debts. Ultimately causing the entire house of cards to collapse.
I repeat my warnings: You are at the beginning of a roller coaster ride through hell that will last all the way through to late 2020.
The good news: You’re going to sail through it, seizing the many different opportunities coming, to dramatically grow your wealth.
New Trade: ALL Members …
I recommend taking out a bearish position on crude oil. There are two ways to do this. One can purchase an inverse ETF, or, one can purchase put options on a bullish oil ETF, such as USO.
I favor the latter, purchasing put options on USO. Chief reason: The prices of the more liquid inverse oil ETFs are high, ranging from $96.00 right now for SCO, to as high as $119.00 for DTO.
Therefore, the “official” recommendation will be to purchase put options on USO, details below.
For those of you who are not trading options, I recommend shares in ProShares UltraShort Bloomberg Crude Oil ETF, symbol SCO.
However, I will not recommend a stop for SCO. Not to worry: I will advise you when to exit based on the underlying action in oil itself, as well as in USO.
To act on this new trade, see the appropriate details below:
For Members Trading Options:
Using 5 percent of the funds you are trading, BUY the January 2016 United States Oil Fund put options with a strike price of $14.00, symbol USO160115P00014000, at $1.28 or better, good till cancelled.
For Members Who Are NOT Trading Options:
Using 5 percent of the funds you are trading, BUY shares in ProShares UltraShort Bloomberg Crude Oil ETF, symbol SCO, at $96.00 or better, good till cancelled.
Best wishes and stay tuned!
Larry
