Freereport

Sample Premium Member Report published on July 26, 2015.

 

 

Gold Cycle

Cycle Counts

Cycle Count Observation

Probable Outlook

Cycle Clarity

Trend
Daily Day 36 Range 24-28 Days – 3rd Daily Cycle Bearish

Green

Failed
Investor Week 19 Range 22-26 Weeks Bearish Green Failed
4Yr Month 38 Range 48-52 Months Bearish

Green

Failed

The premise of last week’s report was that Gold was seeking a bottom. The evidence strongly suggested that Gold was on the verge of printing a major Cycle Low from which a counter-trend rally could begin. Whether the counter-trend rally would be temporary or something more was uncertain, but all of the signs of an impending bottom were there. As I write this week’s report, Gold’s late week action gives me confidence that we may well have found the bottom and begun the expected bounce.

Before I dive into specifics, I’d like to stress that we lack real confirmation of a reversal. The bottom call is based solely on the capitulation nature of Gold’s recent decline, coupled with its reversal during Friday’s session. I am speculating that a turn higher began because Gold’s technical readings are at extreme levels and cannot be sustained.

In last week’s review of the Daily Cycle, I had hoped that Gold would continue to drop into Thursday’s session before rallying into the weekend. And that’s what happened. At this point, the reversal is unconfirmed, but Gold’s drop did hit a significant low at $1,072, a deeper low than last Sunday night’s plunge. Gold’s requirement to form a Swing Low is close ($1,100.80), and a move above that level will confirm it.

The Miners were especially encouraging, as they reversed sharply higher into Friday’s close. The idea that they may have bottomed on Friday is supported by secondary evidence: Timing, COT and sentiment all show an asset that’s ripe for a DCL and ICL.

 

7-24 gold daily

When reviewing the COT report last week, I detailed how traders were positioned at extreme levels against Gold. This week, the picture has become even more extreme, with readings at record levels. This is very strong evidence that an ICL is imminent.

What is especially interesting is that commercial traders now have the smallest level of Gold hedges ever. And speculators are short Gold by the 2nd most on record. This massive short position shows that speculators are stacked entirely on one side of the trade. Since all new Investor Cycles begin as short-covering rallies, once Gold turns even slightly higher, the unwind of these leveraged, speculative positions will fuel the next IC rally.

The COT reports are among the most reliable and consistent of the technical indicators I follow, and I believe the current numbers are screaming “ICL”. Since they line up perfectly with an 18 week Cycle, it’s difficult to see much more downside without a counter-trend rally to correct the imbalance.

 

7-24 Gold COT

The Miners are interesting too, although we need to remember that they can become so stretched in their moves that caution is needed to avoid developing premature conclusions. That said, the Miners are telling us that an ICL is occurring at present.

GDX is a proxy for the mining sector as a whole, and last week it fell sharply to hit a record price low, one that is lower than any price since its inception. With Gold many hundreds of dollars above its 2008 crash level, GDX plunged more than 10% below its 2008 crash low. It also saw its highest volume ever this week, with half a billion shares trading hands (3x to 4x normal) in what can only be describe as massive capitulation. And GDX also saw its 9th big declining week out of the past 10.

Looking at the weekly chart (below), this past week’s candle was a full 10% below the lower Bollinger Band, and with the RSI(5) falling below 5. These are record levels that are simply unsustainable, and they are occurring in the timing band for a DCL and an ICL. Lumped together with the other evidence presented here, these are perfect contrarian indicators. And because we witnessed a solid reversal into the close on Friday, I suspect it might be the very early sign of a new IC rally.

 

7-24 GDX weekly

We were searching for a bottom last week, but this week’s action has turned the question to whether Friday marked a bottom. The right answer for those trading Gold should be, of course, that we don’t know yet. We do know that the evidence in support of a bottom is so great that we expect any turn higher to be the start of a new IC move. At this point, if Friday does not turn out to be the ICL, I expect that the next price low will absolutely mark the ICL.

Given an impending ICL, is it fair to expect it to be the end of the bear market? Unfortunately, it’s impossible to know, and I’m not prepared to make a prediction at this point. I do think that the bear market low is finally on the horizon, that the length of Gold’s decline and extent of its losses suggest that we’re almost certainly beyond the bear’s seventh inning stretch. But, as always, we must expect a continuation of the trend until Gold proves otherwise.

The first order of business is to extract some gains from the expected ICL. A new IC rally could be very sharp, but a top might occur in as few as 3 weeks. It’s important to understand that any trades need to be early to avoid being whipsawed by an extremely Left Translated Cycle. And that’s a real possibility – there is fear that the sector will turn lower again, so the conviction to hold a Long trade through sharp declines is not very strong.

 

7-24 Gold Weekly

 

Investor Cycle Trading Strategy

Since Cycles tell us that Gold is likely to form another Left Translated Cycle, this is a difficult Long trade setup. Going Long here is against the trend, so requires careful and light-footed positioning. It’s not ideally suited for the slower, buy-and-hold nature of this portfolio. Depending on how the IC rally unfolds, I will not push to capture a big position, but will instead target gaining exposure to the market that will allow me to be conservative and take profits fairly early.

 

Daily Cycle Trader Strategy

I entered 2 Long GDX positions on Friday, both because the Miners were extremely oversold and due a bounce, and because the entire sector was turning in real-time. I don’t know if this trade will capture the “ICL turn”, but there is decent evidence to support it. And if Friday was the turn, it would not be surprising to see these position return 20% in very short order. I will look to exit these positions by Day 12 of the Daily Cycle.

 

Portfolio Positions Summary

Open Positions – Investor Portfolio –

None.

Open Positions – Daily Cycle Trader Portfolio –

2 Positions Long GDX.

 

 


 

Equities (S&P500)

Cycle Counts

Cycle Count Observation

Probable Outlook

Cycle Clarity Trend
Daily Day 14 Range 36-42 Days – 1st or 6th Daily Cycle (depends on IC)

Bullish

Green

Up
Investor Week 3 or 41 Range 20-24 Weeks
AMBER Up
4Yr Month 73 Range 50-56 Months- 8th Investor Cycle.

Bearish

Green

Up

We need to avoid reading too much into the current action, so the equity market outlook will be short and sweet this week. The overarching theme at present is that price is moving in a narrow, tight trading range. Equities have seen a period containing the 3rd most crosses above and below its 50 day moving average in the market’s history, an indication of the struggle to find a new shorter term trend.

By now, my stance regarding equities should be clear: the markets remain in a dominant Investor Cycle up-trend, so the path of the least resistance should be to the upside, into open territory with little overhead resistance. Recent Investor Cycle timing suggested that equities were due for a decline similar to that in October, but instead, the market held up relatively well, and the bullish portion of the Cycle is now underway.

We’re on Day 12 of a new Investor Cycle and this week’s sharp drop should end up becoming a significant “buy the dip” opportunity. I expect an almost immediate reversal from this point, and for the market to finally begin climbing into new, all-time high territory.

The 4 day decline was scary, and many saw it as an ominous sign of an impending plunge. But I believed (and wrote last week) that we would see a steep shakeout before the market turned higher. Well, this is certainly that. We will have confirmation of direction once the market declares its intentions around 2,044, the last DCL. A move below that level would cast a bearish pall on the market.

 

7-24 Equities Daily

This week’s sharp decline left behind a rather ugly bearish engulfing candle. But that’s just one secondary indicator in an ocean of technical data points. Cycle timing rules my analysis, so it’s important to consider that my preferred framework has equities in only week 3 of a new IC. For that reason, and because we’ve seen such massive Right Translated Cycles for consecutive years, I expect equities to rise to a new all-time high over the next few weeks. Even if the current IC forms as a Left Translated Cycle (my primary expectation), we should see considerably higher prices from the S&P before the threat of a failed Cycle comes into play. Considering the market consolidated for the past 2 months without a significant price drop, I’d place very high odds on the market setting new record highs, even if they are only temporary.

 

7-24 Equities Weekly

 

Investor Cycle Trading Strategy

Our trades were executed exactly to plan, and that’s the best we can hope to do. I was clear in my belief that it made sense to wait for a pullback before entering Long positions, and once the pullback arrived, I entered on the weakness.

You might not want Long equity exposure based on the chart, and I understand the sentiment. But I still like the Cycle setup. With the stop just 38 points below the current level, we are risking only 1.7% of the portfolio in exchange for having significant exposure to a potential blow-off move. Regardless of the final result, the risk/reward profile of the trade is skewed in our favor.

 

Daily Cycle Trader Strategy

We’re still Long and with the same stop as the Investor Cycle trading strategy. At this point the trade requires patience. But I suspect we’re going to know within 2 weeks whether the Equity trades will be profitable.

 

Portfolio Positions Summary

Open Position – Investor Portfolio –

40% Portfolio Position Long S&P via ETF – SSO

Open Position – Daily Cycle Trader –

2 Positions Long via SSO

 

 


CRUDE OIL

Cycle Counts

Cycle Count Observation

Probable Outlook

Cycle Clarity

Trend
Daily Day 40
Range 36-42 Days (2nd Daily Cycle) Bearish Green Down
Investor Week 19
Range 20-24 Weeks

Bearish

Green Down
4 Year Month 5 Range 48-52

Caution

Green

Down

Crude is beginning to exhibit more normal Cycle behavior, and that should serve us well in the future. The sell-off has been brutal, and Crude has proven how capable it is of extreme moves. In the short term, at day 40 in the current DC, a DCL is due. And judging by the carnage in the Crude pits, I would be surprised if the current decline lasted much longer.

That said, Crude should see another Left Translated, failed Daily Cycle lower after the impending DCL arrives. A bounce to start a new DC should, at best, fill the gap Crude left when it fell sharply to confirm the current, failed Daily Cycle. The prior DCL at $56.51 is probably the absolute best case scenario for a bounce in the coming weeks, but that, too, might be too optimistic at this point. Crude suddenly (and again) looks very weak, just as it has entered into the most dangerous portion of the Investor Cycle.

 

7-24 Crude Daily

Sentiment has turned south and is back into pessimistic territory. Remember, though, that Sentiment is not a good timing tool. And if this is the bear market I believe it is, sentiment is capable of dropping to very low levels for a considerable period of time.

 

7-24 Crude Sentiment

Another leading indicator for Crude is the performance of energy sector stocks. The energy producers of the S&P are telling us that Crude is again in serious trouble. As seen below, these stocks often lead declines in Crude by a few weeks, so it’s an ominous sign that Crude sentiment is down just as the energy producing stocks are being sold off aggressively.

 

7-24 crude bullish percent

This Investor Cycle continues to follow the script outlined many months ago, as per the trend-lines below. And I continue to believe there is one more Daily Cycle ahead for Crude in the current IC. That means Crude should bounce next week and rally for $3-$5 before turning lower to test the prior ICL near $43.

Crude might find support at that level, since the ICL will, at that point, be well into the 20+ week range. But if this is a serious bear market, Cycle length may not matter – Crude can push the extremes of a Cycle without regard to history. If the current IC doesn’t breach the previous ICL, Crude could be setting the table for a big, Left Translated crash in prices during the upcoming Investor Cycle. As you can gather, I’m not at all positive on Crude and believe that significantly lower prices are ahead.

 

7-24 Crude Weekly

 

Investor Portfolio Trading Strategy

No trades at present, but I’ll be looking to place a Short trade at the top of the next Daily Cycle.

 

Daily Cycle Trader Strategy

No trades at present, but I’ll look to go Short at the next DC top.

 

Portfolio Positions Summary

Open Positions – Daily Cycle Trader Portfolio –

None.

Open Positions – Investor Cycle Portfolio –

None.

 


$US DOLLAR

Cycle Counts

Cycle Count Observation

Probable Outlook

Cycle Clarity

Trend
Daily Day 25
Range 18-22 Days – 2nd Daily Cycle Neutral
Green Up
Investor Week 11
Range 18-22 Weeks Bullish

Green

Up
3Yr Month 13 Range 36-42 – 6th Investor Cycle. Bullish Green Up

Coming into week 11 of the Investor Cycle, which based on a standard Cycle is essentially now the start of 2nd Half. Therefore, based solely on timing, the risks to the downside will begin to mount. And because this IC looks to be at best a side-ways consolidation, meaning that it is likely too late to see a higher high form, those risks are to be watched closely.

But I doubt this IC advance is over just yet, even though a dip into the next Daily Cycle Low should be forthcoming. We still have a 3rd Daily Cycle to follow this one and the dollar could do quite well for at least the beginning portion of that Cycle. A move towards 100, to test the prior prior IC highs set in March, is possible. From that point, the Cycle would settle down to complete what is a full 20-24 week, sideways consolidation.

 

7-24 Dollar Weekly

Investor Cycle Trading Strategy

Still Long the Dollar/Yen position, but the dollar has advanced too far in its Cycle and this position looks tired. When a position fails to respond further to the expectation, there is a greatly increased chance that the trade is going to reverse on you. I will be closing this position on Monday.

 

Daily Cycle Trader Strategy

No positions currently. Cycle is at the mid-point of a side-ways trending Cycle, need to remain patient.

 

Investor Cycle Portfolio –

Short Yen position taken via the ETF, YCS.

Daily Cycle Trader Portfolio –

 

 


U.S Bonds

Cycle Counts

Cycle Count Observation

Probable Outlook

Cycle Clarity

Trend
Daily Day 20 (Failed) Range 20-26 Days – (DC#3)

Bearish

Green Failed
Investor Week 21 (Failed) Range 22-26 Weeks

Bearish

Green

Failed
3Yr Month 18 Range 50-56 Months-

Bullish

Green

Up

The Bond market is surprising us here with a Day 17 high that will likely become Right Translated when finally complete. Buying has been brisk, as the RSI pushes above 70 we’re seeing some interesting underlying strength begin to develop now. This is absolutely nothing like the behavior of what I expected would be a final Daily Cycle. And judging by the strength of this Cycle, I would imagine this is more like a 1st Daily Cycle, lending plenty of weight to the idea that the Investor Cycle has actually bottomed.

 

7-24 Bonds Daily

There are no guarantees this is a new Investor Cycle, because we can at times experience these strange or deceiving Daily Cycles where there is some unexpected strength for a brief period, before the dominant trend and Investor Cycle downturn continues. But those are more anomalies, rather than typical, and this action looks and feels to me as if we’re already in week 4 of the Investor Cycle. I’m not going to mark it as a new Investor Cycle just yet, although based on the price pattern here I give it some 70% that the bond markets are heading higher over the remainder of the summer.

 

7-24 Bonds Weekly

 

Investor Cycle Trading Strategy

No Trades, but a good decline in the week(s) to come will form a DCL and would be a good opportunity to take a long position.

 

Daily Cycle Trader Strategy

I’m going to wait for a DCL to consider taking a long position.

Daily Cycle Trader Portfolio –

None.

Investor Portfolio –

None.

 


Natural Gas Gas

Cycle Counts

Cycle Count Observation

Probable Outlook

Cycle Clarity

Trend
Daily Day 12 Range 20-26 Days – (3rd DC) Bearish Green Flat
Investor Week 15 Range 22-26 Weeks Bearish

Green

Down
3Yr Month 38 Range 48-52 (Months) Bearish Green Down

The Natural Gas Investor Cycle is still pointing lower (bear market) and as it enters week 15 of the Cycle, its pull on the Daily Cycle will begin to increase. You all know I’m rather bearish on Natural Gas here and I believe this current 3rd Daily Cycle has already topped on Day 10 (double top). In that case, it will be heading lower towards a DCL that will form by around August 10th. From there, the declines could begin to accelerate in a 4th and final Cycle, possibly deep enough for fresh multi-year lows.

 

7-24 Nat Gas Daily

 

Investor Cycle Trader Strategy

No trades planned.

 

Daily Cycle Trader Strategy

No trades planned.

Investor Portfolio –

None.

Daily Cycle Trader Portfolio –

None

 

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