Premium Report published on June 19th, 2016

 

Gold Cycle

Cycle Counts

 

Cycle	Count	Observation	Cycle Position	Cycle Clarity
Daily	Day 14	Range 24-28 Days – 1st Daily Cycle	Possible 2nd Half Cycle Rally	Green
Investor	Week 3	Range 22-26 Weeks	New Cycle Rally	Green

Supporting Indicators

Sentiment Level	74% (Up 12%)	Elevated (Bearish)
Commitment of Traders (COT)	Blees Rating – 0 (0-100)	Bearish (Worsened by 18)
Primary Trend (Weekly Chart)	Down – (Possible Change)	Bull Trend

This week, Gold continued to rally impressively out of its June Low, confirming a new Investor Cycle is underway. And with the new IC at only week 3, Gold should see many weeks higher before the IC tops.  If the Right Translated ICs during Gold’s 2001-2011 bull market are a guide, the new IC promises to deliver terrific performance.

Gold’s Daily Cycle was interesting this week.  It had rallied for 9 of 10 sessions and was far extended to the upside when, on Thursday, it was hit with a significant reversal.  Even though Gold was ripe for profit taking, I believe that the reversal was exacerbated by panicked investors with new or leveraged positions.  But after Thursday’s drop, Gold again roared higher to end the week and, importantly, close above $1,300.  While Gold’s intermediate term bullish position is undeniable, Thursday’s drop may not have been severe enough to relieve the asset’s overbought status.  I believe that another drop into a Half Cycle Low is likely early next week.

Out of the HCL, we should see Gold continue to rally.  The current DC is on day 14, and a normal 1st DC would suggest that Gold will move higher until day 20, or beyond, before it tops and heads into a DCL.  But because Gold appears to be in the early stage of a new Cyclical bull market, the top of the current 1^st Daily Cycle may not come until day 25-30.  So Gold could easily see another 3 weeks higher before a meaningful selloff occurs.

In recent weeks, I’ve mentioned Gold likely being in a new cyclical bull market, and it’s an important enough issue that it makes sense to review my rationale.  First, Gold recently completed a powerful, Right Translated Investor Cycle.  And with a higher IC High and a higher IC Low firmly in place, a change in trend has been confirmed.  In addition, the precious metals Miners have doubled in price off the bottom, and holdings in the GLD ETF have skyrocketed, a sure sign that asset managers are desperate to obtain exposure.  And if these data points were not enough, speculative interest in Gold has exploded, with trading volumes in various CME precious metals products up 50-100% from last year’s levels.

On the weekly chart, a powerful new trend has been established.  The chart is both bullish and well-constructed, and speaks to the power of the cyclical advance that’s underway.   Even though many investors waited on the sidelines for real evidence that the bear market was over, Gold rallied quickly to a new, 2-year high.

It’s possible that Gold has run a little too far too quickly – it surged this week outside of the top Bollinger Band.  At this point, members should be careful in their leverage, and also mindful not to be suckered into adding exposure at the wrong time – like after a sustained rally.  Excess leverage should be harvested after all mini-rallies, and slowly added back after good 2-3 day pullbacks.

Unbelievably, I’ve seen people lose money in bull markets.  They have over-extended themselves at the tail-end of mini rallies, only to capitulate and sell for a loss during profit-taking retrenchments.  To be successful, traders should stay strong, be content with their positions, and add on dips.

 

Investor Cycle Trading Strategy

I want to reiterate my belief that everyone should hold a solid, long-term position in both bullion and the Miners, positions that are being held for the long term and not traded with the Cycles.

In terms of trading, I still hold my Long position, and it is doing well.  This is a new IC, so I do not plan to trade the position during any upcoming Daily Cycle fluctuations.  This trade should be active for another 2-3 months.

 

Daily Cycle Trader Strategy

I am holding two GLD and one AGQ position, so have decent exposure here.  I will look to close all 3 positions after any good rally near days 19-25.

 

Portfolio Positions Summary

Open Positions – Investor Portfolio –

30% Long position in GLD.  Stops set to $114.50

20% Long Positon in SLV.  Stops set at $15.55

Open Positions – Daily Cycle Trader Portfolio –

Long Two positions GLD – Stops set top $115.55

Long one position in AGQ @ $40.33 Stop $37.72

 

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Equities (S&P500)

Cycle Counts

Cycle	Count	Observation	Cycle Position	Cycle Clarity
Daily	Day 22	Range 36-42 Days – 3rd Daily Cycle	Likely formed HCL	Green
Investor	Week 22	Range 22-26 Weeks	Possibly Topped	Green

Supporting Indicators

Sentiment Level	61% (Down 2%)	Extremely Elevated
Commitment of Traders (COT)	NA
Primary Trend (Weekly Chart)	Flat- (Possible Change to Down)	Neutral to Bearish

During the past few years, we’ve seen plenty of sharp sell-offs in equities that have reversed to make new highs, but this time the sell-off feels different.  I sense that the market’s character has changed on multiple timeframes.  That said, I’m keeping my eye on the recent S&P high at 2,120.55.  It’s just shy of the all-time high, and if the S&P rises above it, a big new all-time high is likely to follow.

This week’s equity selloff was accompanied by an unusually big move in the VIX (fear) index.  And in a clear sign of market distress, world sovereign debt markets rallied sharply, as capital moved from equities into the most defensive of asset classes.  Such desperate bids to own debt at 0 or even negative interest rates, tells me where the smart money wants to be invested.

The decline this week was expected.  It was deeper than I thought it would be, but the timing (day 19) for a move into a Half Cycle Low was perfect.  The market tried to rally on Friday and failed, although I believe that during the coming week, the S&P will recover to retrace at least half of its recent decline.

Surprisingly, sentiment has remained significantly elevated.  Bull market conditioning has left far too many people believing that equities will see another big rally in the near future.  I don’t think that’s at all likely.

For the past 2-3 years, the market has not been driven by fundamentals.  Earning grew until 2014 and kept the market at least somewhat satisfied.  But now, with earnings and revenues both having peaked 2 years ago, and with the age of the expansion at 7 years, the economy has almost certainly peaked for this Business Cycle.  Its next move should be toward the trough (recession).

 

Fundamentals were an afterthought while earnings were increasing.  But now that earnings have turned lower, all eyes are on the FED.  Only easy money from the FED’s printing press can sustain a market at historical overvaluation.

The FED’s recent policy focus has been on ZIRP (Zero Interest Rate Policy), yet it is clear from the chart below that ZIRP alone cannot lift the market higher.  We’ve had a zero interest rate environment for 8 years, and to expect a new stock market breakout from a continuation of ZIRP is ludicrous.

The markets are running dry of liquidity again and only a new round of quantitative easing (QE4) can get equities going again.  It’s my view that there are only a couple of events that could lead the FED to embark on QE4: a) the market takes a massive dive, or b) the economy turns decisively lower.

 

We are left with an Investor Cycle that stalled near the S&P’s all-time high.  The market has spent nearly two years in the current topping range, and now that the current IC is at a typical topping point, I expect the coming Daily Cycle rally will quickly reverse lower.

In summary: perceived risk for equities should continue to rise, volatility should increase, and a summer selloff should begin shortly.

 

 

Investor Cycle Trading Strategy

I’m still Short with a sizable position.  Unless something significant changes, I will remain patient and let the position work.

 

Daily Cycle Trader Strategy

I am currently Short 2 positions, and will be closely watching next week’s expected rally out of the Half Cycle Low.  If the rally falters quickly, I’ll look for the Daily Cycle to make a lower low.

 

Portfolio Positions Summary

Open Position – Investor Portfolio –

40% Short the S&P 500 via the ETF – SDS.  Bought at $20.33 and $18.76  STOP $17.26

Open Position – Daily Cycle Trader –

Two positions short the S&P 500 via the ETF – SDS.  Bought at $18.85  STOP $17.50

 

 

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CRUDE OIL

Cycle Counts

Cycle	Count	Observation	Cycle Position	Cycle Clarity
Daily	Day 13	Range 36-42 Days (3rd Daily Cycle)	Formed HCL, new rally	Green
Investor	Week 19	Range 22-26 Weeks	Timing for top/decline	Green

 Supporting Indicators

Sentiment Level	42% (Down 4%)	Flat to Slightly elevated
Commitment of Traders (COT)	Blees Rating – 19 (0-100)	Extremely Bearish- (+2).
Primary Trend (Weekly Chart)	Down	Bear Market Trend

Crude was under pressure this past week, and quickly gave back 10% of its recent gains.  In addition, it has left us with a conflicting Cycle count.  Although Thursday’s decline appears to be a Daily Cycle Low, it came on day 52, well past the normal timing band for a low.

The timing question is significant.  I believe that the smaller drop on day 40 (perfectly timed for a DCL), could well be the DCL instead of the day 52 low.  In addition, the day 40 drop corresponds with movements in the equity markets.  If the DCL occurred on day 40, Crude’s new DC is now in a failed state.  Maybe it is just my bearish bias, but I believe that Crude Oil is more than overdue for a turn lower.

I have similar bearish expectations from the weekly chart: I believe it is time for the IC to turn lower.  Since Crude is still early in its bear market, the rise in the current IC should by now have run its course.  When price briefly exceeded the last IC high a few sessions ago, the top created a classic bear trap.  And now, a break below the rising trend-line appears imminent.

 

 

Investor Portfolio Trading Strategy

I have been considering a Short trade for some time, and will look for an entry opportunity this week.

 

Daily Cycle Trader Strategy

I was looking for a potential Short trade, but was mindful of Crude’s volatility.  Crude Oil is not a market than can be played defensively.  Successful trading generally requires that timing be perfect and Stops be wider than normal.

 

Portfolio Positions Summary

Open Positions – Investor Cycle Portfolio –

None.

Open Positions – Daily Cycle Trader Portfolio –

None.

 

 

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$US DOLLAR

Cycle Counts

Cycle	Count	Observation	Cycle Position	Cycle Clarity
Daily	Day 8	Range 18-22 Days – (DC #2)	Seeking HCL	Green
Investor	Week 7	Range 18-22 Weeks	Early to Mid Cycle Rally	Green

 Supporting Indicators

Sentiment Level	45% (Up 5%)	Slightly Pessimistic (Bullish)
Commitment of Traders (COT)	Blees Rating – 100 (0-100)	Extremely Bullish (+)
Primary Trend (Weekly Chart)	Flat	Neutral

We’re not seeing the same strength in the Dollar’s 2^nd Daily Cycle that we saw in its 1^st.  The FED’s recent backtracking on the possibility of future rate increases was undoubtedly a catalyst, and was joined by evidence that the economy is not moving at an acceptable level.

Over time, the Dollar has been elevated versus other major currencies.  The primary reason for this seems to be the idea that the FED has been ahead of other central banks when it comes to monetary policy.  The Dollar’s recent weak price action speaks to a potential change in that belief.

A lack of upside follow-through is becoming evident on the weekly chart.  Although it’s still early in the Investor Cycle, so far, the Dollar has failed to show the potential to break out sharply to the upside.

 

 

Investor Cycle Trading Strategy

No trades at present.

 

Daily Cycle Trader Strategy

No trades at present.

 

Portfolio Positions Summary

Investor Cycle Portfolio –

None.

Daily Cycle Trader Portfolio –

None.

 

 

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U.S Bonds

Cycle Counts

Cycle	Count	Observation	Cycle Position	Cycle Clarity
Daily	Day 13	Range 20-26 Days – (DC#?)	Topped for HC, Seeking HCL	Green
Investor	Week 8	Range 22-26 Weeks	Cycle Rally	Green

 Supporting Indicators

Sentiment Level	74% (Up 20%)	Elevated (Bearish)
Commitment of Traders (COT)	NA
Primary Trend (Weekly Chart)	Uptrend	Bull Market

The Bond market has launched into another massive rally.  Some of the move is speculative, with traders pushing the entire asset class higher across all maturity timeframes.  But a bigger part of the move is defensive in nature, fueled by a massive rush out of risk markets toward the relative safety of the Treasury and Bond markets.

I am not at all surprised by the move.  After all, a large cup-and-handle pattern has been developing for some months on the weekly chart.  But the current move higher is, I believe, only a sample of what is yet to come.  In the short term, however, the rise has pushed Bonds to being way too overbought, and I expect them to see a modest pullback.

 

To better appreciate the breadth of the current rally, the below charts show how indiscriminately Bonds are being bought.  The central banks have made it clear that they will be large buyers as needed to backstop the market, and bonds are moving higher in consequence.

As a result, most 10-year sovereign debt yields are now near zero.  The recent rally pushed yields down so quickly that they (sovereign yields) now sit below their lower Bollinger Bands.

Still, there are a number of warning signs for the Bond market.  The COT report is the most lopsided it has been in more than a decade.  In addition, Bond speculators are massively over-leveraged Long, and are likely to capitulate the moment the market turns lower.  Plus, sentiment is at absolute extremes, with the most recent reading from sentimentrader.com pegged at 100.

 

The current breakout is following my longer-term expectation, and recently the move higher appears to have gathered momentum.  The price action in Bonds highlights a problem with many technical indicators during a massive bull market – they simply do not work most of the time.  Bonds are significantly overbought technically, but are continuing higher nevertheless.  I fully expect Bonds to see sharp selloffs at times, but I believe we will see another leg higher during the summer as equities move down into an ICL.

 

Investor Cycle Trading Strategy

No trades at present.

Daily Cycle Trader Strategy

No trades at present.  One could consider a quick Short trade, but in a bull market, that is always a risky move

 

Portfolio Positions Summary

Investor Portfolio –

No trades.

Daily Cycle Trader Portfolio –

None.

 

 

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Natural Gas

Cycle Counts

Cycle	Count	Observation	Cycle Position	Cycle Clarity
Daily	Day 20	Range 20-26 Days – (2nd  DC)	Near Top	Green
Investor	Week 16	Range 22-26 Weeks	New Highs – Rallying	Green

 Supporting Indicators

Sentiment Level	48%	Neutral
Commitment of Traders (COT)	Blees Rating – 19 (0-100)	Bearish to Neutral (Decrease of -9)
Primary Trend (Weekly Chart)	Down	Bear Market Trend – Possible Trend Change Developing

The Natural Gas market, after four bearish years, is finally breaking out.  And the move is extremely bullish too, as the breakout has come off a clear inverse head and shoulders pattern following a short, bear trapping, Investor Cycle Low.

I cannot speculate as to how it will perform in the year ahead or whether a new bull market is being born.  However, judging by the length and extent of the prior bear market, and the move we see unfolding today, I can comfortably state that I believe the bear market has ended and the lows are behind us now.

 

 

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Sample Premium Member Report published on Feb 6th, 2016.

 

Gold Cycle

Cycle Counts

 

Cycle	Count	Observation	Probable Outlook	Cycle Clarity	Trend
Daily	Day 25	Range 24-28 Days – 2nd  Daily Cycle	Topping Area	Green	Flat
Investor	Week 10	Range 22-26 Weeks	Bullish	Green	Flat
4Yr	Month 41	Range 48-52 Months	Bearish	Green	Failed

Finally! After months of tepid action in Gold, a strong Daily Cycle rally is underway. So far, it’s been as strong as any rally of the past four years, and it’s not over. I had wondered why Gold has not benefited from the aggressive equity selloff…but no longer. Bonds are up sharply, and Gold has also begun to rise, fueled by equity outflows in search of a safe haven. Without question, Gold is locked in a powerful Right Translated Daily Cycle, one that has so far added over $100 in 24 trading days.

It’s easy to get carried away whenever we see a move like the current one. Based on comments in the Bull Bear Forum as well as a surge in bullish tweets, traders have become extremely bullish on the precious metals complex. Nothing lifts traders’ spirits like a good rally, and the Gold sector has certainly seen that. From my vantage point, however, the bullish shift in sentiment doesn’t – yet – represent more than the natural flow of emotions during a normal 4 to 6-month Investor Cycle.

Let’s focus first on the Daily Cycle. Although the move higher has been explosive, the DC is at day 24, so expecting further gains goes against the odds. Gold is well past due for a DC Top, and is extremely overbought technically. Based on history and market behavior, it’s difficult to see how the current rally can continue until overly-optimistic sentiment is cleansed through a DCL. In addition, we need to keep the current move in perspective. Since its peak in August 2011, Gold has shown a powerful Daily Cycle in every Investor Cycle. So Gold is not out of the bearish woods quite yet.

 

Turning to sentiment, history has shown that as sentiment increases, so does the willingness of traders to chase assets higher. A self-fulfilling loop of higher-prices-leading-to-stronger-sentiment-leading-to-higher-prices takes over. Price gets far ahead of itself, and the buying becomes ever more speculative, leveraged, and “weak handed”. Near the top of long term Cycles, inexperienced traders are generally holding significant leverage, hoping for further gains. The first hint of a reversal/top sends them scrambling for the exits, and a selling frenzy begins the process of unwinding overly bullish sentiment. The process isn’t over until bullish sentiment has cleared and a long term Cycle low arrives.

We’re far from that decline at present, but sentiment is rapidly rising. The below sentiment chart doesn’t include most of this week’s rally, but still shows sentiment near the level where every Investor Cycle of the past 4 years has topped. This is hard evidence that we can’t ignore. In past bear market ICs, Gold has topped near current sentiment levels. We can always hope for some sort of a change in character, but trading as if “this time is different” would be placing bias above historical data.

 

On the weekly chart, our analysis remains fairly straightforward. For the past two months, the current rally has been fairly predictable in terms of magnitude. A 10% rally during the first 10 weeks of an IC is average, and the current $100 move is slightly beneath that level. The Miners, too, show only average Investor Cycle performance so far. And this despite a giddy, sharply rising chart.

The point is that we need to be cautious in looking at the current DC, and in projecting a longer term bullish advance based on its performance. While it’s great to finally have a real rally in Gold, there’s no guarantee that the bear is dead. I’m not saying that it cannot be different this time…in fact, I hope that it is. But until the market and price action tell us Gold has turned the corner, we need to be cautious. The first real test will come at $1,191, the previous Investor Cycle high. If Gold can pierce that level, we can begin to consider whether a change in cyclical trend might be underway.

 

At this point, I’d like to throw evidence-based analysis aside, and discuss what I feel about precious metals.

I believe that a change in character could be underway across the precious metals complex. There is plenty of evidence to support the view that equities have entered a bear market and, if so, it stands to reason that Gold, which has been inversely correlated to equities for years, will benefit from a flow of funds from equities.

The bear market in Gold brought a 50% decline in 4 ½ years. The Miners have fared even worse, with averages falling by 80% and individual names by as much as 99%.  By any account, the bear market has been long enough and the declines deep enough to satisfy even the most virulent bears. Since the Miners’ January low, some of the more viable and well-positioned companies are already up over 100%,. Others have tripled off their lows. These signs of a bottom are so pronounced that it’s easy to see how they could be precursors to a new bullish advance.

I’m an optimist by nature, but in trading I’ve learned to be more cynical due to my aversion to unnecessary risk. I trade from Cycle evidence and Gold has yet to show us a higher IC high, and that’s what we need to have real hope of a new bull. It’s easy to forget, but the most recent ICL made a new multi-year low, while the Miners matched their low from 13 years ago. So caution is still warranted. It’s caution that enabled me to weather the bear market without losing capital.

However, since hope springs eternal, I’ll show a last chart with the ratio of the HUI Index (Gold Miners) to Gold. The mining stocks were sold off to levels against Gold never before seen. The sell-off was so severe that the Miners were trading at 50% discounts to prices seen at trough of the 2000 bear market. We know that extremes can continue for long periods, but the reversal in Miners relative to Gold is now very clear. Remember, each past Gold market bottom has begun with the Miners outperforming Gold.

 

 

Investor Cycle Trading Strategy

I sold my Long position when it hit the topping point of a typical Investor Cycle. There are no trades here at present.

 

Daily Cycle Trader Strategy

No positions for now. I did try a quick topping trade in GDX, but was forced out on the power of Friday’s rally. I bought during an extremely overbought time in the Cycle, so I thought it was a good setup, but the action proved that markets can at times extend well beyond extreme levels. If we see a continuation higher on Monday, I will likely have the confidence to attempt another Short trade.

 

Portfolio Positions Summary

Open Positions – Investor Portfolio –

None.

Open Positions – Daily Cycle Trader Portfolio –

None.

 

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Equities (S&P500)

Cycle Counts

 

Cycle	Count	Observation	Probable Outlook	Cycle Clarity	Trend
Daily	Day 13	Range 36-42 Days – 1st or 4th Daily Cycle.	Avoid	Green	Failed
Investor	Week 3 or 23	Range 20-24 Weeks	AMBER	AMBER	Failed
4Yr	Month 78	Range 50-56 Months- 8th Investor Cycle.	Bearish	Green	Up

It’s been 7 years since the start of the bull market, and signs of a market breakdown are now everywhere. A look at past bull market tops (1998-2000, 2005-2007) shows warning signs and divergences as much as two to three years before the top, all while the general equity indices are making new highs.

These signs are evident in today’s market. The commodity sector represents raw materials, and it has been in a deflationary spiral for a couple of years. Emerging markets, even those not heavily dependent on commodities, have been in a bear market for at least two years as well. In particular, China, the bellwether of the world economy and poster child for the current expansion, has been sounding a bearish alarm for well over a year.

Additional warning signs have appeared. High yield (junk bond) debt has been under enormous pressure recently. As investors begin to rein in speculative risk exposure, the high yield market is one of the first to turn down before of a market top. In addition, cyclical sectors like banking and transportation have already broken down. Moreover, the US treasury yield curve is flattening again, as demand for longer dated treasuries, the ultimate safe-haven asset, is once more rising.

The bottom line is that equities have stopped advancing, and have moved sideways for well over a year. Repeated attempts to breakout on the high side have failed, and the current top has turned into solid resistance. With valuations still at historical extremes and corporate sales growth flat, the ability for the market to sustain its current level is being seriously challenged. In short, I believe that the equity markets have topped and that a bear market is well underway.

That said, it’s crucial to remember that nobody knows in the short-term where the market is headed. That is both the beauty and the difficulty of trading – the markets are far too complex to predict with certainty over short time periods. And that’s especially true in the current environment, where whipsaws and volatility are so extreme that trading either side – Long or Short – is a challenge. Overall, a near term a rally would not surprise me, but I expect it to be short-lived. With Daily and Weekly Cycle failures in place, the market is showing unmistakable bear market characteristics. That being the case, my primary expectation is for a break below the January 20 low. I see this scenario as more likely than a large, counter-trend rally.

 

From an Investor Cycle standpoint, the bearish action should be clear. I’m now fully in the bear market camp, so I expect most of the significant moves to be to the downside. The last three attempts at a reversal higher have all failed, so the “buy the dip” ethic is clearly over.

Nevertheless, it would be foolhardy to rush in on the Short side and expect immediate downward pressure. That could happen, since we expect generally lower prices, but we need to be mindful that tops take time to form, and bear market declines are riddled with sharp rallies. My primary concern with trading Short is that equities have not had a particularly sharp rally yet. Sentiment is particularly low, so the door is open for a surprise rally. The trend is down, and I expect massive declines in the near future. But in the short-term, I’m open to all possibilities.

 

 

Investor Cycle Trading Strategy

No trades for now. I’m still trying to determine an accurate weekly count. I’m hoping for a good rally, one that would move price back toward 2,000 and provide clarity. We could be looking at a classic Left Translated IC, with a top near week 10 and future Daily Cycle highs testing the declining trend-line.

To see the market break to a new low would confirm the bear market, but it would also mean that the Investor Cycle could be coming to an end. If that happens, Shorts could be subjected to a fairly significant counter-trend move.

 

Daily Cycle Trader Strategy

I’m out of my Long positions for a small profit. There is no clear choice, Long or Short, at the moment, and the extreme market volatility makes trading equities here not worth the risk. It’s time to wait for the Daily Cycle to resolve itself.

 

Portfolio Positions Summary

Open Position – Investor Portfolio –

None

Open Position – Daily Cycle Trader –

None.

 

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CRUDE OIL

Cycle Counts

 

Cycle	Count	Observation	Probable Outlook	Cycle Clarity	Trend
Daily	Day 12	Range 36-42 Days (1st or 4th Daily Cycle)	Avoid	Green	Down
Investor	Week 3 or 23	Range 20-24 Weeks	Depends on IC	AMBER	Down
4 Year	Month 10	Range 48-52	Bearish	Green	Down

Along with many other commodities, Crude Oil crashed during the past year. The Crude market has become so erratic that it is impossible to determine what Crude will do next. From here, it could rally 20% or fall 20% and neither would surprise me. So I’m left with no choice other than to declare that I simply have no clue where Crude prices will be 1 to 3 weeks from now. Nor does any other analyst, regardless of what he or she might predict.

In recent weeks, Crude appears to have become highly correlated with risk and equity markets. Maybe it’s the other way around, that is, the equity markets are tracking Crude. Regardless, the markets are trading in tandem, and if equities are preparing for another significant leg lower, Crude will likely sell-off in sympathy. Since Crude Oil is still in the early stage of a bear market, extreme moves in price are normal, especially for this asset class.

 

 

Investor Portfolio Trading Strategy

No positions at present.

 

Daily Cycle Trader Strategy

No positions at present.

 

Portfolio Positions Summary

Open Positions – Investor Cycle Portfolio –

None.

Open Positions – Daily Cycle Trader Portfolio –

None.

 

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$US DOLLAR

Cycle Counts

Cycle	Count	Observation	Probable Outlook	Cycle Clarity	Trend
Daily	Day 40	Range 18-22 Days – 4th Daily Cycle	Bearish	Green	Up
Investor	Week 24	Range 18-22 Weeks	Bearish	Green	Failed
3Yr	Month 18	Range 36-42 – 6th Investor Cycle.	Bullish	Green	Up

The Dollar sold off sharply as markets came to the realization that the FED will not be able to continue to tighten rates. The idea of higher rates is simply a fantasy. The FED raised rates by 0.25% in December, but recent economic news combined with pressure on risk assets (equities and high yield bonds) all but ensures that the FED will not be raising rates again anytime soon. With both the Daily and Investor Cycles well past their topping points, the realization of no more rate increases was a catalyst for a Dollar decline.

The Dollar fell further at the end of the week, but stabilized by the close on Friday. Friday could well become the Daily Cycle Low. It’s difficult to predict day-to-day Dollar moves after one of the largest declines in years, but I will note that the Daily Cycle Low is due at the same time the sell-off looks to be complete. A failed Daily Cycle is in play, however, so it’s prudent to expect that any rally will quickly roll over.

 

The Dollar action suggests that the ICL decline I expected is underway. The decline will help to clear out sentiment and prepare the Dollar for what should be another big leg higher.

A double top is, potentially, in play, and many investors are very quick to point it out. Unfortunately, I believe that the investors are falling prey to bias in favor of positions they hold in a correlated asset class. In particular, a double top is not supported by the Cycle evidence. At this point, an uptrend is still underway, with only higher highs and higher lows.

More importantly, a currency trades in relation to other foreign currencies. That is, the Dollar can be priced only in relation to another currency, be it the Euro, Yuan, Yen, etc. When we consider that China is blowing through its FX reserves, that the emerging markets are extremely fragile, and that both the ECB and JCB (Japan Central bank) are deep in quantitative easing, it is hard to see how the Dollar could suffer anything beyond a significant Investor Cycle Low.

 

Investor Cycle Trading Strategy

No trades.

 

Daily Cycle Trader Strategy

No trades.

 

Portfolio Positions Summary

Investor Cycle Portfolio –

None.

Daily Cycle Trader Portfolio –

None.

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U.S Bonds

Cycle Counts

Cycle	Count	Observation	Probable Outlook	Cycle Clarity	Trend
Daily	Day 25	Range 20-26 Days – (DC#3)	Bearish	Green	Up
Investor	Week 13	Range 22-26 Weeks	Neutral	Green	Failed
3Yr	Month 23	Range 50-56 Months-	Bullish	Green	Up

I’d like to provide additional clarity to earlier comments about an equity market top and general economic weakness. The below chart shows the difference in yield between 10-year and 2-year treasury bonds. As the economy expands, investors seek riskier assets and sell the long bond, driving its yield up, so the spread generally increases.

However, as the economic Cycle ages and sentiment begins to sour, the long-term outlook becomes poorer and risk increases. When this happens, the 10-year bond is bought, either for safety or because investors don’t feel the risk/reward tradeoff of risk assets justifies putting capital to work in them. This drives the yield down on the long bond, and decreases the spread between it and the 2 year.

This fluctuation in yield is apparent in the business Cycle as the economy expands and then contracts. Because the business cycle is already beyond the normal timing for a recession, and with the long bond’s curve flattening quickly (as it has right before past recessions began), only another massive QE program can stop it.   Notice below how past QE programs stooped the yield curve from flattening.

 

This is why I am overall bullish on the US bond market – it is seen as an ultimate safe haven asset. It is not the national debt level or the long-term ability to sustain it that drives price – one look at the Japanese market should made that clear. In times of trouble, US treasury bonds are considered the safest of all asset classes, and almost all large capital flows into them.

A significant weekly trend change has occurred. Because we have an Investor Cycle Low and an Investment Cycle High that exceed those of the last IC, bonds have confirmed an upward trend. And the move higher might not be over yet. With a Week 12 high, the Cycle should both be Right Translated and stay above the prior Cycle Low. This trend change is important in that it confirms the weakness in the equity markets. After a brief decline into the next ICL, bond strength could push yields to record lows.

 

 

Investor Cycle Trading Strategy

No trades at present. I will not attempt to catch a top and trade against the trend. Our best bet will be to wait several weeks and buy the next ICL aggressively.

Daily Cycle Trader Strategy

No trades at present. I’m staying out – the market is too strong to Short.

 

Portfolio Positions Summary

Investor Portfolio –

None.

Daily Cycle Trader Portfolio –

None.

 

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Natural Gas

Cycle Counts

Cycle	Count	Observation	Probable Outlook	Cycle Clarity	Trend
Daily	Day 14 (Failed)	Range 20-26 Days – (2nd DC)	Bearish	Green	AMBER
Investor	Week 8	Range 22-26 Weeks	Depends on Daily	Green	Down
3Yr	Month 43	Range 48-52 (Months)	Bearish	Green	Down

Natural gas is an asset locked in a massive bear market, showing a recent failed Daily Cycle and a new set of lower highs and lows.  Such an asset is one that cannot be trusted on the Long side anymore, regardless of how bullish the chart or Cycles may have appeared just a few weeks ago.  Opinions are loosely held and when the market dictates it, we change our view to match what price is showing us.

Yes it was an extremely impressive move out of those December lows, but the action since topping in early January shows little confidence or a willingness to follow through. Therefore, I can only assume that the bear market is taking hold again and therefore I must remain bearish on natural gas.

 

 

Investor Cycle Trader Strategy

N o trades at this time.  Long trades should be off the table, a possible short trade not for another 3-4 weeks.

 

Daily Cycle Trader Strategy

No trades.

 

Portfolio Positions Summary

Investor Portfolio –

None

Daily Cycle Trader Portfolio –

None.

 

Sample Premium Member Report published on Sep 6th, 2015.

 

Gold Cycle

Cycle Counts

 

Cycle	Count	Observation	Probable Outlook	Cycle Clarity	Trend
Daily	Day 34	Range 24-28 Days – 1st Daily Cycle	Neutral	Green	Failed
Investor	Week 7	Range 22-26 Weeks	Bullish	Green	Failed
4Yr	Month 40	Range 48-52 Months	Bearish	Green	Failed

At this point in Gold’s Investor Cycle, there are two primary factors in play and I’m closely tracking both. In the immediate term, I’m watching Gold’s Daily Cycle for signs of a turn higher and the beginning of a 2^nd DC. In addition, Gold’s long term trend lower should guide our expectations for the next few months. After the coming DCL, the performance of the 2^nd Daily Cycle will drive how Gold’s current Investor Cycle unfolds.

When the 2^nd DC begins to move higher, I will remain cautious out of respect for a possible continuation of the bear market. If the bear is ongoing, it is likely we will see a top to the second DC before week 10 of the IC.

On the other hand, if Gold’s trend has changed and the yellow metal is embarking on a major bull run, it may be difficult to capture the early part of such a move. Most investors will be weighed down by 4 years of IC declines and the ongoing downtrend.

But before we can observe Gold’s 2nd DC, we need for the 1st DC to end, and that could mean at least one more decline into a DCL. I mentioned my concern about this in Wednesday’s mid-week report. So seeing another drop in Gold would not be unexpected and, if it happens, should not be considered a bearish development. Overall, the current chart setup remains constructive, and Gold is now sporting a slightly lower low from which it can form a 1st DCL. I expect Gold to turn up from here without more downside, although another day or two lower is still possible. In any event, by the end of the coming week, I expect Gold to begin a rally that should at least test the $1,170 top of the last Daily Cycle.

 

There is still a decent amount of fear in the Gold trading community. Watching Silver languish while the Miners retest the last ICL has not in any way inspired the Gold bulls. And seeing the sector’s more speculative assets wobble has made me wary as well. Remember, with the bear market still in force, traders and investors must remain aware of downside risks. Until the trend reverses, early Cycle rallies should only be considered counter-trend moves which can reverse sharply at any time.

Although the current move out of the ICL is still technically just such a counter-trend move, I believe that it has plenty of upside remaining. The IC count tells us it’s still too early for a top, while sentiment has failed to get above even pessimistic levels. So there is plenty of time and fuel for Gold to continue higher. Typically, an Investor Cycle Top occurs only after sentiment has reached a flat-to-elevated level, which is still well above current readings.

Perhaps of greatest importance for Gold is the COT report. All new Investor Cycles begin with some degree of Short-covering, as speculators who were over-Short during the IC decline are caught by the turn higher and forced into panic covering. For Gold, this Short-covering has begun, but the process is nowhere near the level that indicates a new equilibrium has been reached. From the below COT chart, it’s clear that the NET position (black line) is not close to the peaks associated with prior IC tops. This suggests that Gold speculators are still too Short, and that they will likely be forced to cover once the 2^nd Daily Cycle gets going.

 

To many investors, I know it seems that the Gold sector is trading poorly. But when Gold is viewed in isolation, it’s clear that this is really not the case. In fact, the current move fits our expectations from 6 weeks ago at the start of the current Investor Cycle. Every Cycle forms in a series of ebbs and flows, and we must recognize where the asset stands in the process.

Gold should be close to completing its first DC, and the 2nd DC should see it rally for 2-4 weeks toward the bear market trend line. How Gold performs during its 2^nd Daily Cycle, and especially how it moves near the last DC high and the bear market trendline, will shape its current Investor Cycle. Unfortunately for bulls, given the dominant bear market trend and Gold’s tepid movement in the new IC, I expect the declining trend-line to cap the upside move.

 

 

Investor Cycle Trading Strategy

I’m waiting to add a position here, and will consider more of the current Gold ETF. Trading a Gold ETF will not add much to our bottom line, but because we’re at the advent of a 2^nd DC that we expect to roll over early in a continuation of the bear market, it doesn’t make sense for this portfolio to be exposed too Long.

 

Daily Cycle Trader Strategy

I’m still Long two GDX positions, and these have come close to a 100% retracement of the move up from the recent low.  Price managed to hold up well on Friday, so my expectation remains that Gold will begin its 2^nd DC, and that GDX will have a splendid outing when it does.

 

Portfolio Positions Summary

Open Positions – Investor Portfolio –

Long UGL 10% position.

Open Positions – Daily Cycle Trader Portfolio –

2 Positions Long GDX

 

 

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Equities (S&P500)

Cycle Counts

 

Cycle	Count	Observation	Probable Outlook	Cycle Clarity	Trend
Daily	Day 10	Range 36-42 Days – 2nd DC	Bearish	Green	Failed
Investor	Week 9	Range 20-24 Weeks	Bearish	Green	Failed
4Yr	Month 75	Range 50-56 Months- 8th Investor Cycle.	Bearish	Green	Up

The recent collapse of the S&P toward 1,880 was severe, and pushed every technical indicator well beyond the levels of a typical Investor Cycle Low. Based on the massive bull market trend behind equities, we should expect a huge V pattern reversal that drives a quick move to a new all-time high.

Although it’s still somewhat early for a final verdict, such a huge reversal has failed to materialize. Instead, we continue to see spiking volatility, huge intra-day swings, and an Investor Cycle that suggests that there are more declines ahead. The significant volatility makes all of our outlooks somewhat murky, so any short-term expectations must be held lightly at this point. Keep this in mind as you read the scenario I outline below. It’s only one possibility. But with that caveat, I believe that equities are currently far too short-term oversold. At this juncture, a rally that tests the break-down point would not be at all unusual.

 

We’re faced with an Investor Cycle and bull market dilemma. If the primary (up) trend is intact, equities have seen more than enough of a decline and should be ready to rocket higher. But the severity of the decline and the way it has differed from declines in previous Investor Cycles has me thinking that a more complex market correction is unfolding.

For example, volatility has surged, and significant intra-day market swings have become much more prevalent. With one quarter of all August trading days involving a move of more than 2%, the current correction is nothing like the declines into the 6 previous ICLs.

 

In addition, sentiment has collapsed too far too fast, leaving the ratio of bulls to bears at a four year low. The drop in sentiment tells me that the market is running scared, and that a bear market mentality has taken hold. From a contrarian standpoint, the collapse in sentiment is bullish, but with the market in a correction, I’m fearful that it’s just too early for a longer term reversal higher.

 

The change in market character can be seen in the VIX index. Panicked, extreme moves in the VIX are almost always a precursor to a large degree, multi-month decline. A massive move in the fear index is typically the result of a large, underlying shift in the market, and these shifts take significant time to fully unfold. In short, what equities are currently showing is not standard Investor Cycle Low volatility, so we should not expect a swift market rebound and a plunge in the VIX.

 

The point is, while the technical picture points to an Investor Cycle Low, the severity and character of the current decline resembles a larger and more complex correction. And the Investor Cycle count is in agreement; even before the decline began, the most likely count showed the current IC at only week 6. A correction similar to those in 2010 and 2011 takes time to unfold, and the current Cycle count supports a decline until mid-to-late October. Seasonality supports this picture as well. Although the early portion of September is often bullish for equities, the middle of September until the middle of October has, historically, been the worst performing period of the year.

 

Looking at the weekly chart (below), we see an initial sell-off that was both sudden and deep. In fact, the weekly candles still indicate trades outside of the lower Bollinger Band. The “hammer candle” from 2 weeks ago was a sign that the markets might have been forming a massive “V” reversal, but the bulls just couldn’t make it happen. If equities were in a typical ICL, we would have expected the bulls to take the market higher.

In summary, so far the declines have been of the ICL variety. But the fact that the market has entered into a correction with such high volatility and so early in the Investor Cycle points to a deeper market correction. But it won’t be a straight line lower, and with markets extended to the downside, we should have a period of stability (maybe 2 weeks higher) that should lead to a short-term top. Only then, after the bulls have begun to feel comfortable that the “buy the dip” narrative will hold true again, will the market be in a position to continue its decline.

 

 

Investor Cycle Trading Strategy

I’m looking for a solid Short trade for the Investor Cycle Trading Strategy, but only if the S&P can move back to well over 2,000. Anything near 2,030 would be an excellent place to put on a Short trade.

 

Daily Cycle Trader Strategy

There’s too much volatility for the time being, although the right trade might actually be to go Long for the next 5 to 7 sessions. But with a failed Cycle in play, I’m not going to take a Long trade. As with the Investor Cycle Trading Strategy, I’m hoping for a rally back over 2,000 so I can place a good Short Daily Cycle trade.

 

Portfolio Positions Summary

Open Position – Investor Portfolio –

No position.

Open Position – Daily Cycle Trader –

No position.

 

 

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CRUDE OIL

Cycle Counts

 

Cycle	Count	Observation	Probable Outlook	Cycle Clarity	Trend
Daily	Day 10	Range 36-42 Days ( Daily Cycle)	Bearish	Green	Down
Investor	Week 25	Range 20-24 Weeks	Bearish	Amber	Down
4 Year	Month 7	Range 48-52	Bearish	Green	Down

This week, Crude put in one of the best single week rallies on record. Such a move was obviously not the result of bargain hunters or demand buying; it was driven purely by overly-leveraged speculators covering Short positions as the market turned higher. Once such moves get going, they often take longer than six sessions to resolve, so I expect that Crude will continue higher in the coming week as traders continue to cover their Shorts.

The 2nd rally in the current Daily Cycle is beginning to take shape now, and I expect Crude to hit a new Daily Cycle high near the end of the week. If the equity markets are going to recover somewhat during the next 2 weeks, then Crude is likely to follow along. But I’m still very bearish on the entire energy sector and especially Crude oil. From my perspective, the current rally is nothing more than a Short-covering exercise.

 

My primary concern for the energy sector is that far too much Crude supply remains on world markets. And with lower prices causing fiscal problems for the oil-producing nations, I don’t expect a meaningful reduction in world oil supply for a long time to come.

In fact, with this week’s news that President Obama has the necessary votes to ensure the survival of the Iran nuclear deal, we’re going to see another flood of Crude hit world markets at the start of 2016. Even though the sector has entered a bear market, its participants are either unwilling or unable to see the longer term implications of their actions.

As with every bull-to-bear market transition, the players that are heavily dependent the sector are too biased to appreciate (or admit) that there are bad times ahead. After years of absolutely massive capital inflows into the energy sector and despite currently depressed prices, the industry is on track to raise a record $74 billion in 2015. And with world Crude demand relatively flat, the additional $74 billion is only going to ensure that supply continues to constrain price.

 

Moving to the monthly chart, Crude is in month eight of a failed Yearly Cycle. The chart below clearly shows that Crude oil is locked in a cyclical bear market that could take years to resolve. But whatever the longer term outlook, timing dictates a minimum of 4 to 6 more months of lower prices before a Yearly Cycle Low arrives.

If that’s the case, the $62 high from May is almost certainly Crude’s ceiling and should not be exceeded during the current Yearly Cycle. As the current YC continues, it should become the first Left Translated Yearly Cycle in over 6 years (the last one came close), leaving the primary question now as to whether we’re seeing a short 1-2 year correction or the start of a larger, secular bear market.

 

 

Investor Portfolio Trading Strategy

No Trades.

 

Daily Cycle Trader Strategy

We had a great quick Long trade, but the obvious trade is now over. I considered taking another Long trade, but felt that Crude is, at this point, too overbought. If Crude can move well above the top Bollinger Band and further along in the Daily Cycle, I will strongly consider a Short trade.

 

Portfolio Positions Summary

Open Positions – Investor Cycle Portfolio –

None.

Open Positions – Daily Cycle Trader Portfolio –

None.

 

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$US DOLLAR

Cycle Counts

Cycle	Count	Observation	Probable Outlook	Cycle Clarity	Trend
Daily	Day 10	Range 18-22 Days – 4th Daily Cycle	Bearish	Green	Down
Investor	Week 17	Range 18-22 Weeks	Bearish	Green	Failed
3Yr	Month 15	Range 36-42 – 6th Investor Cycle.	Bullish	Green	Up

The Dollar is at a critical point. The Investor Cycle indicates that it should have at least one more declining, Left Translated Daily Cycle ahead. A very dovish ECB and a stronger US Employment Report helped to push the Dollar to a day 8 top in the current Daily Cycle. If this is the last DC of the current IC – the outlook I favor – then a top at day 8 fits the picture.

But there are bullish undertones to the Dollar’s recent performance – holding the 10dma and a MACD cross – so we should be open to the possibility that the Dollar has already completed a short, 16 week Investor Cycle. But that is not my primary expectation; normal Cycle timing still greatly favors another Dollar breakdown in the near future.  But if the Dollar doesn’t turn lower next week, we could be looking at a surprise, new Investor Cycle.

 

 

Investor Cycle Trading Strategy

No Trades currently.

 

Daily Cycle Trader Strategy

No Trades currently.

 

Investor Cycle Portfolio –

None.

Daily Cycle Trader Portfolio –

None.

 

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U.S Bonds

Cycle Counts

 

Cycle	Count	Observation	Probable Outlook	Cycle Clarity	Trend
Daily	Day 50	Range 20-26 Days – (DC#1)	Bearish	Green	Failed
Investor	Week 11	Range 22-26 Weeks	Bullish	Green	Failed
3Yr	Month 20	Range 50-56 Months-	Bullish	Green	Up

We saw a fairly big move in the bond market to close out the week. The strength in bonds was primarily a result of the US employment report and the resulting weak performance in equities. Since the strength occurred during the timing band for a DCL, I suspect we are most likely seeing day 2 of a new DC.

My primary concerns are that the bond Cycles are no longer obvious since the counts are very long. Plus, if the S&P is to perform well for several weeks in September, I don’t see bonds moving higher in a new Daily Cycle at the same time. Bonds and equities don’t necessarily need to be inversely correlated, but a convincing equity market move laced with “buy the dip” hope is not an environment for strong bond performance.

 

The equity – bond market inverse correlation may make it difficult to see where the bond market is headed in the short term, but not so for the longer term. If equities are going to correct into a deep October Cycle Low, the below weekly bond chart reflects that expectation.

The bond market is putting in a very impressive Investor Cycle, and has foreshadowed the current equity market correction. With bonds retesting their upside channel breakout, an equity market collapse into October will surely mean a continuation higher for the bond market. As risk and volatility in equities increases, the capital leaving equities should make its way into the relative safety of the US bond market, pushing bond prices significantly higher. Overall, the current bond IC continues to perform well, and there is plenty of room in both price and Cycle timing for bonds to continue to rally.

 

 

Investor Cycle Trading Strategy

No trades at present, but I will look to buy a Long position once we see a DCL.

 

Daily Cycle Trader Strategy

I’ll look for a Long trade at the next DCL.

 

Investor Portfolio –

None.

Daily Cycle Trader Portfolio –

None.

 

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Natural Gas

Cycle Counts

 

Cycle	Count	Observation	Probable Outlook	Cycle Clarity	Trend
Daily	Day 25	Range 20-26 Days – (4th DC)	Bearish	Green	Flat
Investor	Week 21	Range 22-26 Weeks	Bearish	Green	Down
3Yr	Month 40	Range 48-52 (Months)	Bearish	Green	Down

Natural gas prices have been locked in a downtrend pretty much the entire 21 weeks of this Investor Cycle.  From what I can tell there continues to be too much supply of natural gas in this market place.  And if that were not enough to keep prices down, investment into new production continues despite this over-supply.  That’s not going to stop prices from swinging between a Cycle trough and Cycle high, Cycle after Cycle.  But we should have little to no expectation of a new bull market run anytime soon.

For where Natural gas is currently trading, it appears to be within its final Daily Cycle of this current Week 21 Investor Cycle. There is a chance that one more Daily Cycle is to come, considering my forward expectations for Equities and Crude. But for now, we have a Failed Daily Cycle on Day 25 that is seeking a Cycle Low. One more flush would do the trick, I would imagine.

 

 

Investor Cycle Trader Strategy

No trades, not enough clarity.

 

Daily Cycle Trader Strategy

No Trades.

Investor Portfolio –

None.

Daily Cycle Trader Portfolio –

None.