The Final Gold Chapter

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This is the final chapter of this intermediate gold Cycle, and it’s likely to get ugly.  If you’ve followed the blog these past few months, you would have been prepared for most of this move as it unfolded in real-time.  The first post back on October 1st was  Gold Cycle Running Out of Steam  and was then followed up (Nov 1st) with Don’t Trust Gold Here.  In both cases, I highlighted how the Weekly Cycle had topped and how similarly past Cycles behaved .  It was why I argued that this Cycle appeared to be no different to the preceding failed, bear market Cycles since 2011.  This is where gold finds itself today, standing on a ledge before a significant fall.  For the patient (and protected) bulls, it may well become the final chapter of this great bear market.

Gold moved relentlessly lower again last week, ignoring normal Daily Cycle timing. The move has given life to my frequent warnings about the persistent, unyielding declines that bear markets often bring. Bear markets are notorious for elevating investors’ hopes through sharp moves higher that quickly give way to crushing declines. And as we’ve witnessed with Gold, the declines can be prolonged to the point that they wear down even the most ardent bulls.

Surprisingly, there is still an endless stream of pundits and investors declaring that Gold’s bear is over. Too many traders seem more preoccupied with catching a possible turn higher than with acknowledging the reality of the past 4 years and understanding Gold’s potential downside. Bullish bias helps to explain why, despite Gold’s sitting at a new 5-year low, sentiment is still not at bearish extremes. In addition, from the latest commitment of traders report (COT), it’s clear that speculators are still offloading bullish Long positions as they begin to accumulate bearish Short positions.

When combined with an Investor Cycle weekly count that easily supports another Daily Cycle, the above two indicators – Sentiment and COT – make me very cautious regarding Gold.

The daily chart shows just how ugly the current action has been, and it speaks volumes about the underlying bearish tone of the precious metals complex. On the surface, the current decline is severe enough to look like the final move into an ICL. But Gold’s longer term Investor Cycle suggests that another DC is needed to complete the IC.

In the immediate term, Gold is clearly oversold and should move higher in a new Daily Cycle rally. But based upon the sector’s clear weakness, it would not be a surprise if the rally lasted only a day. Remember, the next DC should be the last of the current Investor Cycle, and if it’s true to form, should end with twenty sessions of panicked selling.

 

11-14 gold daily

 

Although Gold’s week was negative overall, the bleeding was fairly contained. And after four consecutive weeks lower, it’s due for a Daily Cycle rally that should push it temporarily higher. The rally could be fast and convincing enough to cause steadfast bulls to again proclaim that a double bottom has occurred.

But because the timing and evidence support another significant move lower, I believe that any rally will be very short lived. The new Daily Cycle rally should be just enough to clear oversold technical levels and allow the Bollinger Bands to expand to accommodate the next big decline.

For those asking whether the current decline could be a short, 16 week ICL, I just don’t see it. A perfect double bottom forming with the July low would wrap a nice bow around the bear market, but the evidence doesn’t support it. It is not impossible by any stretch, but it is very unlikely.

 

11-14 gold weekly

 

Possible Trading Strategy

Nimble traders could buy a Swing Low (when one arrives), since the Daily Cycle is well past due for a rally. For anyone who takes such a trade, setting tight stops and actively managing/increasing them will be important.

The higher percentage or better risk/reward trade would come from allowing the oversold levels to cool off with a  strong 2-3 day rally, and to then consider putting on a Short position. This should be a high percentage trade because of the high likelihood of a big decline into December.

 

The Financial Tap publishes two member reports per week, a weekly premium report and a midweek market update report. The reports cover the movements and trading opportunities of the Gold, S&P, Oil, $USD, US Bond’s, and Natural Gas Cycles. Along with these reports, members enjoy access to two different portfolios and trade alerts. Both portfolios trade on varying time-frames (from days, weeks, to months), there is a portfolio to suit all member preferences.

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Don’t Trust Gold Here

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Just when the short-term prospects for Gold were looking good, precious metals reversed lower this past week. It could be that Gold was surprised by last week’s FOMC minutes, which signaled a potential December rate hike. When the minutes were released, Gold dropped immediately, and it’s been straight downhill for the metals since.

Part of the decline was expected, since the Daily Cycle was well into the timing band for the next Cycle Low. But the decline was greater than the setup warranted. While the release of the FOMC minutes was definitely the catalyst, the decline was greater than expected given our previous bullish expectations. By this I mean that Gold fell below the bull flag that had developed. Until mid-week, Gold had been consolidating nicely in preparation for a move higher in a new Daily Cycle. But the move below $1,120 over an extended 13 day decline means that Gold is no longer in a bullish Cycle consolidation, and that it’s possibly the start of a larger degree decline.

Analyses often walk a fine line between bullish and bearish perspectives, especially for an asset like Gold, which is still under the influence of a four year bear market. Given the crosscurrents in such a volatile asset, I have no qualms in flipping between bullish and bearish expectations if conditions warrant.

Gold’s current weakness should be a serious concern for the bulls, and has completely changed my shorter term expectations. There is no doubt that a Daily Cycle Low is imminent, and that a rally of at least $30-$40 should follow. But the move out of that Daily Cycle Low (DCL) is likely to be capped, and I would expect $50 to be the maximum gain we should expect. One caveat: price is unpredictable, and my view of limited price gains is based on the assumption that a Left Translated Daily Cycle is coming.

 

Gold Daily Cycle The Financial Tap 2015

The driver of Daily Cycle behavior is generally the weekly Investor Cycle. And from a weekly perspective, speculative traders are now net Long Gold by a fairly significant amount. It’s not anywhere near a record level, but is certainly equivalent to past Investor Cycle topping points.

In terms of speculative Silver traders however, the level of net Longs is at a record level. Considering the eagerness of many investors to be Long, Silver buyers have done a relatively poor job of driving price higher. This suggests that there is still a healthy selling appetite among Longs, who seem eager to offload their metal.

Unfortunately, net Long positions at near-peak levels are never an encouraging development. Taken further, whenever COT reports show these types of levels this deep in the Investor Cycle (week 15), the IC has often either already topped, or it will top in a week or two.

 

10-31 Silver COT

The COT report is a major red flag for the Gold Cycle. And, although it’s not as good a predictor as COT reports, another indicator we need to review is the GDX, the Miners. Throughout the current bear market, the performance of GDX in each Investor Cycle rally has been a good predictor of when Gold was ready to roll over. It has been a consistent indicator for eight Investor Cycles, and we typically saw the Miners peak at (or before) week 10 of each IC after a 25% + gain.

In the current Investor Cycle, GDX has moved 31% higher in 10 weeks, mirroring the performance in a typical IC during the four year bear market. It’s a small sample size, and GDX has shown a wide range of results, so we only want to use this as secondary, supporting evidence. But as is clear from the below chart, whenever the Miners have sold off hard late in an IC, it was always past the peak of the Cycle.

 

Gold Cycle topped via GDX

In last week’s report, I highlighted that caution was warranted because an aging Investor Cycle (IC) in a continuing bear market must be respected. Even so, as long as Gold remained above the 10 week moving average and acted bullishly, I was prepared to maintain a positive attitude toward it.  But this week was far from bullish. For Gold to struggle to the point that it lost the 10 week moving average shows that the IC has tipped over too far, and that the pull of the looming Investor Cycle Low (ICL) is likely to quickly overwhelm the coming Daily Cycle rally.

It’s important to remember that by week 15 of a Gold Investor Cycle, the odds of a continuation rally have typically really diminished. Now that Gold has closed below the 10 week moving average, and with a bear market in force, the only valid outlook is to expect Gold to go into a tailspin and to ultimately collapse into the next ICL. We should see one more attempt to rally begin almost immediately, but there should be no second chances for Gold from this point forward.

 

Gold weekly Investor Cycle - The Financial Tap

 

Trading Strategy Ideas

Long term holders will want to capitalize on the opportunity to Short Gold, and that opportunity is rapidly approaching. I doubt it will arrive before next week, but I expect that within 10 trading days, we should have gold back towards $1,160 and ready to turn lower for a larger degree decline.

Very nimble position\swing traders could go Long gold with a Swing Low (reversal) when one arrives, since the Daily Cycle is well past due for a rally. But be warned that a gold rally is likely to be short lived.  The better opportunity is to be ready to short an impressive five-seven day rally, because once the next Daily Cycle tops, it would have a solid two to three weeks of declines ahead.

 

The Financial Tap publishes two member reports per week, a weekly premium report and a midweek market update report. The reports cover the movements and trading opportunities of the Gold, S&P, Oil, $USD, US Bond’s, and Natural Gas Cycles. Along with these reports, members enjoy access to two different portfolios and trade alerts. Both portfolios trade on varying time-frames (from days, weeks, to months), there is a portfolio to suit all member preferences.

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A Golden Surprise

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The surprises are going to the upside for gold, and that is obviously a change in behavior. The miners are roaring higher and are outside of their Bollinger Bands for multiple days, a sure sign of strength. Up until very recently, the Investor Cycle had showed us relatively little to get excited about. But suddenly, eleven weeks into the Cycle and right where you would have expected it to turn lower, gold has found yet another gear.

The most bullish path (from a number of possibilities) has resolved itself this week and we have a solid new Daily and Investor Cycle high. This is by no means (yet) a sign that a new bull market has started, that type of conclusion can only be reached with consecutive higher highs at the Investor Cycle timeframe.  I like how the sector has performed here, but let’s not forget that all commodities are doing well with a sharply lower dollar.  And for those with short term memory issues, let’s not forget that gold has a habit of drawing in the gold bulls before unleashing another wave of selling.

However, we do have a monthly Swing Low in play now. Possibly for the first time in years, we’re seeing some real buying on demand, as opposed to counter-trending and forced short cover buying. The highs this week have come on week 12, the furthest any Investor Cycle has reached since 2011, and there is potential for further gains now that this is likely a Right Translated Investor Cycle.

In the short term though, some caution is warranted. Gold is well above the Bollinger Bands and significantly overbought. From a Daily Cycle timing standpoint, we’re deep into the Cycle and ready to begin a move towards the DCL. Even if the recent October 2nd Low marked a shortened Daily Cycle Low, gold in that case would still be ready to move lower into a Half Cycle Low. The point being, social media is suddenly a buzz over gold and a “new bull market”. Everyone is suddenly jumping back in here after an already extended move higher. This is setup to teach the bulls a little trading lesson and to catch them being a little too over-eager. Beyond a possible shake-out, the gold Cycle look very encouraging and a transition away from a bear market could be developing.

 

Gold Daily Cycle The Financial Tap

 

The Financial Tap publishes two member reports per week, a weekly premium report and a midweek market update report. The reports cover the movements and trading opportunities of the Gold, S&P, Oil, $USD, US Bond’s, and Natural Gas Cycles. Along with these reports, members enjoy access to two different portfolios and trade alerts. Both portfolios trade on varying time-frames (from days, weeks, to months), there is a portfolio to suit all member preferences.

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Gold Cycle Running Out of Steam

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I predicted that gold would rally last week up to the $1,155 area, and was also equally unsurprised when it was rejected the first time by that declining (see green trend-line on chart) resistance line. Those are standard or obvious Cycle pivot points, but how it continued lower yesterday to fall well below the 10 day moving average was not a “typical” development if you’re a supporter of the bull case in gold.

This is after-all supposed to be the most bullish period for gold, the heart of the 2nd Daily Cycle is where most of the solid gains are made during an uptrend.  We wanted to see only a brief, possibly just an intra-day break below the 10dma, followed by a rally to smash through that trend-line. There is obviously still some time left for gold to rally, but the point is that it has taken up far too much of the 2nd Daily Cycle while remaining well below recent Cycle highs. During a series of bullish Cycles, new highs are made quickly and sustained relentlessly, they certainly do not languish like this.

So as I covered this past weekend (premium report) and warned then, I’m telling the bulls again to watch out. This is playing out just as past bear market Cycles have. That’s four years’ worth of Cycles and each one behaved and performed almost like this one has so far. And sadly we do not see any bullish divergences from Silver or the precious metal miners to hang some hope on. As I have consistently maintained, during any bear market we must assume surprises will move to the downside and that the trend will push the asset lower.

Remember though, Cycles depict the natural ebb & flow process of an asset.  And in the very short term, a bounce out of a Half Cycle Low is now due and expected. Another test in the coming days of that resistance line is likely, but there is a very good chance that same resistance area will cause gold to fall sharply towards the next Daily Cycle Low. If the bulls are serious and want to significantly change this outlook, then they need to smash through the resistance area and make new Cycle highs above $1,156.  Until that point, please be mindful of the dominant trend, it is much more powerful than us all combined.

 

9-30 Gold Daily

 

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Annual Special – Save 50% on Membership

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Thanks for following the blog, I try my best to publish some free public content when I can, but most of my time is devoted to servicing the premium members. I hope you’ve enjoyed what public content I have made available.

If you would like to see more of my work, I’m offering a steep discount to any new members for a 3 month period. I don’t do “sales & marketing” well, I’m more content with spending my time helping members and producing content, rather than promoting myself online. But every service needs to do some level of promotion, which is why we’re offering a one-time membership special that I hope will be too attractive to pass on.

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Sincerely,

Bob Loukas

Steps from a Deep October Market Selloff

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For some reason there was a late flurry of expectations that the FED was going to raise rates this past week. Many in the media would like us to believe that we’ve finally transitioned out of an economic intensive care and that the economy is ready to stand on its own two feet. Evidence to support the idea is the employment picture, which when taken on the surface provides the illusions that we’re in a healthy and thriving economy.

But the reality is very far from what those broad numbers represents. Sure certain pockets of the economy are doing well, namely the top 10%-20% of income earners. But for the majority of people, real incomes have been in a constant decline throughout this expansion period, while the quality of available employment has been subpar. The government and their talking heads want you to believe all is well, but what we have here is a highly stimulated economy (via low interest rates, easy money, high debt spending, and artificial asset appreciation) that is only muddling through a business Cycle expansion.

But if we stop and consider that the FED has not raised rates in over a decade now, has pumped trillions of dollars into the economy, and that this is month 78 since the last recession, we’re being fooled into forgetting that the U.S (and the world) is currently experiencing an economic depression that is being tapered over with easy money. All of this economic stimulus should have seen inflation and the economy growing at over 5%, but both metrics are barely above the break-even point. And to make matters worse, we’re forgetting that the standard economic business Cycle is typically just 80-90 months in duration. In short, we’re now entering the timing band for the next economic recession.

So when we hear about the FED possibly raising rates I find this almost ludicrous to even consider. The Dollar is at multi-year highs for a reason, because capital is fleeing from risk, especially from the emerging markets, for the safety of the reserve currency. The FED cannot move because global growth is slowing and market volatility is rising. Core retail sales are coming in at below expectations, as demand for goods remains weak. Take a look at inflation expectations, they’re once more heading towards that deflationary line.

 

9-18 Inflation expectation

The media can focus on employment numbers all they like, but they’re a lagging indicator, unlike manufacturing surveys which provide a better snapshot of economic activity. If we look at the recent NY and Philly FED surveys, both show a new developing downtrend that I know the FED is concerned about.

 

9-19_NY_FED_MANU 9-19_PHHILY_FED_MANU Source: Bedspokeinvest.com

 

So what’s the point I’m sure you’re asking, because we have established in the past that economic performance does not correlate well with stock market performance, at least not in the short-term. And I would agree with that statement, with the caveat being that eventually fundamentals always matter, and that this might now be that time when it matters!

We had a massive and powerful bull market rally, but it has aged considerably and has left valuations at levels only eclipsed by that once in a century bull market of 1982-2,000. My point is that I sense that both the economy and the markets in general are approaching their climax. This is now a time to be both concerned and defensive.

On the Daily Cycle, the S&P index reached 2,021 soon after the FOMC announcement, which was into the 2,020 to 2,040 topping zone that I’ve been reporting as my target ever since the last Daily Cycle Low (DCL).  (See post back in Aug  Post: Sound the Alarm – Aug 24th).  This has been the type of move I expected ever since the deep August lows, with the action in this Daily Cycle constituting only a counter-trend reaction before a larger degree continuation of the Investor Cycle took control again.

 

9-22 equities

When the market reversed sharply on Thursday, I thought it might be mainly an overbought drop, before one more rally towards a Cycle Top near 2,044. But when Friday opened sharply lower and significant selling was seen, it dramatically increased the odds that the market had already topped.

I don’t pretend to know where this market is heading, especially not in this type of conflicting environment. I only have my preferred outlook to present you each and every week and I’m also not afraid to change that viewpoint as the market Cycles dictates. My trades depend upon my perceived probabilities of the current outlook, which are of course greatly influenced by my degree of comfort in my outlook.

In this particular case, I have maintained for a number of weeks that the markets were in the earlier stages of the Investor Cycle, meaning that the Aug 24th lows would eventually be exceeded. That would involve a pattern where the markets recovered back towards the prior breakdown point near 2,044, and then continue lower. Two days of sharp declines are not confirmation, but that was an ugly end to the week and the odds of that expected pattern playing out, i.e. a continuation lower, have greatly increased.

 

9-18 Equities Weekly

 

The Financial Tap publishes two member reports per week, a weekly premium report and a midweek market update report. The reports cover the movements and trading opportunities of the Gold, S&P, Oil, $USD, US Bond’s, and Natural Gas Cycles. Along with these reports, members enjoy access to two different portfolios and trade alerts. Both portfolios trade on varying time-frames (from days, weeks, to months), there is a portfolio to suit all member preferences.

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Short Term Crude Oil Price Recovery

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Last 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.

 

9-5 Crude Daily

At this point ($45.30 zone) one could consider taking another Long trade, with a stop just below the 10dma, as it looks like crude can move well above the top Bollinger Band over the next week.  Then further along in the Daily Cycle, I will strongly consider a Short trade once crude becomes greatly overbought around the $50-$53 levels.

 

The Financial Tap publishes two member reports per week, a weekly premium report and a midweek market update report. The reports cover the movements and trading opportunities of the Gold, S&P, Oil, $USD, US Bond’s, and Natural Gas Cycles. Along with these reports, members enjoy access to two different portfolios and trade alerts. Both portfolios trade on varying time-frames (from days, weeks, to months), there is a portfolio to suit all member preferences.

You’re just 1 minute away from profitable trades! please visit: https://thefinancialtap.com

Sound the Alarm

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We saw an amazing capitulation event in equities these past three sessions.  It’s clear that market internals were weak, but no one could have foreseen the degree and rapidity of the selloff. The major US indices have already entered into official corrections (-10%), while many world markets are approaching bear market (-20%) territory. And it’s unlikely the declines are over. Friday’s drop was a massive distribution day, with 93% of volume trading lower. With a 1,433 point decline, that was the largest three day DOW decline on record.

The VIX spiked sharply, showing the sort of extreme panic/fear in the market that is typically reserved for the end of Investor and Yearly Cycle declines. If we use the the four-year rally in equities as our guide, this type of sell-off corresponds with markets completing a Cycle Low, after which they should turn higher and rally for 10-20 weeks in a new Cycle.

That’s the script if we believe the bull market is intact, but I don’t think that’s what’s going to happen, not this time. I believe this time is different, primarily because the Investor Cycle count is so early (week 6 of 22-24 weeks). With so many weeks left to complete the Investor Cycle, the current waterfall decline is extremely concerning, and could be an omen of significantly lower prices in the near future.

 

Equities VIX

If I’m wrong about the Investor Cycle count, if we are at the end of the previous Investor Cycle, then the current sell-off is likely to be just about over, and the bears will once again be punished by a sharp move higher. If that’s the case, the four-year advance, which has been punctuated by a long series of “buy the dip” moments just like this one, will again drive a windfall for astute bull market traders.

But that’s not my primary expectation, since I believe that a much deeper shift is occurring in the equity markets. The nine month rounding-top pattern has resolved itself lower, and this has real implications for the longer term trend. In addition, the character of the market appears to be changing, with fundamentals beginning to matter again, and blind “buying the dip” being a path to losses. The markets have shifted to become more efficient, with new developments being quickly and efficiently priced into equities. This change in character is a process, and is being propelled by the realization that the world, and in particular China, is slowing rapidly. Analysts are coming to understand that the next wave of deflationary pressure is now upon us.

Last week, we had further evidence from China that the world’s manufacturing hub is slowing rapidly. The Caixin Purchasing Managers Index, a gauge of Chinese manufacturing activity, fell to a 77-month low in August. It showed that China’s growth is nowhere near the 7% target, and that, in fact, China’s manufacturing base is contracting!

No wonder the Chinese have been quick to devalue the Yuan. Their exporters are being hit with slowing demand worldwide, and lower prices through currency devaluation is one of the few levers the Chinese can pull. As a result, the Chinese stock market is down a massive 35% from its peak, and has given back the entire speculative blow-off of the past 12 months. The current decline, after a similarly large speculative blow-off driven by retail buyers, has all of the characteristics of a bull market top. And ominously, the equity decline is signaling that the Chinese economic engine is in serious trouble.

 

China

Turning to Europe, as the fallout from a slowdown in the Chinese economy spreads across the globe, Germany’s stock market has suffered more than most. Germany joins China in being among the world’s largest manufacturing and exporting nations. And like the Chinese market, the DAX is telling us that demand is slowing. The DAX experienced its own blow-off, and has since retraced more than 20% from the peak, comfortably into bear market territory.

 

DAX

Declines in Chinese and German equities are evidence of weakening economies, and it’s no surprise that weaker manufacturing is putting pressure on global commodities prices, particularly oil, coal, iron, copper, and steel. The commodity price crash that began in 2014 was a signal that equity declines were on the way. In the short term, weak demand and lower prices for commodities is often considered bullish for stocks, since the cost of manufacturing is lower, but the longer term implications are decidedly more bearish.

What’s most important to other markets in the longer term is why commodity prices have fallen. In this case, commodity declines are due to weak underlying demand for raw materials. Such a situation can only be driven by weak demand for finished goods, and this calls into question the very foundations of the equity bull market.

One thing is certain: if the mining companies that produce the world’s raw materials are performing poorly, there is no way the world can be in a constructive, secular bull market Cycle. Mining companies rarely, if ever, perform poorly during the expansion period of a bull market. So, with mining companies down 50% from their highs, it appears that the business Cycle is turning lower and that world equity markets are about to begin to “efficiently” price that in.

 

8-22 Mining companiesSource:  WSJ.com

For the US equity markets, a 10% decline in just three sessions could almost be considered a crash; that significant a decline just doesn’t happen very often. It was the first ‘three day’, 10%+ decline in over four years (correction), and now the S&P appears to be close to a normal Daily (40 day) Cycle Low. The panicked dumping of equities is a sign that market participants are waking up to how unhealthy the market has become, and that it’s likely to decline further in the not-too-distant future.

 

Equities Daily S&P 500

In the short term, the bloodbath left the S&P 80 points below the lower Bollinger Band. The S&P will almost certainly bounce back this week – unless it continues to crash. Both are real possibilities. The current collapse has opened the door to a much larger correction, but that would be a process that would take time to unfold. Especially since the S&P is so far oversold in the short term.

The recent action has left the S&P at extreme levels when compared to its 50 day moving average, and other metrics are also many standard deviations below their normal levels. Plus, since the current Daily Cycle is on Day 35, the current sell-off is likely to form a Daily Cycle Low in the next few sessions, with price then reversing higher in a new Daily Cycle and recovering a large portion of this week’s declines.

 

8-22 S&P below moving averageSource: Bedspokeinvest.com

Along these lines, we’ll examine the VIX, a “fear gauge” that measures traders’ estimates for how volatile stocks will be over the next 30 days. Occasionally, futures contracts based on the VIX will drop below the VIX spot price, suggesting that traders expect volatility to fall soon. It’s rare for futures contracts that don’t expire for a number of months to have a lower-price than the near term futures, and when they do, it’s called backwardation. As per the below chart, whenever we have seen significant backwardation in the VIX, an Investor Cycle Low and a significant rally have occurred in equities.

 

8-22ViXSource: Sentimentrader.com

As I described earlier, if equities have reached the point of an actual Investor Cycle Low, we’re about to see a monster, face-ripping rally. But traders should keep in mind that the character of the equity market appears to have changed, so any rally might be short-lived. My favored Cycle count shows the current Investor Cycle is beginning week 7 but has already failed, so there is plenty of time for more downside.

This week’s collapse was a significant breach of support and, for the first time in 4 years, we have a negatively sloped 26 week moving average. The trend appears to have changed, and the current market action more resembles the 2011 collapse than it does the action since. The market has shown amazing resiliency during the past 4 years, and has given its fair share of head fakes. But, based on the Cycle count, I really doubt that’s what will happen this time. I believe that we’re likely headed into a severe, 12-16 week market correction.

 

Equities Weekly s&P 500

 

An Investor Cycle failure (such as happened Thursday) is a sign that the Yearly Cycle has topped. And with the market in the timing band for a Yearly Cycle Low – the last YCL was in October of 2014 – I believe that’s the path we’re on. Yearly Cycle declines occur rapidly and violently, and in the recent past have quickly given way to rallies that led to a new all-time high. This time, however, the Yearly Cycle decline is coming off of a very significant eight-month rounded topping pattern, and has very weak technical indicators and poor internal breadth. Because this Yearly Cycle much more closely resembles the correction of 2011 than the three previous bullish Cycles, I believe that the overdue market correction is already well underway.

 

Equities Monthly

 

No one can say whether the current bull market in equities is over, and I’m not prepared to make such a statement at this point. Especially with the FED actively engaged in the market and having demonstrated a willingness to sustain it at almost any cost. But that does not preclude the market from experiencing a correction; no external force is capable of preventing those. Students of market history know that it is never different this time when it comes to reversion to the mean.

At this point, the question becomes how deep the current correction will be and what policy response it will induce from the FED. The combination of slowing growth, debt deleveraging, disinflation, and equity market declines is likely to spur the world’s central banks to action. I expect them to launch another attempt to artificially sustain the economy, even though the outcome is likely to be only a bigger, more epic asset bubble.

 

 

The Financial Tap publishes two member reports per week, a weekly premium report and a midweek market update report. The reports cover the movements and trading opportunities of the Gold, S&P, Oil, $USD, US Bond’s, and Natural Gas Cycles. Along with these reports, members enjoy access to two different portfolios and trade alerts. Both portfolios trade on varying time-frames (from days, weeks, to months), there is a portfolio to suit all member preferences.

You’re just 1 minute away from profitable trades! please visit: https://thefinancialtap.com

 

Profit Taking Time

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If you followed recent posts, you would know I’ve been bullish on gold as it has turned higher within a new Investor Cycle.  Being long here has been great and that three day pause last week, to form a bull flag, has resulted in a quick $47 move.  So many people were expecting gold to break-down from that flag, which is partly why the rush to cover and/or buy-in was so aggressive.

Some caution is needed now, I noticed a lot of the typical retail crowd on social media getting in at these levels and I noticed options premiums explode.  Gold has become fairly overbought in the short-term and we’re also due a Daily Cycle Low soon enough.  Looking at the chart below, this three day move measures the same distance than the corresponding move of the bull flag pole, suggesting that we may have hit an upper limit…for the time being.

For the Investor Cycle holders (longer-term), don’t let the threat of a looming Daily Cycle Low scare you, hold your positions tight, this looks like an Investor Cycle that has potential to surprise many in the coming weeks.  The Dollar was down today too (as I expected), and gold acted as a hedge or risk-off asset this time, for a change. That divergence was positive news and it is great to see gold and the miners performing so well on such a negative day for stocks.

 

Gold Profit taking

 

Come ride the Gold Cycle with me.

 

The Financial Tap publishes two member reports per week, a weekly premium report and a midweek market update report. The reports cover the movements and trading opportunities of the Gold, S&P, Oil, $USD, US Bond’s, and Natural Gas Cycles. Along with these reports, members enjoy access to two different portfolios and trade alerts. Both portfolios trade on varying time-frames (from days, weeks, to months), there is a portfolio to suit all member preferences.

You’re just 1 minute away from profitable trades! please visit: https://thefinancialtap.com

Trade Idea – Bond Market Overextended

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The Bond market has been hot of late and is showing us a new bullish Weekly Cycle is already in play.  Several months of declines and consolidation, along with a more hawkish FED, have many believing that the great bond bull market is very much past its prime.  But I wouldn’t count the bond market out yet, not this late in the business Cycle. And in the shorter term, the current action is very bullish.

As a trade opportunity, this recent bullish move is very much extended. This rally is overbought and we’re seeing the technical indicators turn over here because the next Daily Cycle Low (Every 22-26 days) is well past its due date. As bonds formed a Swing High earlier in the week, the bond market has started its decline and should drop below the 10dma and break the rising trend-line. Watch for a fast 3 to 5 session move lower to setup the next Cycle Low.

 
Financial Tap Bond market trade idea $TLT

 

The Financial Tap publishes two member reports per week, a weekly premium report and a midweek market update report. The reports cover the movements and trading opportunities of the Gold, S&P, Oil, $USD, US Bond’s, and Natural Gas Cycles. Along with these reports, members enjoy access to two different portfolios and trade alerts. Both portfolios trade on varying time-frames (from days, weeks, to months), there is a portfolio to suit all member preferences.

You’re just 1 minute away from profitable trades! please visit: https://thefinancialtap.com