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 1st 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
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
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.
$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 2nd Daily Cycle that we saw in its 1st. 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.
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.
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.
The Financial Tap – Premium
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.
NOTE: It’s just $99 for a full 3 months of membership, a fraction of what one stopped out trade is likely to cost you. Consider joining The Financial Tap and receive two reports per week and the education you need to become a better trader or investor See >> SIGN UP PAGE!
Bob.
#
Midweek Update – June 6th
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Golden Fireworks
/in Public /by Bob LoukasThe Financial Tap – Premium
NOTE: For the first time ever The Financial Tap offers a Full 14 day, no risk, money back Trial on our premium reports. It’s just $99 thereafter for a full 3 months of membership, a fraction of what one stopped out trade is likely to cost you. Consider joining The Financial Tap and receive two reports per week and the education you need to become a better trader or investor See >> SIGN UP PAGE!
Golden Fireworks
This is a follow up post to last month’s blog post – Gold is Ready to Perform and is an excerpt of the weekly premium report.
Gold surged on the Brexit vote a week ago, then then spent the early part of this week consolidating the gains. The net gain since the Brexit vote has been impressive, but Gold has still not regained the intraday high from the day after the Brexit vote. Since spiking to 1362 the morning after the vote, Gold has been filling and confirming the Brexit surge.
The initial spike after the Brexit vote was clearly an over-reaction, but the bullish action since has confirmed that the move higher is real. With Gold now approaching the Brexit intraday high, I believe that we should see another 2-5 day rally before the Daily Cycle peaks and turns lower. At this stage of the Cycle, any Swing High will likely mark the DC top.
At the end of 2015, the precious metals Miners were undervalued in relation to Gold by a historical amount, and the January-May Gold Investor Cycle (IC) allowed them to play catch-up. I have shown the Gold:Miners ratio chart numerous times in the past to illustrate how Miners typically catch the first real bid during bear market turns. And that’s what happened during the 1st IC. Now, the other precious metals can make their own runs.
Silver has taken off as only Silver can. It has already become significantly overbought, but the current move is showing no sign of stopping, and could become epic. It’s important that we recognize the move for what it is, maintain our composure and hold through the dips where appropriate. Silver is still trading at a historically massive discount to Gold, but it doesn’t need to catch up all at once. There is plenty of time for it to do so in coming Cycles.
Platinum and Palladium were also big winners this week. They have been underpriced (relative to Gold) and both saw broad-based buying. And as the end of the bear market has become clearer to investors, the entire precious metals sector has received an increasing flood of money.
The Miners are seeing buying across the board, and even the laggards and lessor quality names have begun to see bids. And that’s fine. Increasing participation confirms the bull market and tells us that we’re still very likely only in its early innings.
Recent history has not seen the precious metals Miners bullish percentage index ($BPGDM) pegged at 100, and the fact that it is now is a clear sign that we’re comfortably into the bull market’s next phase. It’s also, however, a warning that we’re likely beginning to approach the next DC top.
There is not much room for alternative analysis. The entire Gold sector is in the prime portion of the Cycle, and speculators have begun to lift the market higher. We’ve prepared for this outcome, and must be aware that short term, violent, counter-trend hits are possible at any time, as over-leveraged speculators bail on positions. Each of us needs to avoid being chased out of positions by making sure they are correctly sized, and that leverage is appropriate.
As predicted when the DC started (some $100 ago), we are likely to have another 6-10 weeks higher in the current Investor Cycle. My minimum target is $1,420, but my expectation is that the IC will top somewhere between $1,450 and $1,480. Be smart about your entries and exits – it is best to buy during dips and sell some during rips, as opposed to becoming excited during surges and adding leverage at the end of intraday moves. Most investors will be best served by not watching the tape too closely and by being content with the positions they have.
The Financial Tap – Premium
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.
NOTE: For the first time ever The Financial Tap offers you a Full 14 day, no risk, money back Trial. It’s just $99 thereafter for a full 3 months of membership, a fraction of what one stopped out trade is likely to cost you. Consider joining The Financial Tap and receive two reports per week and the education you need to become a better trader or investor See >> SIGN UP PAGE!
Bob.
The Fireworks have started
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Midweek Cycles Update – June 29th
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The Cracks Appear
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S&P 500 – Will They Buy the Dip
/in Public /by Bob LoukasWill They Buy the Dip
Below is an excerpt from the past 06/18/16 weekend’s premium member report. If you would you like to see the full premium report, please sign up using the email form at the end of this post. During the past few years, we’ve seen plenty of sharp sell-offs in equities that have reversed (Buy the Dip) to make new highs, but this time the sell-off feels different. I sense that the market’s character has changed on multiple time-frames. 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.
Last 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 and 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 (IC) 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. I expect that traders this tile will not Buy the Dip, and the next big Weekly Cycle decline over the summer will begin.
In summary: perceived risk for equities should continue to rise, volatility should increase, and a summer selloff should begin shortly. This should become one of those instance where they will not Buy the Dip.
The Financial Tap – Premium
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.
NOTE: It’s just $99 for a full 3 months of membership, a fraction of what one stopped out trade is likely to cost you. Consider joining The Financial Tap and receive two reports per week and the education you need to become a better trader or investor See >> SIGN UP PAGE!
Bob.
##
Midweek Cycle’s Update – June 22nd
/in Premium /by Bob LoukasYou don’t have access to view this content
Forgot to Buy the Dip – (FREE)
/in Free /by Bob LoukasPremium Report published on June 19th, 2016
Gold Cycle
Cycle Counts
Cycle Position
Cycle Clarity
Supporting Indicators
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 1st 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
Equities (S&P500)
Cycle Counts
Cycle Position
Cycle Clarity
Supporting Indicators
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
CRUDE OIL
Cycle Counts
Cycle Position
Cycle Clarity
Supporting Indicators
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.
$US DOLLAR
Cycle Counts
Cycle Position
Cycle Clarity
Supporting Indicators
We’re not seeing the same strength in the Dollar’s 2nd Daily Cycle that we saw in its 1st. 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.
U.S Bonds
Cycle Counts
Cycle Position
Cycle Clarity
Supporting Indicators
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.
Natural Gas
Cycle Counts
Cycle Position
Cycle Clarity
Supporting Indicators
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.
The Financial Tap – Premium
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Bob.
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Forgot to Buy the Dip
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Midweek Cycles Update – June 15th
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