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

 

---

 

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 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.

 

 

---

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.

 

 

 

 

 

 

 

 

 

 

 

#