Monthly Archives: April 2016

Gold report

The breakout in miners has confirmed that the bear is over. Hopefully most of you have ignored the analysts that were calling for sub $1000 gold, or the ridiculous notion that this was somehow a natural bear market. Gold was manipulated into a bear market just like I’ve been saying for years. Now that the Fed needs commodity inflation the price suppression has come to an end and gold has been released to resume its natural trend. Also I hope most of you paid attention when I warned not to short a baby bull. The job of a baby bull is to cause shorts the most pain and longs that have missed the move the most anxiety.

Tonight’s report is a must read for anyone who is bullish on gold. I’m going to lay out what is happening, and give traders a strategy how to trade the gold bull for the rest of the year. This is going to be a very profitable year for commodities in general and especially the precious metals.

I’ll reopen the 25% off of a yearly subscription offer for the rest of the day.

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CURRENT COT ANALYSIS

I’m seeing some misinformation regarding the COT levels recently. Unfortunately some analysts find what they want to find in the COT reports to support their bias rather than what’s really there.

First off let me clear up the claim that volume is down. Folks volume always drops after a quadruple witching at quarters end. If one only looks at the data during the weeks right after quadruple witching then yes it will appear that open interest is in decline. The correct way to access volume is during the week of Quad witching.

Another error is in only looking at the large contracts. Nowadays most of the volume is in the emini’s and has been for several years.

The volume in the emini’s during Quad Witching is at roughly the same level it’s been at for the last 7 years. So let’s ignore the theory that volume is low. It’s just not true. Volume is roughly the same as its always been.

current cot analysis

Next I want to look at the NDX contracts as they have been the most reliable for short term timing for several years. Generally speaking traders don’t need to get too nervous until the net commercial position reaches minus 7-9 billion. You can see in the next graph that at minus 2 billion we still have a ways to go yet before we want to start anticipating an intermediate top.

ndx

And finally a look at the combined contracts (Dow, SPX, NDX & Russell). The current level is still quite bullish at plus 14 billion. As a matter of fact never in history has an intermediate cycle topped with the commercial traders this bullish. So you probably aren’t going to be doing yourself any favors by following the perma bears call that the market is topping. Short term top… maybe. Intermediate top…very unlikely.

combined contracts

And finally the concept that complacency is at levels equivalent to the top in 2007 is just ludicrous. At the top in 2007 the ROBO ratio (a measure of call and put buying by the most clueless retail traders) was in the cellar at 34%. Retail traders were buying calls hand over fist.

The simple truth is that 2008-09 was a once in a lifetime shock to traders mentality. It has changed the way most people view the markets. For many people it has knocked them out of the market for the rest of their lives. The same massive reversal in investor sentiment occurred during the Great Depression.

Compare the ROBO ratio pre 2007 to what has occurred since and you can see that the retail traders have never recovered their former confidence in the stock market. Now compare the retail confidence at the top in 2007 to the recent top in 2015. Folks there is no comparison. Even after a 7 year bull market retail traders still haven’t been able to shake off the memory of 2009.

robo

Source: sentimentrader.com (as I’ve said many times, any serious trader must have a subscription to sentimentrader).

So it’s understandable that many analysts, with the memory of 2008 still fresh in their heads, continue to anticipate the next crash. They see what they want to see to confirm their bias. The simple fact is that 2009 was a once in a generation event. It’s not going to happen again, and especially not 7 years after the last one. Central banks learned they could print trillions of dollars and reflate markets. And as long as everyone was printing at the same time no one’s currency collapsed. The longer you live in the past, or pay attention to the analysts who do, the less likely you are to make money.

The risk isn’t that we are going to have another crash. The risk is that central banks will create another series of bubbles with global QE and negative interest rates.

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DOLLAR PANIC NEXT WEEK?

A dollar panic next week is a possibility.

The intermediate and daily dollar cycle are both getting very long in the tooth. I expect both will bottom next week. Remember a couple months ago when everyone was expecting a rally to 100-120?

The upcoming rally in the dollar will not make new highs and I’m pretty confident the cyclical bull market in the dollar is over.

If the October support around 94 breaks, we should get a final bloodbath phase to turn everyone bearish and setup the next multi-week rally.

dollar panic

A panic in the currency market (should) be the opportunity for stocks to finish the drop into its daily cycle low. This, in turn, would clear the overbought conditions and bullish sentiment and set up the next leg of the rally to test the all-time highs.

Again, I’m going to advice against shorting the market. There is no guarantee the PPT won’t step in next week and prevent the rest of the drop into the daily cycle low (DCL).

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OIL IS GOING HIGHER: THE USUAL CROP OF ANALYSTS MISS AGAIN

Oil is going higher. All the fundamental and technical analysts calling for lower oil got it wrong again at the cycle bottom. This has become almost like clockwork. As soon as they start pulling out “the fundamentals” you know it’s time for the cycle to bottom.

Oil is going higher

During this second daily cycle oil will break through the 200 DMA and I expect we will at least see price above the October highs before this intermediate cycle tops. And, with oil resuming its rally, there probably isn’t going to be much further downside to the stock market daily cycle low (DCL).

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STOCKS DAILY CYCLE LOW IMPENDING: REMEMBER THE TIME TO BUY IS WHEN YOU’RE SCARED

Stocks daily cycle low is impending.

We’ve got enough of a decline at this point that I can say with conviction the markets are moving down into their daily cycle low. The runaway scenario is still on the table as long as the SPX doesn’t drop below 2015 before bottoming.

But make no mistake, this is only a profit taking event to cool off sentiment.

Remember, the time to buy is when you are scared. We are going to get a great buying opportunity any day now. Once the daily cycle low (DCL) is complete, the second daily cycle will test the all-time highs.

stocks daily cycle low

One or two days more down days and the RSI (5) will reach oversold.

As long as the correction isn’t larger that 60 points, the runaway scenario is still on the table.

Either way though, once the daily cycle low (DCL) is done, the market is going to test the all-time highs before the intermediate cycle tops.

The McClellan oscillator is getting to levels that should force the DCL and turn the market back up. One or two more down days should do the trick.

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BABY BULL ROUND II – BIOTECH

Baby Bull Round Two – Biotech

Here we go again. Remember when I warned traders not to short the baby bull in miners and exhorted them to not lose their position because surprises would come to the upside? Needless to say, many ignored that advice and they cost themselves dearly.

Now we have a second baby bull just getting started in Biotech. It still has a long ways to go. Yet I’m seeing some traders making the same mistakes again.

baby bull 1

The size of the bottoming pattern and the massive volume in LABU is screaming that a big BIG move is coming. Don’t make the same mistake again that you made with miners. Get in and sit tight. This rally will last at least 2 months before it needs to take a break.

baby bull 2

Today was the recognition day where the market realized the breakout is for real. We don’t need to look for an intermediate top until the weekly stochastics reach overbought. This rally is just getting started.

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STOCK MARKET CYCLE LOW IS NEARING

market cycle low

The stock market cycle low is nearing.

The market is already close to oversold levels capable of forming the cycle low. If the S&P doesn’t drop more than 60 points before bottoming then the runaway move will be confirmed.

One or two more down days and the RSI (5) will reach oversold levels.

The McClellen oscillator is already at oversold levels capable of forming a daily cycle low.

And, oil may have completed its cycle low today. When oil starts back up that will be a positive for the stock market.

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