This week’s bounce in the markets had everybody excited and exuberant. Was the bottom finally in?
Of course, the FOMC meeting was this week and just like all sheep on Wall Street, the markets pre-statement reaction was a hopeful kneejerk to the upside, only to be crushed by the Fed Speak on Wednesday.
As this market crashes, we will continue to see short term bounces and just like this week, volatility will increase and we will continue to have investors believing that the worst is over and things will turn around soon.
A bear market is defined by a 20% contraction from its highest point. 50% of the S&P stocks are below that 20% mark and all of the global stock indexes are already in a bear market.
There is no stopping it. We are already at the point of no return. People just don’t know it yet.
I know most investors are not economists or financial analysts. In fact, most stock brokers and fund managers, who so many rely on to keep their capital safe, have no concept of what’s driving our economy. Heck, most don’t even know how to read or even bother to read a chart.
Believe me, I know plenty and I know what they don’t know. Most are just pawns in the company workforce that repeat the mantra their company wants them to repeat. ‘Don’t Panic, things are just fine.’
Many investors still think the FED is still in control. You hear, ‘I’m not worried, the government will never let it happen.’ Too many of our population rely on the government to fix everything and most have no idea that our government is bankrupt.
The truth will come out someday soon, but the losers will not be the politicians or the Wall Street bankers. No the losers will be the innocent, but ignorant masses as they lose their pensions, social security, food stamps, Medicare, and welfare checks plus any savings they might still have after the bail-ins take place.
May the force be with them!
Timing Your Trade
How do you know when is the right time to get into a trade?
There are many indicators to help you make that decision, but my favorite tools are the MACD, Slow Stochastic oscillator and trend line breaks.
Let me explain.
I’m more of a long term swing trader than a short term day trader, but these trading tools work in both scenarios.
Let’s look at a typical chart set-up. Below is a daily chart of Gold. When using the Slow Stochastic oscillator, you want to wait until the stochastic oscillator breaks 20 to the upside, if going long. If going short, you want the stochastic to break 80 to the downside.
The chart above shows that the stochastic broke 20 (in the blue circles) and is now headed to the upside. The break of the down trend line is final confirmation of an uptrend. Once price crosses the downtrend line, that would typically be an entry point for conservative traders looking for a longer term swing trade. I personally prefer to enter at the break of 20 on the Slow Stochastic Oscillator with a hard stop just below my entry point.
In this chart, you will also note that the Stochastic is reaching the 80 mark, and price is almost to the 200 DMA. This is an indication that we are approaching resistance and a short term retrace would be expected.
The stochastic could go, and typically does go above the 80 mark, but this is a point in which you might want to place a trailing stop, as it could change direction at any time.
If you are a day trader, I also use the stochastic oscillator to determine entry points, but I use very short, 1 or 2 minute chart intervals in combination with the Fibonacci retracement tool.
I will discuss short term day trades in next week’s report. Until then…
Let’s talk about the COMEX for a second. Did you see what happened this week? Over 73% of the available registered gold in the COMEX was delivered, leaving only a paltry 2 metric tons of gold in the registered vaults. This has never happened in the history of the COMEX.
This is a major development and increases the likelihood of a COMEX default soon. There is virtually no more gold left to trade on the COMEX, only paper. The next delivery date for the COMEX could be the date the COMEX defaults, creating a run on physical gold and causing the price to skyrocket.
The COMEX new ratio of paper to physical ounces is now a whopping 542 paper ounces for every 1 physical ounce available for delivery.
The SGE (Shanghai Gold Exchange) fix goes on-line in April, but based on this new information, I don’t think the COMEX can hold out that long.
So what does this mean for the price of gold? We could see gold skyrocket on or before the SGE fix goes online within the next 60-90 days.
If you’re holding long term contracts as suggested, you should be in a great position to benefit from the run up in gold that is definitely coming this year.
Stock Market Indices: (SPY) (QQQ)
The Stock market is trading sideways at the moment with a slight uptick creating a bear flag pattern. I expect this to break to the downside as soon as next week for a continuation of the bear.
Energy Stocks: (XLE) (UNG) (USO) (LNG)
Although we’ve had a good bounce in oil this week, oil has not closed above the nearest downtrend line to confirm a reversal and even if it had broken the first downtrend line in blue, it still needs to cross the red downtrend line to break the bear market pattern.
Based upon the latest rhetoric from Saudi Arabia and Russia, it doesn’t look like their position on cutting production is going to change anytime soon. As I mentioned last week, mid-February is the seasonal timing for an upswing, so let’s keep an eye on oil over the next couple of weeks. If we have a break of the downtrend, that might signal an entry for a short term swing trade to the upside.
Financial Stocks: (XLF) (IYF)
Exact mirror image of the S&P.
Commodities: (FCX) (JJG) (DBA)
Nothing new here. Commodities are so hated and oversold right now you would think now would be the perfect time to get in, but I think more pain is on the horizon as the global economies continue to fall. China is one of the largest consumers of commodities and with their economy faltering, expect the commodity markets to continue to trend down from here.
US Treasury Bonds: (TLT)
I think investors will move from a failing stock market to safety, which will temporarily be treasuries and for the longer term, precious metals.
(SLW) January 2017 CALLS 13 Strike
(GDX) January 2017 CALLS 15 Strike
(ABX) January 2017 CALLS 10 Strike
(RGLD) July 2016 CALLS ATM
(SPY) December 2016 PUTS 190 Strike
(IYF) August 2016 PUTS 84 Strike
Social Security Trust Fund loses money for the first time since 1983…
Social Security funds are drying up…will there be any money left when you retire?