Welcome to the September edition of the exclusive, members-only bulletin from The Edelson Institute!
In this expanded issue, I’ll walk you through our E-Wave cycle forecasts for several key markets including: Gold, silver, mining stocks, oil, natural gas, stocks and the dollar. Seven markets in all, with several experiencing key shifts in trend right now, so let’s dive right in.
First, the good news: As you can see in the long-term chart (below), gold has decisively broken the long-term downtrend that had been in place for nearly five long years. A new bull market is now underway, and just getting started.
The active December gold futures contract traded as high as $1,354 an ounce (on a daily closing basis). And that fulfills my initial targeted projection of $1,340-$1,350. So that’s near-term resistance.
Even more important resistance lies at $1,366. This has been a key level I’ve been watching closely all year. A month-end close in gold above this pivot point would be bullish, signaling a possible upside extension as high as $1,700 for gold, perhaps fueled by rising geopolitical tensions. BUT, I give this scenario a low probability.
Now the bad news: The weight of evidence suggests a temporary correction for the precious metals, and that’s exactly what the cycle forecast (below) points to.
That downturn has likely started already, and is forecast to continue through October. In fact, every cycle for every metal we track is pointing to a near-term correction ahead. Not a big one, mind you – but large enough to warrant caution and patience over the next month or so.
And that’s only natural; the normal ebb and flow of markets. After all, gold enjoyed a nice run in July and August, up nearly 10%.
Markets often come back to test their breakout point before the uptrend resumes. Key support for gold now lies in the $1,280 to $1,300 zone. This served as resistance on the way up, with gold hitting it several times before breaking through on the upside.
Now it’s import we see this level serve as key support on the pullback. Otherwise a steeper correction is possible. But the deeper the correction is now, the better the buying opportunity will be later. So please be patient.
The E-Wave cycle forecast for silver (below) looks nearly identical to gold.
As you can see, a pullback is already underway, and likely to continue into November, before the trend turns higher again. And remember why silver is called “the devil’s metal” because it’s way more volatile than gold. That’s why the correction in silver is likely to be steeper.
Looking at my charts, first resistance in silver lies at $18.30 an ounce. If silver can punch through that level, it will run into even stiffer resistance from $18.50-$19 per ounce. First support is already being tested at $16.90-$17 an ounce. Being more volatile, don’t be surprised if silver slips as low as $16 before the pullback is over.
Same as for gold and silver, the E-Wave cycle forecast for both junior and senior mining stocks (below) calls for a correction into late October, perhaps early November.
That’s precisely why I recommended you add Direxion Daily Gold Miners Index Bear 3X Shares (DUST) to your portfolio. DUST will not only serve as a great hedge for your core mining stock holdings, but it’s also a great way to profit directly from this correction, rather than just sitting idle.
Here’s the bigger picture: This pullback is ultimately great news, because it hands us a wonderful buying opportunity to add to our holdings on the cheap.
I’m watching a few dozen select mining stocks, plus a handful of ETFs that track physical gold, silver and other metals. Rest assured, after this correction runs its course, a more powerful rally will blast precious metals off to the upside again. Ditto for mining shares. So, wait patiently for my buy signals.
Oil & Natural Gas:
Meanwhile, “black gold” is surging higher just as our E-wave cycle forecast predicted. Ditto of natural gas. And that’s great news for the energy positions in your portfolio: US Oil Fund (USO), ProShares Ultra Bloomberg Natural Gas ETF (BOIL) and ProShares Ultra Oil & Gas ETF (DIG).
Crude oil is up nearly 15% off the July low, and recently the IEA boosted its 2017 crude oil demand estimate to 1.6 million bpd, a 2-year high, which is lending fundamental support to the rally.
As you can see above, there is an E-Wave cycle high date forecast for early October. Oil should continue to move higher until then. Technically, crude has broken out of a long downtrend, so the rally could extend higher and last a bit longer than forecast.
Strength in oil is being confirmed by natural gas; a bullish sign.
As you can see below, the E-Wave cycle forecast for natural gas is quite similar to oil, calling for new highs ahead.
Notice how the blue forecast line turned higher in late July. That was a few weeks before the actual bottom in natural gas. So it’s possible the rally could likewise extend further than expected, perhaps into October, similar to crude oil.
Dow Jones Industrial Average:
The cycle forecast for stocks has called for a decline the past several months, which simply hasn’t materialized. But the September-October period has been known to be hazardous to your wealth, and marked by rising volatility. So it is safe to say we’re not out of the woods just yet.
The cycle forecast for the Dow shown above still calls for a decline in early October, followed by a rally. In other words, choppy price action. The forecast for the Nasdaq 100 Index (not shown), is worse. Tech stocks have led the stock market rally all year, but the cycles now indicate a steep decline for Nasdaq into year-end.
While this forecast has yet to pan out, there’s no question stocks are overbought in the extreme. In fact, it’s been nearly 600 days since stocks last experienced a 10%+ correction, all the way back in February 2016.
Historically, you can expect a 10% correction about once or twice per year, but it’s been almost two years now without one. To say we’re overdue is to put it mildly.
That’s why you should continue to hold ProShares UltraShort Dow30 ETF (DXD) and ProShares Ultra Short S&P500 ETF (SDS) for the time being, and watch for my next update.
The dollar continues to languish. But beneath the surface, momentum is building for an upside move. The reason why the rally hasn’t started already, as forecasted, is most likely due to a temporary reversal of capital flows.
After several years of persistent inflows to U.S. markets, global money flow reversed mid-year in favor of Europe and Emerging Markets.
In fact, U.S. stock funds experienced 11 straight weeks of outflows, with a net $30 billion leaving our markets since June. Meanwhile, European funds have enjoyed inflows over $30 billion so far this year.
As you can see above, our models still expect a turn higher in the buck, it’s just taking longer than initially forecast, due to money flowing out of the U.S. temporarily, and into the EU.
However, the dollar downtrend may be reversing already: U.S. stock funds saw $300 million of inflows the week before last, the first positive flows in nearly three months, so the tide may finally be turning in favor of the buck.
Plus, Europe is facing several market-moving events dead ahead: German elections this month, Italian elections early next year, and possibly sooner. Plus, the ECB is following the Fed’s lead and talking about tapering its bond purchases. Any one, or a combination, of these events could trigger renewed chaos in EU markets.
The recent optimism about Europe, and money flows into the region, are misguided. I expect that sentiment to soon shift, and you are positioned to profit from it with ProShares Ultra Short Euro ETF (EUO).
Bottom line: Continue to ride the uptrend in energy markets, as the cycle forecast indicates more profit potential ahead. Meanwhile, we need to be patient and wait out the temporary correction in precious metals, for a much better buying opportunity just around the corner. Finally, remain bullish on the dollar, dand bearish on the euro, Treasury bonds and stocks. Hold all open positions and stay tuned for more updates on the markets. Plus, keep watch for new trade alerts, which could come your way at any time as markets turn volatile.
And please be sure to mark your calendar for our next members-only Edelson Institute Executive Briefing and Q&A to be held Friday, September 29. No RSVP is required, but be sure to save the date. You’ll receive a special link to view this presentation by noon on the day of the event. Plus, send me your questions and comments now via the Edelson Institute Editor’s Mailbag.
Mike Burnick Executive Director
The Edelson Institute