The breakdown in the popular averages kicked into high-gear this week. Investors were jolted with a three percent decline today – three percent declines, by the way, don’t occur in bull markets – they occur in bear markets. And what we have witnessed is the kickoff move to the downside in a bear market that is likely to carry into the first quarter of 2017.
My cyclical analysis of the pattern still points to the September 01, 2015 time period for the next important pivotal low. I have a number of cycles and fib relationships that cluster in-and-around that date. What I am expecting is a “low” from which I anticipate a fairly violent relief rally predicated on “buying the dip in the much needed correction.” But this is no “correction...it’s a bear market. My sense is that the S&P will get down into the vicinity of the October 2014 lows – that would equate to a roughly 10% decline off the May high. I put a circle at the 1875ish area which is about what I would expect. But I would focus more on the time rather than price – Ms. market will deliver whatever she delivers…
Bear markets take no prisoners. There is no salvation in “diversification.” That term is total hogwash, and unfortunately, we hear it all the time. The best profit opportunities remain on the short side of equities. However, I would urge restraint in adding to short positions at this juncture. My plan is to start covering shorts towards the end of next week – with an eye towards exploiting a two-three week violent pop into mid-September.
Bond prices continue to grind higher having handily surpassed the Fibonacci 61.8% retracement level. I was anticipating a bit of a stall-out in the move higher in that area but price has never-the-less continued northbound. Interesting divergence developing with TLT. Bond prices are relatively stronger than the ETF. A continued push upward will likely see resistance in the 130-131 area for TLT – coincidental with a challenge of the April highs in the bonds.
I had envisioned gold falling to 1,000 before any meaningful push higher. But $1,000 gold prices in the immediate future may have to wait a spell. In the latest rebound Comex gold prices have marginally pushed above the all-important 1,125 price octave. I look for a pullback to at least tag that level before resuming more of a sideways structure.
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