Dis-Inflation Still Has The Upper Hand In Most Markets (DIA, SLV, GLD, USO)
Larry Edelson: Two weeks ago I told you that August would see dramatic trending moves, and that we wouldn’t have to wait long for them to unfold.
Well, they’re here NOW. Nearly all markets are pressing extreme resistance levels in what most traders and investors believe are breakouts.
They see a surge in gold, and think it’s going to march to new record highs well-above $2,000 an ounce.
They see a modest rally in silver, and think they should load up the truck, expecting silver to surge to $50 and higher.
They see a rally in oil, and figure that all must be well with the global economy and that higher energy prices are a fait accompli.
They see grain prices surging, and figure rampant inflation will soon hit food prices. GET A FREE TREND ANALYSIS FOR ANY STOCK HERE!
And they see the Dow Industrials hanging in there nicely above the 13,000 level — and expect a new bull market in stocks.
Mind you, ALL of the above WILL happen.
- Gold (NYSEARCA:GLD) will soar to at least $5,000 an ounce.
- Silver (NYSEARCA:SLV) to well over $100 an ounce.
- Oil (NYSEARCA:USO) to new record highs near $200 a barrel.
- Inflation surging.
- And the Dow Industrials (NYSEARCA:DIA) will soar in a new bull market, to at least 21,000, if not much higher.
But none of that is in the cards for right now. It’s not time. The moves I mention above WILL happen, but not for at least another six months, give or take.
Instead, nearly all markets will soon turn back down, taking with them the most-optimistic of investors precisely at the wrong time.
You see, all markets have one underlying rule that always seems to govern their broad behavior: At market extremes, inflict the most amount of damage upon the most investors. Take them to the woodshed and spit them out like sawdust; then go find another group of investors and start the shredding process all over again.
Don’t get me wrong. That doesn’t mean you can’t make money in the markets. It does, however, mean that you must always keep your guard up … and more importantly, know when to be a trend-follower versus a contrarian.
And right now, it is my humble, 34 years of experience that’s telling me it’s time to be a contrarian.
Not just my gut, but also all of my technical and cyclical indicators.
For one thing, though gold seems to be pressing higher and could move even higher in the short term — as I recently pointed out — gold would have to close above $1,727.70 to prove me wrong and turn the short- and intermediate-term trends back to bullish.
I see very little chance of that happening and, instead, I sense that gold is about to inflict a lot of damage on the majority of investors and stage a stunning collapse.
Silver is about to do the same. While it could press a bit higher, silver would have to close above $30.71 to reverse the short- and intermediate-term trends. Short of that, silver will pummel a lot of the investors who are now venturing in to buy “the devil’s metal.”
Oil, too, is about to hurt a lot of investors and traders. While it’s managed to rally to the $94 level, it also is on the verge of turning back down — taking with it all those investors who think energy prices have nowhere to go right now but up.
Grain prices are topping as well. So is inflation in the short term.
And the Dow Industrials — though clearly showing their propensity to begin a new bull market — are getting very toppy.
Momentum indicators are slowing. The number of advancing stocks versus those declining is beginning to wane quite dramatically. And the Dow Transports have thus far entirely refused to confirm the rally in the Dow and the S&P 500, creating a hugely BEARISH non-confirmation.
I would love to tell you that new bull markets are here in all of the above, but they’re not. Each and every one of the above markets needs more time to form the foundation for their next bull legs higher.
They need to back-and-fill support areas on their charts. And most importantly, they need to take the majority of investors out to the woodshed for a shredding. Then, and only then, will they have a chance to begin anew.
Ironic, but once those declines occur, you’ll find almost everyone will become a giant bear. Precisely near the bottom of the corrections.
Nearly everyone but me. Because when that happens …
When you see gold fall below at $1,500 …
When you silver fall at least below $23 …
When you see oil plummet like there’s no tomorrow …
And you see the Dow Industrials melting in a 2008-style plunge …
I’ll be backing up the truck and telling you to buy almost everything with both hands.
What are the chances I’m completely wrong in my analysis? I’d rate them as very low, say around 10%.
And if it turns out I am wrong, I don’t have a problem with it. With gold ultimately heading to over $5,000 … silver to over $100 … oil to near $200 … and the Dow Industrials to at least 21,000 …
There will be plenty of money to be made. GET A FREE TREND ANALYSIS FOR ANY STOCK HERE!
Bottom line: For now, dis-inflation still has the upper hand in most markets. There’s still too much bad debt in the world that hasn’t been dealt with.
And the Federal Reserve and the European Central Bank will NOT act until the pain is too much to bear. That pain is on the horizon, so in the interim, just make sure you’re out of harm’s way.
I repeat my advice of two weeks ago:
If you’re an investor with an eye to the long term, continue to preserve your ammo and hedge the positions that, for whatever reason, you can’t get out of. The time will come to add to your long positions — but it’s not here yet.
If you’re a short-term trader, don’t be frustrated by the recent choppy markets, or any short-term losses you may have experienced. Stay the course.
Uncommon Wisdom (UWD) is published by Weiss Research, Inc. and written by Sean Brodrick, Larry Edelson, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in UWD, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in UWD are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Selene Ceballo, Amber Dakar, Roberto McGrath, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Marty Sleva, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.
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