Gold, marching to one new record high after another, but swinging nearly $100 a day from high to low. Silver swinging a dollar or more, as much as 5% in a single trading day.
The bond market, exploding higher, then dropping nearly three full points, or almost $3,000 in value in a single day. That’s more than 2%, which is huge for bonds.
One day, Europe is melting down, the next day the United States is reeling.
Quite frankly, in my 33 years in the markets, I have never seen such wild market moves!
So this week, I want to update you on the action and what I’m seeing. To do so, I will also reference some of the tables I published in last week’s column.
I’ll start with the Dow Industrials. As you can see from the table to the right, republished from last week, the Dow has already plunged through the first four support levels.
As I pen this column, the low stands at 10,604, just 37 points above the 10,567 support level.
This is VERY significant. Unless the Dow can get back above 11,542 in short order, it means that four important sell signals have been hit and confirmed.
Next comes the critical 10,567 level. A closing below 10,567 followed by a close below 10,386 (not shown in table) will indicate that the Dow is going to head to the 9,034 level.
I do indeed expect that to happen. The market may thrash a bit more before taking another leg down, but I want you to be fully prepared for it. More on that in a minute. Next …
The S&P 500: It, too, has plunged through critical support levels. Here is the table I published last week.
As I pen this issue, the S&P 500 is trading at 1162. It has cleaned out support levels at 1279 and 1241, and is now trading below a weekly support level at 1173.
If the S&P 500 closes below 1173 on a Friday (which it may have done by the time you read this column, since I write it the Thursday prior to publication) — then I fully expect a plunge to the 993 level.
The Nasdaq, meanwhile, has also taken it on the chin, though it’s relatively stronger than the other two indices. Here is the table I published last week.
The Nasdaq plunged as low as 2331 — a mere 14 points above the third support level you see in that table.
However, by closing below 2567 and 2459 — the Nasdaq has hit two important sell signals on my system, strongly suggesting lower prices ahead, probably heading toward the 2053 support area, another 10%-15% lower.
IMPORTANT: In my June 20 column I suggested you consider purchasing the ProShares Short S&P 500 Fund (NYSE:SH) … or if you wanted to be more aggressive, the 300% leveraged inverse ETFs such as the …
• ProShares UltraPro Short Dow 30 ETF (NYSE:SDOW)
• ProShares UltraPro Short NASDAQ 100 ETF (NASDAQ:SQQQ)
• ProShares UltraPro Short Russell 2000 ETF (NYSE:SRTY), and …
• ProShares UltraPro Short SP 500 Index Fund (NYSE:SPXU)
Since the markets are moving so quickly and wildly, if you purchased any of those investments to take advantage of the downside in these markets, here’s what I suggest you do:
Hold. But …
A. Exit those positions if the Dow Industrials closes above 11,542 at any time. Or …
B. Grab your profits if the Dow hits 9,100 at any time.
That gives you some nice parameters to monitor if you purchased those positions. If you did not, then stand aside; the markets are too volatile to enter new positions at this time.
Now, to GOLD and SILVER …
My views have not changed: Gold (NYSE:GLD) and silver (NYSE:SLV), indeed most commodities, remain in very strong long-term bull markets.
But in the short term, they are at risk of sudden and sharp pullbacks.
With the exception of gold, we have already started to see that. Copper has been hit hard. Ditto for other base metals. And agricultural commodities are also starting to roll over.
Meanwhile, gold is virtually the only tangible asset that has zoomed to new record highs and for good reason. But even here, I believe gold is rolling over and will soon stage a sharp setback.
So I repeat my recommendation: If you are long gold and/or gold miners — from much lower levels and for the long term — hold your positions!
But if you do not own gold or gold-related investments, I would not buy now.
Instead, as hard as it may be, I strongly suggest being patient and waiting for the next decent pullback before adding any new positions in the gold market. I will try to keep you abreast in this column, and I will alert you when I think it is safe to consider adding or buying new positions.
For now, note that …
Silver’s inability to make new highs is bearish for gold.
Margin requirements for gold futures trading have been raised, which is also bearish in the short term for gold.
Gold is overbought short term and likely to suffer a pullback, which can come at any time.
Keep your eyes on the support levels in gold, which I have republished in this table here.
Silver, meanwhile, is not acting well.
It has failed miserably at the $42.25 resistance level and now threatens to give me a weekly sell signal by closing below the $38.86 level.
If silver closes below $38.86 on a Friday (which may have happened by the time you get this column) — silver will be in a position to collapse all the way down to the $30.54 level.
So I repeat my warnings: Do not touch silver with a 10-foot pole — except from the short side, if you have the financial wherewithal and risk-reducing discipline to sell short silver.
Be patient, I assure you there will be a very good opportunity to buy silver, but not until it gets back to the $30 level.
Next, oil: Oil has done exactly what I expected it to, crashing from over $100 a barrel to as low as $75.71 on August 9. It has since bounced back to the mid-$80 level.
Oil’s move down is not over. I expect to see oil retest the $75 level and possibly move as low as $63.
I suggested considering investments such as the ProShares UltraShort Oil & Gas (NYSE:DUG) or the PowerShares DB Crude Oil Double Short ETN (NYSE:DTO) in my previous columns. If you purchased them, hold. Look to take profits at the $65 level.
Now, to a few of the most important questions I’m receiving …
Q: Larry, I know you’re bearish on the U.S. dollar and the euro. My question is, how can two of the world’s most important currencies go down in flames at the same time?
A: At times, they will play off each other. The dollar may rally against the euro for short periods of time, then it may decline against the euro, and vice versa. But either way, keep in mind there has NEVER been a fiat currency that has stood the test of time.
The European Union (EU) has many of the same problems the United States has: Huge debts going bad, social safety nets (promises) that cannot be fulfilled, and more. What’s more, the euro was designed with fatal flaws from the outset …
The EU is not a fiscal union. When it was formed and additional countries were added along the way, no one cared to consider that each country retained its sovereign debts.
Nor that, as a member, it would have to repay those debts in euros, a much stronger currency than most of the member’s previous currencies. That meant, right from the get-go, debt problems.
Moreover, the EU allowed each member state to keep its own quasi-central bank. That was simply foolish.
In addition …
The EU is not a political union. Far from it. And …
It isn’t even a legal union, in the sense that there was no co-ordination of legal polices from country to country. No supra-national rule of law if you will.
All of the above and more have ended up disastrous for the EU and the euro. The euro will not survive this crisis.
As evidence both the euro and dollar are going down in flames; all you have to look at is their performance against gold. Gold is telling you everything you need to know: The world’s two largest governments are going down the tubes.
Q: I agree with you that gold may be ready for a pullback, but why not buy now in case you’re wrong? After all, what’s the big deal if gold falls a couple of hundred dollars when it’s headed for a double or triple from current levels?
A: Great question! It has to do with positions and risk management. Previously in this column and in my Real Wealth Report, I have recommended — at much lower gold prices — investing up to 25% of one’s liquid investable assets in gold.
Those positions are raking in big bucks, and doing tremendously well. So I do not believe adding at this time is warranted. If you do not own any gold, my view is pretty much the same. I think it’s far better to wait for a sweet spot to buy into.
As emotional as these markets and gold are right now, keep in mind that gold’s big move is a ways off. I’m talking about when it moves above $2,300 an ounce and starts exploding on a path to eventually $5,000 and higher. So you have plenty of time, in my opinion, to be patient and buy at the right levels.
Q: Larry, you’re bearish on U.S. bond markets, yet, interest rates have plunged and bond prices soared. Are you still bearish, and if so, why?
A: The U.S. bond market is the biggest bubble in the history of civilization. Once it becomes evident that the Emperor (Washington) has no clothes, the mother of all crashes will hit the bond market. Far better to play it safe and stay out of that market, period.
There are far better ways to seek safety and income, such as royalty-paying resource stocks, and even Asian and emerging market bond investments. Not to mention growth stocks in emerging markets.
Stay tuned and best wishes, as always …
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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