Three (3) Reasons Why I Remain Extremely Bearish In The Markets (GLD, SLV, ZSL, TNA, TZA, AGQ)

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November 7, 2011 3:17pm NYSE:AGQ NYSE:EUO

Larry Edelson: Given the importance of what’s happening in virtually all markets right now, I’m taking the unprecedented step of giving you some insights I’ve recently provided my Real Wealth Report and VIP trading subscribers.


Plus, I will give you appropriate recommendations too!

Why? Simple. First, I want you to have as much detailed insight into the markets as I can give you, and …

Second, because I think the profit opportunities now shaping up in the markets are some of the best of the year!

Naturally, I cannot give you the same specific recommendations I give my paying subscribers, including the instruments and vehicles I recommend, the purchase prices, the stop orders and specific strategies I’m using. That wouldn’t be fair to them.

Nor can I give you all the same active updates they get.

However, what I can do is give you my suggestions on what to trade and when to get out if the markets prove me wrong.

That way, you have a chance to make some big money in the days and weeks ahead, and know precisely the lines in the sand that you can use to monitor your risk.

So let’s get right to it!

The fact of the matter is that despite recent powerful rallies in virtually all markets — I remain outright bearish the markets for the following major reasons …

First, none of the technical sell signals I’ve recently received have reversed. For instance …

The Dow Industrials and broad U.S. stock markets: The Dow is still under the influence of a weekly sell signal that has not been reversed and would only be reversed if the Dow were to close above 12,498.

For the S&P 500, the equivalent signal would be a close above the 1,307.25 level. Note that those two levels for the Dow and the S&P 500 do indicate that there may be a bit more upside to the current rallies.

But due to other indicators I monitor, I believe it is highly unlikely that the Dow and S&P will close above those two levels, and instead, that the rallies will likely falter now, or at slightly higher levels.

Additionally, several trading cycles I monitor show the rallies should be ending any minute.

Bottom line: I recommend holding all bearish inverse ETF positions that I’ve recommended for the Dow and S&P 500. Exit them only if the Dow or S&P close above the aforementioned levels.

Next …

Gold and silver: It’s much the same here. Gold (NYSE:GLD) would require a close above the $1,830 level to negate all the sell signals my system has generated, while silver (NYSE:SLV) would require a close over $38.88.

Due to a variety of reasons and other indicators, I don’t expect that to happen.

Bottom line: I remain short-term bearish gold and silver.

Here, you should consider inverse ETFs such as the ProShares UltraShort Gold (NYSE:GLL) and the ProShares UltraShort Silver (NYSE:ZSL), buying them at the market and exiting them only if gold and/or silver were to close above the aforementioned levels.

The euro: The euro has had a very powerful rally on misplaced optimism that Europe’s crisis has been solved.

That rally is now failing, and the intermediate- and long-term trends for the euro remain VERY bearish. They will not even be partly suspended unless the euro closes above the 1.4438 level on a Friday-closing basis.

I don’t expect that to happen. So the bottom line for the euro is that I’m bearish. Here, I suggest an inverse ETF on the euro such as the ProShares UltraShort Euro (NYSE:EUO). Buy at market and exit only if the euro closes above 1.4438.

Crude oil: There is also very little doubt in my mind that crude oil has experienced nothing more than a sharp, short-term rally that has done nothing to change the intermediate-term trend which remains bearish.

For that trend to be reversed, oil would have to close above $100.93 on a Friday, weekly closing basis.

Short of that, oil remains poised for a potentially very steep drop in the weeks ahead.

Bottom line: I remain bearish on oil. As for a play on oil, consider the ProShares UltraShort DJ-UBS Crude Oil ETF (NYSE:SCO).

Second, the technical chart patterns also suggest the rallies are ending.

Here are five charts with my technical comments along with some Elliott Wave input, which I occasionally use at important turning points.

First, the Dow Industrials. On the chart of the Dow, notice that first, the Dow’s rally brought it right up to maximum resistance, hitting it on the nose.

This is significant, since that uptrend line was formed as a result of two cyclical lows made in March and June of this year. Cyclical resistance has now been hit on the nose, and should repel the rally, leading to another leg down.

Also note that in terms of Elliott Wave Theory, the Dow Industrials is now on the leading edge of a potentially very sharp Wave 3 DOWN to new lows below the October low of 10,404. Further confirmation the rally is running out of steam and about to turn back down.

The chart for the S&P 500 is similar (not shown). When combined with the previously mentioned technical signals above, I’m confident you should hold your bearish stock index positions.

Now to the chart of gold. My signals are showing massive system resistance at $1,764 and $1,830.

Plus, gold is reaching the uppermost portions of a cyclical trend channel, which should repel any further advance.

In addition, in Elliott Wave terms, there is ample evidence that a corrective Wave 4 advance is nearly complete, which should be followed by a Wave 5 decline dead ahead, leading to new lows below the $1,535 September low.

Now to the chart of silver, which is exceptionally bearish. Silver has system resistance at the $37 and $38.88 levels, which I’m confident will hold back any continued rally. Technical resistance is coming into play right now at the $34 to $36 area.

More importantly, virtually all of my trading cycles for silver are now rolling over to the downside. PLUS, in Elliott Wave terms, silver is showing the potential for a devastating Wave iii of 3 leg lower, which would mean another CRASH is in the wings, very possibly, silver’s worst to date. It would very quickly bring silver down to the $25 and $23 levels, if not lower.

Now, the chart of the euro. As you can see in this chart, the euro’s powerful bounce has done nothing to change the major trend, which remains bearish. The euro is now coming into major resistance, and another leg down to new lows is about to unfold.

As for crude oil, it’s now hitting major technical resistance, which should lead to another leg down to new lows.

Another reason I remain bearish …

Third, the fundamentals haven’t changed. Yes, Europe has reached a deal on its debt problems. But it is FROUGHT with holes, and in my opinion, will likely fall apart.

Even at 50 cents on the dollar, Greece is unlikely to be able to pay down its debts, which are overwhelming even after the debt reduction. That’s why there’s now talk that Greece will reject the deal, default, and dump the euro to go back to its own currency.

Europe’s “too-big-to-fail” banks are still exposed to massive bad debts, and now must raise capital reserves by 50%, which will be difficult, to say the least.

The overall plan lacks details and depends too much on private investors, who have been dumping debt instruments in Greece and Europe wholesale.

The agreement to increase the European Financial Stability Facility (EFSF) to $1.4 trillion faces huge obstacles. The main one: Where is the money going to come from since Europe’s central bank is abhorrent about printing money?

It’s quite possible that there will be a renewed round of bickering coming from the indebted countries of Spain and Italy, who may want the same 50% cut in their debts that Greece has gotten, or more.

The ECB has shown no real resolution to solve the euro’s crisis by consolidating the EU’s sovereign debt problems into a Federal or fiscal union, like we have here in the United States, making it all too easy for investors to hammer countries’ bond markets at the slightest crack in this new deal.

In short, I see the deal as nothing more than a bunch of vapor, likely to fall apart and lead to another round of “risk-off” type asset liquidation and a move to cash.

In addition, there is ample evidence in both Europe and the United States that their economies are slowing, despite the occasional positive economic stat here and there.

Related: Direxion Daily Small Cap Bear 3X Shares ETF (NYSE:TZA), Direxion Daily Small Cap Bull 3X Shares (NYSE:TNA).

Stay tuned and best wishes,

Written By Larry Edelson From Uncommon Wisdom Daily

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.

This investment news is brought to you by Uncommon Wisdom. Uncommon Wisdom is a free daily investment newsletter from Weiss Research analysts offering the latest investing news and financial insights for the stock market, precious metals, natural resources, Asian and South American markets. From time to time, the authors of Uncommon Wisdom also cover other topics they feel can contribute to making you healthy, wealthy and wise. To view archives or subscribe, visit http://www.uncommonwisdomdaily.com/.


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