Here are just a few excerpts from the latest edition of my Weekly Strategy Session, which was published and sent out to members earlier today. Please note that 12631 members inside The PPT receive the Strategy Session each weekend at no additional cost. The rest of the Strategy Session has more in-depth analysis, and is packed with actionable long and short trading ideas.
A Deeper Price Correction vs. Tradable Range
Imagine a star professional basketball player who suffers a mildly sprained ankle, or even comes down with a case of food poisoning while ordering hotel room service while playing an away game on the road. He then misses a practice and perhaps a few games due to injury or illness. But within a week or two he is back on the court and putting up impressive statistics, once again, at full speed.
Now, alternatively, imagine that same star suffers a serious knee injury, tearing his medial collateral ligament, requiring surgery and months of therapy. Some observers declare his playing career to be over for good. Some diehard fans expect him to be back on the court within short order, as they have been accustomed to over the course of his career. But, either way, an injury of that magnitude requires much more time to heal than the mildly sprained ankle or the case of food poisoning.
In the current market, the types of breakdowns we have seen in the utilities, commercial real estate stocks, emerging markets, materials, and even the homebuilders and biotechnology stocks of late smacks of far more serious selling than what we witnessed at any prior point in 2013. While it is true that a fair amount of technology stocks, some aerospace and defense issues, and regional banks have held up impressively, the damage overall did indeed spread last week as a whole.
In essence, the previous and ultimately short-lived mild broad market pullbacks in February and April of this year amounted to a sprained ankle, where bulls were temporarily sidelined only to come back onto the court and perform brilliantly within a few days.
However, the current correction has broadened out and suffered enough underlying damage to the point where, even if recent lows from Friday are good lows, the odds favoring an imminent sustained trend to new highs are poor.
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Precious Metals and Miners
Gold and silver remain in powerful downtrends on most timeframes. On a longer-term basis, they appear to be closing in on their next major potential support zones. However, I want to caution that the high volatility inherent to the previous metals market makes the potential for exaggerated moves lower a distinct one, just as the moves higher in 2011 (especially with silver) may indeed have been exaggerated. Hence, there is nothing wrong with taking a pass on playing the space altogether, either way, given the elevated risks. Having said that, being on the right side of the trade in this space can be handsomely rewarding in only a short period of time.
Specifically, shorts are likely to at least partially cover for profits and aggressive traders will probably step in to play the $120 area on the gold ETF for a snapback rally. On the silver ETF, a move just below $19 (to the 2010 primary breakout higher) has already set up a similar scenario, with that dip happening last week.
On the monthly charts below, note that these are only potential levels of support and not areas to look for major, multi-month or multi-year bottoms. Aggressive traders would be playing for a fast, multi-day bounce and need to keep a stop-loss below recent lows to avoid getting swept down in another sharp leg lower in these powerful downtrends.
Turning to the precious metals miners…
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