ON THE IMPORTANT MATTER OF GOLD

We’ve talked a lot about 1998 market comparisons, along with various other asset classes…today I want to turn my attention to Gold.

I started getting bearish on Gold in late 2011, early 2012 when a former co-worker of mine published a book on how to buy gold. That’s about as “bubble” as you can get. Gold is one asset that worked its way into the average household, in one way or another. Reality television about mining for Gold, family members opening businesses in the Gold Rush to buy up gold jewelry, various acquaintances starting collections in precious metals, etc. Shoot, even Mr. T came on the scene to buy Gold in 2011…

Gold was one of the early assets I used to get on this 1998 correlation. Take a look at Gold prices over 1996-1999, focusing specifically on 1998.

Here’s a comparison to 2011-2015…

I took a beating when I started blogging about this here, but I’ve maintained my stance all the way through. Notice that in 1999, one of the most epic squeeze events ever took place in Gold. I think a similar event happens next year. The eventual psychological breach of $1,000 out to clear out my remaining relatives that have interest in this idea and have stayed the course. Once that happens, I think that’s where you start to accumulate…especially if the miners don’t follow Gold down into next year.

Any thoughts? Aside from…”NNNNUUGT”

OA

This first post will be brief…

The bulls need to nod here, and let this one go. I knew with an hour to go prior to the close and the twitter heckling at the lows, that the pain trade would be up today. This isn’t it yet, but shit, I would be nervous being short down here.

On the day, RUT non confirmation, Yen non-confirmation, breadth non-confirmation. I’d like to see a repeat of yesterday to be honest and this shit is a wrap tomorrow.

In short, hoping this is the start of the last “uh-oh” move.

More later,

OA

Here’s today’s intra-day chart of SPY. Most instruments should follow this same pulse.

As the SPY traded to new lows an hour ago, take a look at our other noted divergence candidates…

FWIW…

It’s always good to have a standout stock to use at a time like this, to help lead a path. Especially coming off the back of Kostin’s capitulation earlier today:

Slower economic growth in the US and China and a lower oil price than we previously assumed translate into a reduced profit forecast and a lower trajectory for US stocks. Our revised top-down 2015 S&P 500 EPS forecast of $109 (from $114) represents a 3% year/year decline. Our new 2016 EPS estimate of $120 (from $126) reflects annual growth of 10%. We expect S&P 500 will rise by 6% to our lowered year-end target of 2000. We expect S&P 500 will climb by 5% to 2100 in 2016. Focus on stocks with high US sales, firms returning cash to shareholders, and high quality stocks.

When in doubt, I always fall back on Goldman Sachs.

Goldman is one of few to “sweep the leg” and move back up into its range, 1998 style.

This one is a great proxy here, all things considered, heading into the remainder of the week. Hat tip @Chgo_Trader

OA

As mentioned in my last post, this isn’t the bottom yet. It is for a few select stocks, groups, and other instruments, but the bottom isn’t here yet for the market. Most importantly, the Put/Call ratio at 158%!

They’re buying puts into this rally. This is the final trap that needs to be set, and that is to engage all bears at the bottom of this range.

If you are trying to buy leveraged instruments, please wait to do so until prices are in the dirt. One more round of dirty prices lies ahead.

OA

I don’t think this was the bottom, but that we will see one more move this week that will seal the deal. The yen says this isn’t it, and breadth isn’t what it will be when we actually bottom. One more move this week and we’re done.

If you missed my post last night about divergences, that is all I will be watching into any further weakness this week.

Here’s a quick clip…

One of the most important divergences we’ve discussed is in the USD/JPY.  It managed to stay flat here despite the recent run up, and the recent sell-off. When its ready to move, it will confirm the fate of equities moving forward.

Other divergences to watch this week:

Breadth: $NYMO, PPT, $ADV-DEC, or any other metrics you use will likely avoid the values they hit in late August. If these indicators are significantly higher than their August levels, and the market has traded lower, get long.

Foreign markets: I typically will use $EEM, $FXI, or perhaps even $SSEC, $HSI, $NIKK, $DAX, $FTSE, $CAC, etc to see if the $SPY sees a little more excess than the others. Notice that the $EEM and $FXI are not following the $SPY into the same depth of their late August extremes…yet. If this persists, get long.

Biotech: With the volumes we saw today, 7 days of straight selling, and the trending action on stocktwits for some of the destruction in the space…I doubt the $IBB will follow the market down any further. If we see today’s low taken out later this week, and the $IBB doesn’t follow, get long.

Market Darlings: The relative strength names finally got sold today ($FB, $GOOG, $AMZN, etc). That usually happens near the end of a correction. Again, if these stocks do not follow the market into more downside, get long.

This reversal today will move the stocks that will ultimately prevail far enough away from their lows to trigger divergences.

What’s on your list to buy here, or short for that matter?

OA