For investors, this summer has been a doozy so far. It’s been full of uncertainty. What will happen to Europe? Will taxes go up here in the United States? Who will be the next president?
The concerns, however, don’t end there.
Is the economy OK, or is it starting to tank again? What will the investment environment look like four months from now … six months from now … next year?
And for traders, things haven’t been much better.
The above uncertainty and more has led to nothing but wildly swinging trading ranges in most markets. One day, gold looks like it’s tanking. The next, it’s soaring.
One day, the Dow Industrials are collapsing. The next, the Dow is exploding higher.
All of this has made for some very volatile markets for the summer, chopping up even the best investors and traders.
Given Europe, the fiscal cliff facing the United States at the end of the year, and the upcoming presidential elections leading up to it — the uncertainty is definitely understandable. The choppy trading markets are, too.
But all of this begs several questions …
When will the uncertainty subside? When will the choppy markets give way to trending moves? How best can an investor get positioned now? How best can a short-term trader get ready to make some decent, trending profits?
In this column, I’ll answer all the above based on what my cyclical and technical models are telling me.
And in my opinion, it’s all good news.
FIRST, and perhaps foremost: I don’t think we will have to wait much longer to see a resolution of the current choppy and uncertain markets.
Based on everything I am studying, virtually all markets are on the cusp of important moves. Moves that will clarify a lot of the uncertainty out there, and lead to solid, trending moves in many markets. Moves with very high profit potential.
That’s what my cycle work is telling me. Virtually all of it — short- and intermediate-term models — point to the first two weeks of August as major turning points for the markets.
A time period where we will see the wildly swinging moves in the Dow Industrials give way to a consistent trend. Where the extreme volatility in gold, silver and other commodities also gives way to trending markets.
And where we will also probably see the beginning of the end for the euro and the European Union.
Let me explain …
SECOND, dis-inflation still has the upper hand. Fundamentally speaking, there’s simply too much debt in the world for the central banks to corral right now.
And they know it. That’s why you’ve seen the Federal Reserve and the European Central Bank largely sit on the sidelines, refusing to take any big steps.
It’s why Moody’s has downgraded Germany. It’s why Greece will soon have no choice but to pull out of the euro. It’s why Spain is now on the verge of not another bailout for its banks ― but instead a full-blown sovereign bailout. And it’s why Italy is also starting to go over the cliff.
None of that will change until the world’s major central banks come out swinging. And they won’t come out swinging until the masses want them to — when systemically important financial institutions are about to go under, like they were in the midst of the real estate crisis here in 2008 and 2009.
In the meantime, dis-inflation continues to keep its upper hand. Despite the recent (and very weak) rallies in many markets, you can take your cues from U.S. Treasury rates.
They are at RECORD lows, which means the majority of capital in the world is still scared stiff and flocking to cash. That’s not inflationary. That’s dis-inflationary.
And my models are clear: It’s going to continue in August, and probably well into autumn ― as investors largely withdraw from the markets.
THIRD, all of my technical models are resolutely short- and intermediate-term bearish for almost all asset classes (except the U.S. dollar and bonds).
For instance …
Gold would have to close above $1,727.70 to turn the short- and intermediate-term trends back to bullish. And my models say that’s not in the cards yet.
Silver would now have to close above $30.71 to reverse the immediate bias to the downside. Again, my models say that’s not likely.
Oil would have to close above $98.48. Given the recent increase in the supply picture and falling demand around the globe, that’s not likely to happen either.
The Dow Industrials would now have to close above 13,995.30 on a weekly basis. That’s not going to happen in my opinion. Quite the contrary, I think we will soon find the Dow turning back to the downside and in an ugly way.
I repeat what I’ve said many times before: Ultimately, all of this will flip and nearly all markets will re-establish their bull markets. The only exceptions at that time will be the U.S. dollar and U.S. Treasury markets, which will turn back into bear markets.
But for now, the short-term dis-inflationary trends I’ve been warning you about are still intact, and about to accelerate to the downside, in the first two weeks of August.
If you’re an investor with an eye to the long term, you should continue to preserve your ammo and hedge positions you can’t get out of, for whatever reason. 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.
And don’t let all the background noise in the markets, of which there is plenty, distract you. Instead, keep your eye on the true underlying short-term trends … and stay disciplined with your money management.
That’s because you’re about to see some terrific trending moves unfold, with awesome profit potential. So, keep your eyes open and stay tuned!