From yesterday’s update…
 Please accept my apologies. Futures are down, but not nearly as drastically as what was earlier noted. MarketWatch showed indexes down around 2.5% but Bloomberg had them at around -.5%. A check of the actual prices shows the Bloomberg data is correct. So take everything below as a future game plan in case the August lows are breached.
The news driven short covering rally yesterday was impressive and now momo’s are being punished. Makes sense.
But the question is whether items were going to take a counter trend rally even before the Fed Minutes were released, so let’s get back to some indicators on that…
The US dollar (UUP fund shown) is bouncing off the middle Bollinger Band up to the EMA 10, which had been short-term support all the way up from July. A rise above that level would strongly question the bounce scenario. The gold-silver ratio is unsurprisingly bouncing as well.
The US dollar is up modestly and gold and silver are down 2.50 and .13 respectively. Counter cyclical gold should be watched closely not for price appreciation, but for its out performance to most everything else… especially the US stock market. We may be on the verge of the expected counter cycle, sooner rather than later.
It is the US stock market that is the focal point of this update, as the indexes are down in pre-market (SPX -2.5%, Dow -2.4% and NDX -2.6%) to levels that would constitute a break of the August lows. If this holds up, these indexes would follow the Russell 2000 into a new daily bear trend.
For stock market players this means that if the indexes hold below the August lows the regimen becomes ‘sell the bounces’. For non-traders it means what it has meant for so long now… HAVE CASH.
I was wrong in giving a counter trend ‘inflation trade’ scenario any credibility. It appears to have been the massive short covering bounce driven by the Fed Minutes and nothing more.
I am currently short a few individual items (FB, GM, RYL) but have awaited a break of the August lows before holding index shorts for much more than a day or two. Again, if this breakdown holds up, the game changes in the stock market to bear trend rules, not bull trend rules. Short of a flat out 2008 style crash, that would mean shorting bounces to resistance levels. A weekly close below the August lows would be a clear bearish signal.
Back on gold, this would be the favored macro scenario unfolding for the metal but I want to stress patience because money flying out of stocks is going to seek liquidity and the easiest liquidity to get into is CASH; yes, the very same cash that we have been respecting all along as casino patrons tried to tout the last 5% out of the market.
So with respect to gold stocks, remember the irony that they could rise dynamically in an inflation trade environment, but early in their true fundamentally preferred environment, which is the counter cycle, they can get savaged along with everything else. Of course, the savaging has been ongoing for a long while now, so we will look to the gold stock sector as a bottoming leader (as in 2008) and we look for a buying opportunity. Not for a trade, but for a new macro cycle (again, if the macro is pivoting, which was the theme we started 2014 with what seems like so long ago).
Have CASH, watch Gold vs. S&P 500, gold vs. crude oil and gold vs. general commodities. The macro appears to be finally shifting. Things should become actionable (beyond all the damned trading and commission grinding) for longer duration swings after months and years of a bull trend in stocks and a bear trend in the gold sector.