Notes and Strategy on Stock Markets and Gold/Gold Stocks

Well folks, ‘August low retest’ it is, as per plan.  Part 1 was the drop from the August breakdown.  Part 2 was the ‘bounce’ recovery (ended at SPX 2020).  Part 3 is the current drop to test the August 2015 (and October 2014) lows.  Again, we define test from a dictionary:  a procedure intended to establish the quality, performance, or reliability of something, esp. before it is taken into widespread use

Now it gets interesting because the procedure is in process.  Note a post at Biiwii on a market leader, the Biotech sector.  This thing is in impulsive decline and leading the way lower.  It is pure downside momentum.

Note the gold ratios per an post earlier today.  These – especially the gold-silver ratio (GSR) – are leading the way to liquidity contraction and market stress.

With respect to NFTRH 362’s talk about policy makers and their would-be interference, it seems that some Jawbones are still talking tough for a rate hike in 2015.  As you will recall, one of our theories in #362 is that they could make good on this to the tune of a symbolic gesture while keeping real policy panic (QE) in their back pocket.

But aside from those mental exercises, the market is the market and price is price.  The market is doing exactly what we laid out for it.  Questions out ahead of us are ‘Will they panic and if so, at what point do they panic?’ and ‘If they do panic, will it work in the bulls’ favor as it has before?’

I would not rush to try to guess those answers.  Right now the US market is on a test to see if it is going to follow many global markets into the dumper.  A hold here would be bullish, but the favored scenario is down because (again, tuning out policy paranoia) that is the trend.  As we have noted repeatedly, the trend is down on daily and weekly time frames and price and trend have got to be the guides, absent the ability to accurately interpret a crystal ball.

So the test is here and it has two possibilities; a) hold or b) break down.  In the event that the trend remains intact and things break down recall the next target is SPX 1700 to 1750 per a monthly chart’s channel support we reviewed a couple weeks ago in NFTRH 360.  Below that, big time support is in the 1550 area.

As for gold, its price went down with everything else today (incl. interestingly, USD) but its ratios are reflecting the counter-cyclical environment we have so patiently managed for many months now.  Last year gold rose vs. commodities, earlier this year it finally made a move vs. palladium and now gold vs. silver is finally manifesting in US market weakness.  Everything is working to plan, but the plan is bearish before it’s bullish as a rising GSR is usually, but not always, bearish for the gold sector.

The target is the low-mid 80’s to 90.  Here is the current status…

gsr, gold-silver ratio

That is a bullish chart that has been in consolidation as we have been noting.  Well today, it broke the consolidation flag.  I cannot tell you how comforting I find it when a trusted indicator acts the way it is supposed to.  For the GSR, that has not always been the case post-Op/Twist.

To Conclude…

I just wanted to get some thoughts down as the dust settles.  Speaking of which, I took profit on DUST today, which well-out paced the losses in the few mining positions I held.  But without DUST and a profitable day in the books (aided as well by the SPX short, SPXS [edit: against SPXL]) I thinned out the miner holdings to just one.  No reflection on the ones sold, as they are all quality miners.  But I am not fooling around here.

As noted, I am tightening up my game (and managing risk all around) until the market chooses – or should I say confirms – its direction.  Confirmation would be to the downside as that is the trend.  Reversal would be to the upside.  For now, the trend is what it is.

Gold is the wild card and the gold stock sector the speculation associated with that wild card.  As we have noted, if the market really gets a head of steam going to the downside, the miners would be vulnerable.  That could also bring on the epic opportunity (slow motion though it has been to 2008’s flash) to buy a bombed out sector with improving fundamentals.

More to come.  I just wanted to get my rawest post-market thoughts down for your review.