Going back to my May newsletter I stated I would be looking to be 100% in cash if the DOW Jones Industrial Average got up into the 18100-18500 range. In the week of May 22nd the DOW got above 18300. For a period of several weeks after the DOW did trade in the 18100-18500 range. In my June newsletter I stated that once 2073 on the S&P futures is violated we should start seeing some pretty nasty declines. In the week of July 24th the DOW traded above the 18100 level for the very last time to date. I stated that if I was a long term investor I would look to be in cash. In my July newsletter I stated that I was looking for the market to have a drop down to 16100 in the near six to eight weeks. I saw significant weakness and divergences on the weekly charts on all the major indexes. With the significant divergence on the weekly charts I felt very strong that the gaps below should get filled within that six to eight week time period. On most days I provide a market recap on my show Market Maker on Grant Cardone TV (www.grantcardonetv.com/marketmaker). If you go back and look at my July 7th episode you will see how I predicted that if the market got up into the 18100-18500 range I would be 100% in cash and looking for the market to fill the gaps down to the 16100 level.
The DOW Jones Industrial Average traded down to 15379 in the week of August 28th. I am 75-80% certain that the low of 15379 should hold for the year. I am looking for one more pullback in the market in the 15500-15900 range to make a higher low sometime in the next four to five weeks. We are experiencing significant volatility in the markets. I stated back in January that this would be the year of significant volatility and the year that the Federal Reserve does not raise interest rates.
When the DOW was above the 18000 level I saw significant complacency amongst long term investors. It is astonishing to me how people can work so hard in their life, save their hard earned money, not learn to manage their own money, and instead put it in a pool of capital and trust them to make the right decisions. Most people enter into mutual funds that can only buy stocks and not take advantage of any massive declines. Hedge funds allow investors to take advantage of both sides of their opinion in the market, long and/or short. I cannot tell you how many people have come to me in the last couple weeks telling me how much they are down in their various mutual funds or pension plans.
It is astonishing to me the amount of complacency I saw a few months back in talking to many many investors. The belief is that any market decline will be short lived because the Federal Reserve will always be there to push the markets back up. It is also believed that every decline should be bought. Quantitative easing has really done nothing to help the middle class. All it did was create a wealth effect for those invested in the equity markets. The market does not have any natural tone to it because there is always intervention along the way. A young college student came up to me one day and asked me if I ever remembered a time when the Federal Reserve did not intervene in the market place. I said yes there was a time, back when the markets were free and traded the right way.
In a quick summation I am looking for the market to make a higher low and push upward sometime in the middle to the end of the fourth quarter. I am looking for this push upward to erase most of the loss for 2015 and maybe maybe inch out a single digit gain. If that happens I would be 100% in cash going into 2016. I do believe that the Federal Reserve will start raising interest rates sometime in the first quarter of 2016.
We have had zero interest rates for over nine years. In the last September meeting by the Federal Reserve I called a zero interest rate hike for the following reasons. The release of the August retail sales were sluggish, the International Monetary Fund (IMF) asked the Federal Reserve not to raise interest rates in 2015, significant volatility in the equity markets, and the gross domestic product (GDP) was not showing any significant strength in our economy. When the minutes were released in September the Federal Reserve market committee (FOMC) decided not to raise interest rates. They even threw in the fact that rates will now depend on economic data. The Federal Reserve open market committee stated when unemployment levels were over 8.25% that if they saw a drop in unemployment to 6.5% they would take action and start to raise interest rates. We now see unemployment at 5.1% and the Federal Reserve has not adhered to their statement.
In the release of the September minutes it also sounds like the Federal Reserve has another mandate to monitor the growth in china. It is hard to gauge the growth in china because of the vast population and the inability to get an understanding of how they calculate their growth. The Shanghai is down substantially from the all-time highs and the potential slowdown in China could be another reason why the Federal Reserve does not raise rates in 2015. There is still probably a 20% chance that the Federal Reserve may raise rates in 2015 in December just to prove a point but I am not so certain.
In my July newsletter I stated that oil had significant overhead resistance on the weekly charts in the 60-65 range. When oil hit that range I started seeing significant deterioration in the oil stocks which led me to believe that oil would head back down to the low 40 range. Oil traded down as low as the mid 38 level, a significant drop from the level I saw. Long term I am very bearish on oil, however we could see some sharp bounces along the way. A major brokerage firm is calling for oil to be in the 20 range for the next several years. OPEC a few weeks ago stated that they see oil in the next couple years somewhere in the 70-80 range. I just don’t see it. Looking at stocks like PVA which have gotten decimated, trading at $0.56 from a high back in April of almost $8. KEG back in May was trading above $2.7 and is now trading at $0.56. This is not a great time to be holding oil stocks. I do believe any rally in oil would be a great opportunity to get out of any long positions that were established when oil got down to the 38-40 range. Any bounce in oil above the 48-50 range would be a great time to exit those positions.
Gold’s low for 2015 is 1072. I expect that low to hold for the year. I know I stated in the last newsletter that gold could potentially retest the 1040 level. As of right now the fact that the Federal Reserve is not looking like they are going to raise interest rates could mean that the 1072 level could be the low for the year. Overall I would be looking to sell gold and gold stocks if gold gets in to the 1170-1210 range. I have a sell signal on the weekly charts on gold. For the short term I think that gold is going to be in the 1090-1165 range. All the weekly charts are negative on gold and the following stocks. Barrick Gold (ABX) is currently trading at $6.57 having fallen from the high the year of $13.25. Yamana Gold (AUY) had a high this year of $4.84 and is now trading at $1.76. Newmont Mining (NEM) had a high the year of $26.70 and now is currently trading at $16.59.
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