Market Observations for the Coming Week: We're on Crash Alert - the Tuesday 10/14 price action activated a "crash pattern" in our work and we did get a "flash crash" on Wednesday 10/15 but a deeper correction into mid-November is still possible. The market is currently bouncing in Wave B of the crash pattern from Wednesday - we're looking for this pattern to top out between SPX 1915 and 1935 by the New Moon/solar eclipse on 10/23 and then reverse down if this pattern is in force. Rallying past the New Moon and well past the .618 retracement of the decline will argue that another up leg to new highs is underway.
Check out my talk on the "potential crash pattern" that was activated on Tuesday 10/14 and argues for a steep decline into the 55-day step out from 9/19 on 11/14 after a Wave B bounce into the 10/24 New Moon:
Here are some charts from Trader Jim of Anchorage, Alaska with his proprietary momentum indicators:
10/21/14 (Commentary for Tuesday) The SPX opened strong and never looked back today. Market breadth and volume improved over yesterday as the 200-day MA on the SPX was closed above and the .618 retracement was tested. Our bias is that the market is rallying in Wave B of a potential EW A-B-C crash pattern with a top due by the 10/23 New Moon/solar eclipse but a rally past the 10/23 New Moon and well past the .618 retracement will argue that the "crash pattern" has been invalidated and an up leg to new highs is underway. Our thinking is that we bottomed Wave A of an EW A-B-C crash pattern on 10/15 and we are now getting a Wave B rally into the 10/23 turn window before the SPX rolls over into Wave C down - however, the ferocity of the rally this week could imply a retest of the highs. This 5+ year old bull market needs a good scare here and that could take us down 20% or so in the SPX before this correction runs its course and a holiday rally begins. Now, if we rally past the New Moon on 10/23, that might be an indication that the "crash pattern" has been invalidated. Either way, prudent investors should create a shopping list here among some beaten down sectors (oil stocks, tech stocks ...) that should be bought into mid-November. Everybody claims that they want a market pullback in order to buy, but when the time comes they are too scared to pull trigger. From a big picture point of view, we do think that a scary SPX correction is likely into 11/13 but this should not derail the long-term bull market in our opinion and we are expecting the bull market to extend into 2015. Gold took out $1250 but the gold stocks lagged - we are looking for a pullback into the New Moon. The weakness in oil and commodities is drawing comparisons to September 2008 before the big plunge in stocks - oil tends to lead the stock market. We got a $60 rally in gold from the pivot-reversal up on 10/5 - gold is catching some flight to quality money and is showing relative strength with other commodities. The Euro is coiling in what looks like an EW 4th wave sideways correction on the hourly - we're looking for a 5th wave higher. Crude oil broke below $80 and reversed higher - could see more bounce into the 10/23 New Moon - but oil lagged as stocks rallied. Bonds may be tracing out a bullish wedge.
- Big Picture on Stocks (UPDATED) - The SPX traced out a sideways corrective pattern from 10/2 to 10/8 and then declined impulsively into Monday 10/13 - the lackluster, corrective market action on Tuesday 10/14 activated a "potential crash pattern" and we got a "flash crash" on Wednesday - looking for a Wave B bounce into the New Moon/solar eclipse on 10/23 before a reversal down in Wave C into November.
- Big Picture on PMs (UPDATED) – The huge reversal up by the GDX on the 10/8 Full Moon/lunar eclipse confirmed the pivot reversal up by gold on early Monday - an important intermediate low may be in place - but we need confirmation by another leg up in the GDX to take out the 10/08 high.
- Stocks – The SPX is rallying in a Wave B or something bigger from 10/15 - we're still looking for a trading top on the 10/23 New Moon/solar eclipse.
- Gold - Gold took out $1250 and held up despite a USD rally - looking for a pullback into the New Moon.
- Silver – Silver surprised us to the upside today - may still test $18 soon.
- Bonds - Bonds look like they are declining correctively - looking for a test of the highs.
- Crude Oil – Crude oil is bouncing but the pattern argues for another leg down.
- Dollar Index – The Euro is coiling for a 5th wave higher on the hourly chart.
TURNING POINT DAY:
The turn window for this week is the 10/23-10/24 time zone defined by the 34-day Fibonacci step out from the 9/19 all-time high which hits on 10/23 and the 10/23 New Moon/solar eclipse.
Depression Beater Portfolio: (This portfolio this week is just a sample of my own portfolio - no recommendation to others is implied or intended)
WEEKLY COMMENTS: Update for 2/14/14: On the CDNX, the 50-day MA has crossed up through the 200-day MA giving us a buy signal on the junior resource sector. At this stage we would only focus on those stocks that were washed out in 2013 and have adequate financing to carry them through 2014 drilling activity.
- Aroway Energy (ARW.V, C$0.170 +0.02) – This western Canadian junior is part of a very sweet JV deal with a private partner in the Peace River basin – it's production share should climb from 669 BOE/day (75% black oil) to over 1200 BOE/day later in 2012 – management has selected a good slate of properties for drilling and it is bearing fruit. Buy on dips. Use a 20% stop from purchase price.
- Evolving Gold (EVG.TO, C$0.010 -.00) - UPDATE: This stock has two world-class finds in Wyoming (Rattlesnake) and a potentially huge find on the Carlin Trend in NV. The problem is that the company needs a financing and could be forced to sell a world-class asset for pennies on the dollar.
- Uranium Energy (UEC, $1.17 -.04) - UPDATE: Uranium prices are recovering and the fundamentals are getting a perfect storm. Favoring the near-term producers here like UEC - the fundamentals are much more dramatic that the typical emerging gold producer.
- Energy Fuels (EFR.TO, C$6.90 +.03) – Finished acquisition of STM.TO in early September - building up a position as a strong US producer of uranium in a tight market.
- Prophecy Coal (PRPCF, $0.054 +.000) – UPDATE: This stock needs to get its Mongolian coal mine into a positive cash-flow situation to support its power plant project and other endeavors without diluting the common shareholder to zero.
- Gryphon Gold (GYPHQ, $.032 +.0000) - UPDATE: De-listed stock. Good asset but needs a cash infusion and maybe a partner. Good leverage to gold.
JUNIOR MINING FAVORITES:
(These companies are speculative - best to keep them to 10% of a portfolio with 30% stops based on purchase price. Buy a basket to diversify risk)
RULES FOR JUNIOR MINING INVESTING:
1) Keep to 10% of a portfolio.
2) Due your own Due Diligence.
3) Maintain a price stop of 30% of purchase price or whatever your Technical Analysis suggests is prudent.