May 14, 2016, Weekly Summary: More of the Same

The market has experienced a week that was much like the week before; earnings coming in lower when compared to a year ago, but higher than the lowered expectations (-6% compared to -9%).  Like the week before, the S&P 500 has fallen, but it hasn’t fallen apart.  This may be due to an expectation of sunnier days ahead in the next six months.  However, since there hasn’t been, nor is there any expectation of real revenue growth in the future, companies will be forced to continue cost-cutting, and buying-back shares in order to deliver an illusion of growth.  The market, while not completely fooled by this, has not fully priced it in either.

Our Price Modelling System continues to point to lower equity prices, and the sentiment patterns are, likewise, confirming a local top in the S&P 500 (chart below).

From a longer-term perspective (chart below), a pattern of future reduced valuations is also in effect.

Lastly, the chart below shows how a divergent move in the Rydex Bull assets verses the S&P (assets trend down, while the S&P trends up or is flat) is followed by a drop in the S&P.

All of this, of course, involves probabilities not prophecies.

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Gold

The dollar rallied for the second week in a row, and gold dropped along with it., but the trend is still dollar down/gold up in the medium term (chart below).  If the dollar continues its recovery, then gold should continue its downward move.

Gold verses the 30-year bond (chart below) continues its divergent trade which usually leads to a change in direction for gold.  Since gold is presently trending down, a change to the up-side is possible according to this relationship.  If the bond starts to drop, however, gold should continue to slide.

If the dollar continues going up, and the 30-year bond turns down, then gold is likely to take a big hit.

The futures traders reduced their extremely polarized positions slightly this week, although, not by much, and the over-all open interest actually increased.  Both trading rooms continue to be VERY crowded.  When this situation finally unwinds, it should be spectacular—in either direction.  We are betting it will go down (spectacularly).

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We wish our subscribers a profitable week ahead.

Quelle: Nicholas Gomez