Sickly Stock Market Internals, Plus Gold Update

Larry Edelson

If you’re like most investors, traders and analysts, then you’re enamored with the strength in the Dow Industrials, the S&P 500, and the Nasdaq and you expect them to simply keep on soaring.

You’d be adding to your stock holdings, chasing hot tips and dreaming of riches.

Yet as always, counting your chickens before they’re hatched is a big mistake. Even more so because all available evidence tells me that U.S. and European stock markets are now a recipe for disaster.

All you have to do is look beyond the illusion of the major indices to see why. Since the August low in global stock markets, the rally that has occurred …

FIRST, has been accompanied by declining volume. When a market rises and volume simultaneously declines, it’s a bearish sign.

SECOND, most stocks traded — both here and in Europe — are actually declining. There are very few leaders pushing the major indices higher. In fact, as I pen this column, here in the U.S. …

Of all publicly traded stocks …

— 44.63% or fully 6,442 are now down at least 10% year-to-date.
— While a whopping 36.9% or 5,204 are down more than 15%.

And only 32.5% are actually up for the year.

Put another way, 77.5% of all publicly traded U.S. stocks are either flat for the year or down more than 10%.

THIRD, of the stocks that are actually advancing, their numbers are also shrinking. Also a very bearish omen.

FOURTH, most other indices are actually down for the year. The Dow Transports are down 10.2%. The Dow Utilities, down 3.5%. The Russell 2000, down 2.5%.

Meanwhile …

FIFTH, total margin buying of U.S. equities — according to latest data (Sept. 30) — stands at a whopping $454 billion, just a tad below record highs.

Given the internally fractured soul of the markets, enumerated above, such massive leverage by investors and institutions is a recipe for disaster. Even the slightest move down can end up causing panic liquidation.

Given the internally fractured soul of the markets, even the slightest move down can end up causing panic liquidation.

SIXTH, earnings expectations are largely being slashed, the dollar is starting to soar (a negative for corporate earnings going forward) and several other indicators I monitor …

All tell me the stock market is about as risky now as it ever gets.

The thing is, I’m telling you this despite the fact that I am long-term bullish on the market.

I fully expect the Dow Industrials, for instance, to move up to over 31,000 in the years ahead.

But I won’t touch any stocks here now. No way. Because I know how markets work. And if the Dow Industrials is going to move above Dow 31,000 in the years ahead — which it will do …

It will NOT do so unless it first collapses and scares the dickens out of nearly everyone.

Bottom line: In my opinion, no one in their right mind should be heavily invested in stocks right now.

So what should you do then if you are heavily invested?

What about if you aren’t invested?

Here are my answers:

A. If you’re heavily invested, just get out now. If you cannot get out, for whatever reason, consider hedging your holdings with inverse ETFs, such as the Short Dow 30 ETF (DOG), Short S&P 500 ETF (SH), or Short QQQ ETF (PSQ).

B. If you are not invested, then great. But do consider the potential for some rich capital gains by purchasing the above inverse ETFs, or for even more leverage, their equivalent double and triple leveraged inverse ETFs.

It’s that simple.

Now, to another market dear to many: Gold.

Gold’s latest rally has failed, miserably, and as expected. That’s music to my ears. As I have said all along, this month is an important cyclical target for both gold and silver. It should produce a major low.

How low? It’s too early to say. Ideally, gold will soon close below the $1,138 and $1,133 levels. If it does, then gold should slide to a new low this month, below $1,073.

Let’s keep our fingers crossed …

Best wishes,

Larry

Larry Edelson, one of the world’s foremost experts on gold and precious metals, is the editor of Real Wealth Report and Supercycle Trader. Larry has called the ups and downs in the gold market time and again. As a result, he is often called upon by the media for his investing views. Larry has been featured on Bloomberg, Reuters and CNBC as well as The New York Times and New York Sun.

Comments 30

Mark November 4, 2015

OMG there he goes again! Lar must work for the banks cause he was singing the same song and missed the dow rally last 5 years! He kept everyone on the sidelines waiting for the proverbial next leg down LOL....!

Howard November 4, 2015

Hi Larry I've been in the markets for more than 45 years and the choices at the moment don't give much encouragement. A large portion of my assets are in liquid form. At least I can trust that in the short term and I have certainty with high mobility choices.

Howard November 4, 2015

It gets harder to forecast in manipulated markets with any certainty. This is why trust in the Fed appears to be declining.

randy November 4, 2015

but gold isn't a manipulated market??? that's what you've been saying for several years now.

randy November 4, 2015

edelson that is as he parrots armstrong has been saying that.

Robert P November 4, 2015

"Yet as always, counting your chickens before they’re hatched is a big mistake. Even more so because all available evidence tells me that U.S. and European stock markets are now a recipe for disaster." ...laughable....in a very nauseated sort of way... How long have you had us expecting "the pullback"...?? And , when it finally came, and then successfully retested, you guys (and many others) had us expecting even more downside?! ...and now we're quickly closing in on new highs!!! While I agree with your thesis, I wonder why you would have us applying the brakes 5 miles before we approach the stop sign...??

AG November 5, 2015

I agree. "There's 'The Pullback', but WAIT! It isn't good enough!! Now there will be a 'disaster', even though I said there wouldn't be a few months ago." Huh? And I'm sorry, I'm not seeing this supposedly declining volume -- in fact, it appears both the Dow and S&P 500 volume have steadily increased for a little more than a year now, while Nasdaq composite volume is the highest it's been in the last four years, with the exception of summer 2014.

jrj90620 November 4, 2015

Another major gold bottom predicted.How many of those has Larry made,over the past few years?Maybe gold will make a major bottom,this month or maybe it won't.That's my prediction.

$1,000 gold November 4, 2015

stocks go up, gold goes down. gold appears to mirror stocks in the major trend. keep it simple.

$1,000 gold November 4, 2015

elliott wave pattern: Volume is often lower in wave five than in wave three, and many momentum indicators start to show divergences (prices reach a new high but the indicators do not reach a new peak). At the end of a major bull market, bears may very well be ridiculed (recall how forecasts for a top in the stock market during 2000 were received).

$1,000 gold November 4, 2015

it appears wave 3 (up wave) ended, and we're in wave 4 (correction). look for a possible scary "bear trap" (probably what larry sees) before wave 5 (final up wave). wave 5 should last for a year or two ending in a recession. remember, the metrics do not support the final up wave.

$1,000 gold November 4, 2015

a wild guess, gold could bottom at the same time stocks peak at the end of wave 5 in a couple years. as stock enter recession at the end of wave 5 in a couple years, gold could find its bottom a start a new up trend.

Will November 4, 2015

Timing folks, it is all about timing; and timing is the hardest part for everyone. The inability to time events properly is why Analysts make the Weatherman look good. As Jim Rickards explains, the time when the Avalanche cuts loose is the time when that critical snowflake lands on the snow pack. What Larry is saying is that you had better be out of the way whenever it is that the critical snowflake lands to make the Avalanche cut loose. To not look uphill at the big overhang of the snowpack and stand out of harms way is at your own peril. Hopefully October tought Larry not to make timing predictions that make the Weatherman look good; and hopefully more readers can recognize that the snow pack above is telling them to get out of the way of a pending Avalanche.

$1,000 gold November 4, 2015

i agree with larry 100% that the secular bull is in tact and we'll see 31,000 in the dow in the years ahead, but there will be painful recessions along the way. that's way timing is such a bad strategy for most investors and buy & hold is a good option for those with long-term goals.

heather November 4, 2015

I dont know guys Martin Armstrong sounds like he's turned bullish on stocks and indicated the overbought condition over past 3 yrs in Dow is working itself out. Larry seems to be a few days behind likely due to timing of publishing. Marks comment above is spot on. Larrys really misled many in gold and stocks over last few years.

$1,000 gold November 4, 2015

stocks appear to be temporarily overbought. i'll look for that bear trap as a buying op.

tommy November 4, 2015

Heather is right. Larrys RWL flash from a couple days ago only goes to oct 22, since then the Dow has broke through major resistance at 17,780 - this was Armstrongs number from the computer. I think Larry is behind the 8 ball here We may already have begun the phase transition to 31k. The volume is not low as larry indicates

tommy November 4, 2015

I also think larry works for the banks, while they are accumulating cheap we sit on the sidelines

$1,000 gold November 4, 2015

in larry's 5th paragraph above that begins with the capitalized word FIRST, larry states declining volume. the point is, the technicals always trump the fundamentals - hence the old saying, the market anticipates the economy. the next up wave, i'd expect a market rise despite fundamentals that don't keep up.

randy November 4, 2015

now, do any of you really think edelson follows his own or armstrong's advice?? he'd be broke...oh, then again maybe he makes so much money on subscriptions he doesn't have to worry about investing on his own.

$1,000 gold November 4, 2015

larry would be better off to buy & hold.

$1,000 gold November 4, 2015

we all probably would be. my buy & hold account does better than my trading account.

Michael November 4, 2015

I am wondering at the fact that Larry hasn't made much comment on gold mining stocks. Spot Gold and (I assume) ETF's like GLD are moving together. I notice that mining stocks are not moving in line with Spot Gold, but are static. It would be nice to have some commentary regarding this apparent divergence from the master of all things gold!

$1,000 gold November 4, 2015

cheap oil will fuel (pun intended) the next up wave, if there is one.

IS November 4, 2015

On 10/16/15, Martin Armstrong's website indicated that a weekly closing above 17760 on the DOW Jones Industrials was necessary to suggest further upside (I don't know if the resistance has shifted since then, and I don't think we have seen such a weekly closing yet). Moreover, on 11/03/15, another posting on his website indicated that the reversals will confirm the next move, which if I understand correctly, is one of the two following scenarios: (1) drop to lower lows breaking last year's lows followed by a move to higher highs (all in a slingshot fashion)...which is what I think Larry Edelson wrote about where investors get scared out of the market before the DOW's journey to 31000; (2) basing until gold bottoms and then moving to higher highs. Armstrong's models have forecast this week (week of 11/02/15) as a turning point for the DOW.

Robert P November 4, 2015

And yet, Harry Dent's current prediction (for what it may or may not be worth) is in sharp contrast to what hese guys are saying. He's saying, based on demographic buying trends, the next major move (due to start anytime now) of the djia is down...all the way to 6,000 or below by 2020-2022. The next real opportunity for buying long into the market isn't until sometime in 2023. According to him, DEFLATION in almost everything is the watchword. All this is to be fueled by the dramatic slow-down of spending of the baby boom generation worldwide, as they get older. The next wave of buying, he says, by the boomers' children, will commence around 2023 Time'll tell who's right......only thing, by the time it does, it's too late to invest!

Larry November 5, 2015

Let’s keep our fingers crossed ,.

Robert P November 5, 2015

If it pans out as it has before, and I've noticed that chart patterns tend to repeat themselves, it seems to me that the djia has a bit further to go to the upside...and then a HUGE plunge, ultimately taking gold with it. (I think this top may be the "bear trap" 1,000 gold speaks of...?? Please speak to this 1,000 gold...do I hear you right?) Then, once that bottoming process is finished, THEN we'll be on our way back up again.

Robert P November 5, 2015

So, in thinking about this more, maybe Harry Dent and Larry Edelson ARE on the same page in predicting the pullback yet to come...except Dent's predicted lows are much more dire. Further, I think this big deflationary drop is what the Fed, and ultimately the IMF, has fought and is still fighting so diligently against, even in spite of all the criticism. I think Yellen is only doing as she's been instructed. When it comes down to it, ZIRP has absolutely NOTHING to do with giving warm cuddlies to the stock market. Central Bankers are seeing something on the horizon so CATASTROPHIC as to make the "great depression" look like a Sunday School picnic!! It may be that Edelson's predictions are milder than Dent's because he's trying to prevent panic....??

Robert P November 5, 2015

Going with that "due to drop" theory, looking at the bigger picture, we are now only in about phase 2 (chart-wise) of replicating the 1929 crash. Time frame-wise, this thing will take years to play out.......but that's not in keeping with 2017 thought projected on this site........I dunno..??? Please, Larry...some clarity...??