What’s With the Stock Market?!

Larry Edelson

Other than purchasing select stocks with very good fundamentals and chart patterns, for over a year now I have been warning you that a steep stock market correction was coming. So much so, that many are now calling me “a stopped clock.”

That’s fine. I can handle it. But the facts are these:

A. The Dow Jones Industrial Average is now down 1.5% since the first of the year and down 4.3% since its record high of 18,351.36 in mid-May.

Moreover, the Dow Industrials are now trading at the same level they were in November 2014. Meanwhile …

B. The Dow Jones Transportation Average is down a sharp 11.28% since the first of the year and 13.29% since its high of 9,310.22 in late November 2014.

That in itself is a very bearish sign for the Dow Industrials, for historically, it has trouble rallying — and often starts sliding — when the transports are doing poorly.

C. The Dow Utilities is down 10.27% since the first of the year and 14.37% since its high in late January.

True, the Nasdaq has hit new highs this year and the broad S&P 500 Index has also. But that’s deceiving.

In the Nasdaq and on both the AMEX and NYSE (where most S&P 500 stocks are traded), since the start of the year, far more stocks have been declining than advancing.

You can see the trends on these three charts here, each one showing that the number of advancing stocks minus the number declining is getting smaller and smaller.

Click here for larger image

Healthy markets? No. When taken together all of the above are signs that tell me a sharp, severe pullback is still in the offing.

And those are just some of the internal weaknesses in the broad equity markets. There are many more bearish signs, including record investor complacency, declining volume, pressures from the stronger U.S. dollar, cyclical forces and more.

So how low could stocks go? How bad could a correction be? No one can tell you with 100% accuracy, but here’s what my work tells me:

A. The Dow Industrials has weekly support at 15,672 and 14,395. Worst case I see the Dow falling no lower than long-term support at the 13,938 level. Yes, it could get that nasty.

Click here for larger image

B. In the S&P 500, major support lies at 2,025 and 1,893.50. Worst case I see it falling no lower than long-term support at the 1,709.75 level.

C. The NASDAQ has support at 4,380 and 3,756, which would be a worst-case scenario.

So I maintain my views:

A. The long-term bull market in stocks is still in play, and the Dow will explode higher to over 31,000 over the next two to three years. The S&P 500 and Nasdaq will lag but still experience terrific gains.

But …

B. There will be no further gains in any of the major averages until a very sharp, sudden correction occurs, one that causes the majority of investors to panic.

Click here for larger image

The line in the sand on the upside remains Dow Industrials 18,500.

Keep in mind that any pullback though, as sharp as it may become, will  merely be a healthy correction, one that will actually serve to re-energize the markets by forcing die-hard bulls to sell, thereby giving the market new buyers once the correction plays itself out.

My suggestion remains the same: If you have equity positions you cannot or do not want to exit, for whatever reason, consider hedging those positions via an inverse ETF such as:

 ProShares Short S&P 500 (SH)

 The two times leveraged ProShares UltraShort S&P 500 (SDS)

 ProShares Short Russell 2000 (RWM)

 For small caps, Direxion Daily Small Cap Bear 3X Shares (TZA)

 For tech stocks, ProShares UltraShort QQQ (QID)

What can one expect after a correction?

My answer: Europe’s equity markets will not recover and instead enter the realm of longer-term bear markets, while most Asian equity markets — excluding Japan — will soar higher again with U.S. markets.

As I have said all along, don’t get caught up in economic stats, earnings reports, or the like to understand how markets are going to be moving from here on out.

Why? It’s simple: The world is entering a major sovereign debt crisis and that’s going to turn many markets inside out and upside down.

Everything you thought you knew about economics, about markets, about relationships between asset classes — will change right before your very eyes.

Best wishes and stay safe,

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 54

tubbery July 29, 2015

No mention of gold? I m here for that.

Robert Ledonne August 1, 2015

yeah, what about gold and oil?

Manny July 29, 2015

Mmmmmm. I can taste it!

David S. July 29, 2015

Grow up.

Tony July 29, 2015

Larry, please warn your readers that the contents of those leveraged inverse ETFs are re-set everyday so therefore they are not so good to hold onto for more than the short term.

mephisto July 29, 2015

Do you honestly think he reads these comments? Or even cares?

$1,000 gold July 29, 2015

tony is right. i've learned this lesson the hard way.

Heidi July 31, 2015

Tony - JDST is up 159 % since May - $ 6.25 - $ 18.25 - sitting at $ 15 right now . Last year July 10th to Nov. 5 JDST up 390 % . That's short term, right ?

$1,000 gold July 29, 2015

higher highs and higher lows in the transports just this week. could be the reversal we're looking for.

$1,000 gold July 29, 2015

we're still in the same trend channel, but we are at the very lower end. every time we reach this point the swing traders move in and buy. so far, this just looks like another slow down, not a correction.

$1,000 gold July 29, 2015

if we break out of this trend channel to the low side, i'll start looking for a correction.

BFD July 29, 2015

"mephisto" is the winner of the most relevant comment so far today. These guys don't giva flyin' ______ about you or your money. It's just more subscriptions - fleece the sheep! Oh; did I say that out loud?????

Al Hall July 29, 2015

Larry- Have to disagree with you- told by an insider elite that the collapse starts in Mid-Sept.2015 and is set in cement. He said as he has for awhile- "get out of anything paper and get of the corrupt baksters system". he said gold and silver is the elite's only money- get it now while you can- physical metals onlt- no paper! al

$1,000 gold July 29, 2015

odd as it may sound, corrections usually happen when we break out of the trend channel to the high side, not the low side. the eventual rebound results in a correction to the low side. a sign we may just be in a slowdown right now is the lack of this volatility.

Robert P. July 29, 2015

The current "boom" in the stock market, which started in early 2009, is apparently based on absolutely nothing but the fact that central banks around the world have pumped huge amounts of artificial money into the system. How long they will be able to levitate this anvil in mid-air is yet to be seen.

$1,000 gold July 29, 2015

stocks were also under valued in 2009, making a good case for the fed to levitate the anvil.

Manny July 29, 2015

Lol "convergence". Pure fiction. Larry may as well read tea leaves in a cup or throw chicken bones and shells on a table.

John S July 29, 2015

Well, why read his articles if you don't believe in what Larry says? Just go to the sites that you believe say what you want to hear. I personally don't listen to any time frames from Anyone. I do take note of Situations and Information on what could trigger a collapse and then adjust to the side of preserving what gains I have made ( or cutting losses that could become larger losses).

Robert P. July 29, 2015

Out here on Main St., USA, the real world, things are tough and getting tougher all the time. A simple weekly trip to the grocery store shows how much "deflation" is really out here. With all the empty store fronts and LACK of business going on, I don't see how the stock market could possibly continue to go up....yet it does! And this anticipated "correction" Larry has spoken of so many times never has materialized. I have no doubt the correction is coming, and since it's been so long delayed, it will probably be a "shock and awe" event once it does.

Robert P. July 29, 2015

Yet, the question is WHEN...or at WHAT level will the "correction" happen?? You can go broke shorting a rising market or buying gold as it continues to tank!!! (Remember all those "geopolitical events" that were bound to send gold soaring up??) So, is this finally the time to act, or is this simply one more "correction" call among many??

John S July 29, 2015

Sometimes it is just best to sit on the Sidelines and wait. Unless You need to be on the winning side on a daily basis. Sometimes, it is satisfying to know that you didn't make money for a few months, but when the big one hits, you avoided a 10%, 30% or 50% loss.

Robert P. July 29, 2015

I agree with you, $1,000 gold!! "...corrections usually happen when we break out of the trend channel to the high side, not the low side. the eventual rebound results in a correction to the low side. a sign we may just be in a slowdown right now is the lack of volatility." A real correction usually comes when virtually nobody is expecting it!

$1,000 gold July 29, 2015

everyone is expecting a correction here, even larry. expect the unexpected. the market loves to make fools of us all.

John S July 29, 2015

No, I think we are going to have a 5 or 6 week Rally, and then..... Boom!

$1,000 gold July 30, 2015

you're probably right, john. gold and stocks are near the bottom of their channel. you know how these swing traders (like were) like to jump in here and drive price back up to the top of the channel. but larry says we're going to have a correction here and were says the highs are in for the year. but mephisto below says i'm just a blabber mouth, so what do i know? i'll tell ya what i know. i know the fed is determined to get that first rate hike in in september, and that's a game changer.

Heidi August 3, 2015

John S I think you are right on . Armstrong just send a note today - all too much to the down side - short squeeze coming - 4 week rally enjoy if it comes . Isn't that what " were " had too ?

$1,000 gold July 29, 2015

i like larry's comments about the impending worldwide crisis that's coming. he's right, but for the wrong reason. it will be because of low oil prices, which are arriving soon. low oil prices make it hard for oil producers like the saudis to balance their budget. the lower the price goes, the more oil these countries are forced to pump to pay the bills - so the price of oil will go even lower because of the increased supply, which will push the price even lower again. look for bankrupt countries like russia, venesualia, nigeria, etc., because all these countries have nothing to offer the world except oil. expect revolutions and financial crisis, like larry said, when these guys can't pay the bills. this will only help america who will benefit from cheap oil.

Tom August 3, 2015

Would you mind posting links about a deflationary scenario? I am particularly interested in whether the concept always ends in a transition to uncontrollable inflation.

mephisto July 29, 2015

notice how the usual commenters no longer comment since blabber mouth $1000 gold showed up?

$1,000 gold July 29, 2015

yes, i noticed that. sounds like larry has a lot of friends.

$1,000 gold July 29, 2015

i guess i need to show up more often. this is an improvement.

Subscriber July 29, 2015

The usual haters no longer comment because they were WRONG about gold. They laughed at Larry claiming gold would never go down below _________ (fill in the blank). How are those mining stocks doing now ? Still bullish ? Heide ? Were ? Seems the mainstream media is jumping on the dump gold bandwagon. Yes Manny, I CAN TASTE IT.

Manny July 29, 2015

Geeez. I guess I must have imagined Larry's but signal and recomendation to buy miner IAG. That was a real winner. those of us who have been following the gold markets know that Larry's track record is spotty. Some very big misses along the way. Don't believe the hype.

Mephisto July 29, 2015

Not even close. Can't taste it...

Heidi July 30, 2015

Subscriber - reading must be an art otherwise you should've understood that HEIDI was and still is bearish re- miners .

Subscriber July 30, 2015

Yes, I took a light spanking on IAG before getting stopped out. Meanwhile, my inverse ETF's on gold & silver are doing quite nicely.

Subscriber July 30, 2015

My apologies HEIDI.

Puunjabi Kahkmeede July 30, 2015

The testicles of the most important thing is that you think it was sped up to be a Sasquatch as well as most people who were schizophrenic. The other passengers weren't going to get the chance of this show is extremely crazy. But please do keep it will take him out of the wormhole! Please come join us for a delicious meal of raw camel dongs and roasted goat testicles!

Puunjabi Kahkmeede July 30, 2015

The other passengers weren't going to get to see what she really thinks of this is what they are not incredibly easy for the most schizophrenic post to get a real good thing is that the body recieves more than 6 days to get it going! !!!!

Heidi July 31, 2015

Subscriber - o.k. !!!! Glad you enjoy bear ETF's - so do I .

bob July 29, 2015

Gold??????????

$1,000 gold July 30, 2015

gold won't like a rate hike, bob. neither will bonds. my guess is the fed is anxious to push investors out of bonds and gold and into the markets. all us chickens will run to the money market first, but greed for yield will send us to stocks. there's no place else to go.

Heidi August 3, 2015

$1000 - this is so stupid this blah-blah-blah about a rate hike . In the meantime they are reducing rates - see Canada just 2 days ago down to 2.50 now - while the market guys keep talking " rate hike " - get real !

$1,000 gold August 3, 2015

canada's commodities-based economy is headed for recession - a time of lower rates, deflation, and a weaker currency. conversely, america will surely see a rate hike soon.

$1,000 gold July 30, 2015

looks like pretty strong support for gold at $1,081, bottom of the channel. we're about there.

mephisto July 30, 2015

we were there last week, amateur

$1,000 gold July 30, 2015

you're right, i'm an amateur. so how is it you pro traders can't keep up?

$1,000 gold July 30, 2015

we hit the s/r level last week, but not the bottom of the channel. now we're channeled out too.

Puunjabi Kahkmeede July 30, 2015

Greetings from the great and terrifying one. Please come join us for a delicious meal of raw camel dongs and roasted goat testicles!

im confused July 30, 2015

i am looking for gold to bottom and bonds to break down am i in lala land or should i stay with my postions?? thank you

enock August 1, 2015

How should i join

Heidi August 4, 2015

enock NEVER !!!!!!!!!!!!!!!!!!!!!!!!!

Mark August 1, 2015

Now is the time to sell stocks and buy physical gold!

john August 2, 2015

Now is the time to buy gold stocks - Buy when everyone else is selling - buy when there is blood in the streets. buy when it looks impossible that they will recover. But don't listen to me. Remember when the explosion at three mile island happened, and everyone said electric utilities would go under? Larry doesn't know what the gold markket will do, and neither do I. When was the last time Larry showed you a gold chart? If you read any of the news letter advisors, know this, not one gets it 100% right all the time. I read his articles and make up my own mind. Get lol.