This is a very interesting look at the recent selling stampede in stocks, plus a look at gold and silver.
“Selling Stampede Redux”
November 2 (King World News) – Today’s note from Jeff Saut at Raymond James: Selling stampedes tend to last 17-25 sessions with only one- to three-session counter trend pauses/rally attempts before they exhaust themselves on the downside. It just seems to be the rhythm of the thing in that it seems to take that long for most folks to get bearish enough to sell and make the bottom. While it is true some selling stampedes have lasted 25-30 sessions, it is RARE to see one last for more than 30 sessions…
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Fast forward, this stampede began on October 4, 2018. On that day, we wrote about the fact that our short-term proprietary model had registered a cautionary signal (read: sell), and we said to sell short-term trading positions. We said nothing about investment positions, although in many cases we wish we had advised some trimming (read: selling) of some of those positions. At the time, we could not determine if we were in a selling stampede or not. It was not until mid-month that it became apparent that was the case. Subsequently, we have been writing that such stampedes tend to last 17-25 sessions, with only one- to three-session counter trend moves.
Well, Monday was the 18th session in the downside skein, and on Tuesday, we appeared on CNBC from Nashville telling our pal Brian Sullivan that the equity markets were near a MAJOR Low. We actually thought it would come next week, but our models have a margin of error of three to five sessions. As we told our various callers, our best idea was to buy the D-J Transportation Average since it had experienced roughly an 18% decline. In my 48 years in this business, I have observed if you can catch the Transports right, you can make a lot more money trading that than trading the other major indices, but that is a discussion for another time. So, Monday was the 18th session in the selling stampede, and to state it again, we appeared on CNBC on Tuesday saying the equity markets were near a MAJOR low. For the record, it takes four consecutive “up” sessions to break the back of a selling stampede, which makes today pretty critical in the bottoming process. So, the question remains, “Is the selling stampede over?”
We think the odds of the stampede being over are high, because investor sentiment had turned extremely negative and the oversold conditions were legend. Indeed, the 10-day new highs on the NYSE had dropped below 200, and historically, that means the stock market is near a major bottom. The last time that happened was in February 2016, which was a major bottom. As market wizard Leon Tuey writes:
“In my report this week, I forgot to mention that November will produce two market-moving events – the U.S. Mid-term elections and the G7 when President Donald Trump and Xi Jinping will meet which will cause further jitters, no doubt. Given the market’s grossly oversold condition and extreme pessimism, however, good news will send the market skyward.”
And just as the equity markets were turning negative yesterday morning, after an opening Dow upside salvo of some 160 points, a Trump Tweet was fired off that read, “Talks are moving along nicely” (with Chinese President Xi)…and the rally was on. The rally broke the S&P 500 (SPX/2740.37) out above the downtrend line we spoke in yesterday’s missive (see chart on page 1). However, the 2750 level is the real hurdle the SPX needs to clear, and we think it will happen. If that occurs, the next upside target should be the 2800-2820 level on the SPX. Given the October mauling, the mid-November “energy peak” has evaporated, leaving my “internal energy” models with a full charge of energy to support a decent move to the upside. The anticipated pullback from our October 2 “sell signal” has set the equity market up for another run to the upside, IMO. This morning, the futures are soaring (+18 points) on hopes of a deal on trade with China.
Gold & Silver
King World News note: The US dollar should continue to weaken next week. The dollar weakness will put more upward pressure on gold and silver prices as the commercials and bullion banks squeeze the massive hedge fund and speculative short positions that are still in place. The price of gold should push comfortably through the $1,250 level as that begins to unfold.
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