This is a very important column. So please be sure to read it in its entirety.
In my June 20 column, and again on June 27, I made it perfectly clear to you that the U.S. economy was headed for some very tough times.
I also gave you my signals to watch for key markets, starting with the Dow Industrials, where I warned that its inability to get above the 12,800 mark meant we would soon see the broad stock markets rollover to the downside.
I gave you the following signals to watch in the Dow …
This week, we saw exactly that, the Dow Industrials plunge, smashing the first signal at 11,542.62 — generating an important weekly sell signal — and falling all the way to 11,380 as I pen this column … just 30 points above the 11,350.27 support level.
In total, we have now seen the Dow Industrials plunge more than 1,500 points since its May high, a whopping 11.6% plunge.
It’s not over. While there might be a bounce this week, all of my indicators suggest, at a minimum, the Dow may plunge to the 10,567 level, with the distinct possibility of falling to 10,386.
IMPORTANT: If the Dow closes below 10,386 at any time — the Dow will be in a position to collapse to 9,034.
That IS a possibility. But much lower than that is now. And you should also know that if the Dow does fall that low, it will be one heck of a buy — a great time and price level to position yourself for the next major leg up in stocks, which will ultimately find the Dow Industrials making new record highs.
Why? Because at around Dow 9,000 — that will be the point where the Federal Reserve and Mr. Bernanke come in with all the other ammo they have at their disposal. The ammo I wrote about in my July 18 column.
It is where the Fed will bring out QEIII, which will include buying stocks, commodities, corporate bonds, even real estate, slashing reserve requirements, and even penalizing banks for not lending to the economy.
If you don’t believe me, just consider what the Bank of New York Mellon, on its own, announced last Thursday: It will now charge its customers 0.13% of the cash they hold at the bank in excess of $50 million.
Soon, you will see the Fed do the same thing to all banks that are holding excess reserves on deposit with the Fed itself, in an effort to push money into the economy.
And once that gets going, you will be looking at monetization of all debts and all types of assets in the greatest re-inflation effort in the history of civilization. A reflation scheme that will affect almost everything (except U.S. Treasury bonds).
In my June 20 column, I also gave you important levels to watch in the S&P 500 and in the Nasdaq. To review, those were …
The S&P 500 has now cracked the first two levels and generated weekly sell signals. Like the Dow, while it might bounce a tad this week, I expect the S&P 500 to slice through 1173 and head to the 993 level.
The Nasdaq, relatively stronger than the Dow, has now given a weekly sell signal, breaking the 2567.88 level. I expect it can now begin to chip away at the support level, and slide to as low as 2023.
In my June 20 column I suggested you consider purchasing the ProShares Short S&P 500 Fund (SH) … or if you wanted to be more aggressive, the 300% leveraged inverse ETFs such as the ProShares UltraPro Short Dow 30 ETF (SDOW) … ProShares UltraPro Short NASDAQ 100 ETF (SQQQ) … ProShares UltraPro Short Russell 2000 ETF (SRTY) … and ProShares UltraPro Short S&P 500 Index Fund (SPXU).
If you purchased any of those suggested investments to take advantage of the downside in these markets, hold! I see more downside coming, and more upside potential in those inverse ETFs.
NOW, importantly, to gold and silver …
In the short term, there is no question that I have been conservative in gold and silver. And many have questioned me. That’s ok. It’s more a sign of how emotional many investors are now, which is also one heck of a sign that a turning point could be very close at hand in the metals as well.
I have, however, warned that gold could reach the $1,700 level and indeed it has. Nevertheless, I repeat my warnings of late: The recent rallies in gold and silver are NOT the big ones.
Those will come later, much later, heading into the worst phases of the sovereign debt crises which will not be here for a couple of more years. That is when gold will skyrocket to well over $5,000 an ounce — to $7,700 — and silver to well over $135.
It is not going to happen now. And if you want to risk a lot of money, go ahead, be my guest and buy into the gold and silver euphoria if you wish. I think you’ll be sorry, and could face very steep losses in the weeks ahead.
Indeed, I am seeing very strong signs that gold and silver may roll over very soon to the downside. Last week’s action in gold — soaring to a new record high, then selling off sharply, is just one subtle sign a selloff may be at hand.
Silver did much the same, jumping to $42.25 and then plunging — in the same day — down to below $39, an incredible 8% single day reversal.
I have updated signals for you for gold and silver. But before I give them to you, a few further clarifications …
I am very bullish both metals, longer term.
If you’ve been following me for any length of time and acted on my recommendations, you should own gold from much lower levels and have very nice profits!
You should keep the long term in perspective, and not worry
or get wrapped up in the short-term movements. Gold can still rally here to $1,750, even $1,800 or higher.
But as I said before, these are NOT the big moves up for gold or silver.
Those moves are a ways off, and getting overly emotional right now and caught up in these markets and the emotions of the times will be — I can almost guarantee it — hazardous to your wealth.
Having said that, it is also entirely possible that both metals will not turn south, as investors all over the world panic and go to “cash.” If that happens, here are the support levels you should be watching for.
As you can see, gold has many more support levels under current prices than silver does. That is very significant, and it shows you that longer term, gold is much stronger than silver.
But it also tells you something else: Silver is again vulnerable to a CRASH. If silver closes below the $38.86 level — which are now very close — silver could easily plunge to $30, and lose more than 20% of its value in a heartbeat.
Now, I fully understand I have a lot of enemies in silver. But that doesn’t bother me one bit at all. I have been around these markets for 33 years and I have the experience, the instincts, and the tools to have complete confidence in my forecasts.
I know when to be in the markets, when to be out of them, and when in, which side to be on. Right now, I would not touch silver with a 10-foot pole (except from the short side, if you have the financial wherewithal and risk-reducing discipline to sell short silver.)
Now, to oil: In my last several columns I’ve been telling you that oil would be rolling over to the downside. In my June 20 column, I gave you a very important level to watch: $91.57, a close below that would indicate a weekly sell signal.
That signal is now in place and oil is collapsing. I now expect oil to plunge to as low as $80 in the weeks ahead. So I would not be buying any oil and energy stocks right now.
Quite to the contrary, I would be considering short positions via inverse ETFs such as the ProShares UltraShort Oil And Gas (DUG) or the PowerShares DB Crude Oil Double Short (DTO). These are double inverse positions so monitor your risk tightly.
NOW, to a very important personal message:
Each and every week I get a lot of feedback on my weekly video market updates. But it’s come to my attention that many of you who watch my videos often get confused about my short-term comments on the markets. So I want to clarify a few things.
First, my weekly videos are meant to only give you my very short-term observations. They are not scripted, they are not rehearsed.
I try to talk with you on those videos as if you were sitting with me at my trading desk, and I try to show you what I am seeing, at that moment in time, and with reference to the last week’s comments.
Second, I always endeavor to make my weekly updates appropriate for anyone who is viewing them; but try as I do, I also have to keep in mind that many who are viewing my videos are often subscribers to my Real Wealth Report or my trading services.
So I have to bear at least two audiences in mind.
Unfortunately, that sometimes leads to confusion for those who are not members of one of my services. They listen to my short-term comments, but often, no matter how hard I try, the context in which I make comments and observations gets lost or is hard to follow.
I understand. And I will try harder in the future to be more explicit and clear.
But the best thing you can do, is join my Real Wealth Report so that when you do view my weekly videos, you know exactly where I am coming from and you can better understand my comments.
Regardless if you join or not, I will continue to strive to make my videos more meaningful and as clear as possible.
But if you are not a Real Wealth Report member, I do encourage you to become one. It would make my Monday morning columns and my weekly videos even more meaningful to you.
P.S. With my Real Wealth Report you can get ALL of my timing signals, recommendations, risk reduction strategies, insights into the markets, and more. It’s a freaking bargain. Join now by clicking here.