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Imminent 37% Dow Debacle And Gold Peak Probabilities Call For Bear Strategy

Published 04/29/2020, 03:30 AM
Updated 07/09/2023, 06:31 AM

I believe that the market either peaked today or will have done so sometime this week, before embarking on another 37% debacle. This would perhaps produce multiple dramatic double-digit profits in consecutive quarters, as a result.

Since last August, the strategy which is discussed in that report’s SPECIAL SECTION has been advised as the best means by which to participate in a bear market. Indeed, the title says as much, and this year’s reports have given a play-by-play indicating the points at which lofty double-digit returns could potentially have been realized by such a strategy.

One of the criteria discussed in the SPECIAL SECTION that begins the March 11, 2020 report above, is to reestablish new positions once the VIX retraces to 27.5, after any liquidation that was triggered by the rules-based strategy.

After the VIX approached its ATH at 90, I wrote that this criteria could perhaps be softened and, with the market hitting today’s peak, I am again sufficiently bearish as to again suggest being less strict about that 27.5 level. (The SPECIAL SECTION offered investors the general recipe for formulating a rules-based strategy, while I shared that my own VIX criteria uses ~ 27.5 for reentry.)

In any event, I have altered my most recent view of the market. I had believed that the next decline could be the last in this sequence since it would form an obvious 5th wave down from the peak.

Now, however, I view this rally from the low as an a-b-c correction that has followed what was an already-completed a-b-c decline from the high just under 30,000, as opposed to needing a final 5th wave down to conclude the initial bearish phase. This means that a new wave lower could begin imminently toward the target at Dow-15,700.

At the peak, I warned that 30,000 was a flashy number that was serving as a “magnet” to trap investors, before it would suffer the forecasted 10,000-point Dow-collapse in 2020; so, I advised selling at some level “just below 30,000.” Now, we may be nearing another decline of similar relative (percentage) depth (~ 15,300?).

As the market has rallied too much to simply be a final correction within an initial bear phase (wave-4 rally), the pop to 24,512 corresponded to a break in the VIX to 30, thereby providing another dramatic opportunity for lofty double digit gains by employing the properly structured option combination strategy, per the SPECIAL SECTION referenced in the first paragraph above. Simply, we should be commencing another dramatic decline of ~ 37% (see paragraph-4 above).

As the Dow chart below illustrates, the index has rallied ~ 50% and is looking up at 25,000 which was, as we can see, the peak of the countertrend movement (up) within the 1st-quarter’s wave-3 debacle. Moreover, the 200-day moving average rests not too much above the market, suggesting that most of what needed to be corrected sentiment-wise has occurred.

Put another way, “bearish profit-taking,” in a manner of speaking, is all but complete.

Very importantly, as of now, today’s push to 24,512 before reversing has created a bearish non-confirmation, based on the slow stochastic seen below the price chart. A move under 80 will confirm the sell signal.

Indu Daily Chart

As the VIX chart below illustrates, the index seems to be completing its correction toward the 30-level (30.54 today), which finds itself between the 2 key points registered at the end of February and the beginning of March.

Meanwhile, the VIX is looking down at the nearby 200-day moving average, and the low area of the countertrend movement within this year’s wave-3 eruption; here, I refer to the area between the last week of February and the beginning of March.

Importantly, the push to today’s market high before reversing could be creating a bullish non-confirmation on the VIX chart, based on the slow stochastic, as seen below its price chart.

As the mirror image of the Dow (NYSE:DOW) chart, a reversal higher after today’s new low in the VIX could be putting in a bullish non-confirmation in its slow stochastic. An unconfirmed new low and buy signal would both be confirmed with a move above 20.

VIX Daily Chart

As seen in the silver section of the March 11, 2020 report linked in the 2nd paragraph above, I identified the peak in gold in that report, while looking for a quick and hard smash lower.

As with the circumstances at that time, I am again greatly influenced by today’s bearish divergence (non-confirmation of this week’s high) and confirmed sell signal, both of which are evident in the slow stochastic which appears below the price chart (see GLD (NYSE:GLD) chart immediately below).

GLD Daily Chart

Enjoy the ride.

This article was completed Tuesday April 28, 2020 at 8:06 PM EDT.

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