Hello MarketClub members everywhere! Well, today's sharp drop in equity prices and the rally in gold should come as no surprise as I have been talking about this since the beginning of the year. In fact, here's my first post where I explained why I thought the bear market was going to continue in the equities market. I'm not going to go over the reasons again as to why the markets are going down, suffice to say they are going down and are likely to continue.
At the moment all of the central banks, including the Fed, are clueless as to what to do. Instead of spending time on a cure in 2008, we made it easy for everyone to "take a pill" and mask over the problem. Since it did not cure the problem, we all have to suffer now as the markets readjust and face the music. The new hard reality is that there is no wonder pill.
Let's take a look at the major indices and see how far they could fall based on Fibonacci retracement levels and technical measurements.
DOW
Downside targets for the DOW are between 14,500 and 13,591.80 based on classic Fibonacci retracement levels. Technically, this index can move still lower. I would not be surprised to see a move to the 13,100 area.
S&P 500
The S&P 500 index is in a major downtrend. Downside targets for this index are between 1,500 and 1,600. Technically, I expect this index to reach the lower levels of the Fibonacci retracement areas outlined on the chart.
NASDAQ
The tech bubble has burst and nowhere can you see that clearer than on this index. Downside targets for the NASDAQ index are 4,000 - 4,100. Technically the twin peaks on the chart and the breaking below the pivot point indicates further weakness down to 4,000.
Gold
I have been bullish on gold since the beginning of the year and today's sharp upward move came as a very pleasant surprise. The first buy and major trend change came in on 1/05/16 at $1,081.55 on spot gold. The last daily buy came in on 1/20/16 at $1,094.29. It is difficult to predict how far and how high gold can go especially after a day like today. Gold is at the top end of a downward channel which may halt the upward climb. For now, I'm going to sit back and enjoy the ride and use the Trade Triangles to manage my position.
Just remember, tomorrow is Friday and many stocks could be making 52-week lows. If that is the case, then you may want to be short over the weekend.
Here are the three rules you need to trade the "52-week New Lows on Friday".
Rule #1: On a new 52-week low when the market closes at or close to its low on a Friday, short and go home short for the weekend.
Rule #2: Exit short position on the opening the following Tuesday.
Rule #3: If the market opens sharply higher on Monday, exit this position immediately.
Thank you for all your comments and feedback on this blog.
Stay focused and disciplined.
Every success with MarketClub,
Adam Hewison
President, INO.com
Co-Creator, MarketClub
