MARKET RADAR: Stocks Head South, Oil Bullish, Gold to Hit High

Wednesday, August 3, 2011

By Bill Sarubbi

(PanOrient News) The intermediate-term cycle for stocks turns down this week, but the stock market has already begun its descent. The losses are likely to extend through the new month because;

- Many equity markets are up against multiple tops that they did not break through

- The markets are still overbought on a monthly basis

- The 24 and 40-month circular cycles topped in June

- The last 3 days of the week have historically tested out as being the strongest days in the month of July. The fact that the market was down is bearish.

Looking out further, we see that the S&P has a series of lower highs and has not broken back through its downtrend line. In this sense, the S&P looks like many other equity markets like the FTSE. The NASDAQ actually did break above its prior highs, but fell back into its consolidation area, a bearish development. Monthly, the S&P and most world indices are in the same condition.

The 12th is likely a low. I doubt that the ensuing rally will be very strong, perhaps lasting only a few days before prices trend lower. The 16th is likely to be a sharp down day. The 26th is likely the low of the month.


The annual cycle graph demonstrates that the seasonality is bullish. And, the intermediate-term oil cycle bottoms now and rises until August 20th. Both the daily and the weekly graphs show that support is firm in the low 90s. Thus, there is the likelihood of a $9 to $10 rally with risk of about $3 on the downside, a reasonable 3-to-1 reward risk ratio.


Gold is likely to hit a high in this next week. Thus, it will likely be the time for short-term traders to sell long positions on the 4th or the 5th. The daily graph shows that gold broke out of a rectangular formation.

The breakout projected a price in the $1650-$1660 area. However, commodity prices can have extended 5th waves. So gold could carry on up to $1700 by Friday. This leaves the market in this cyclical position: The intermediate cycle is topping, but the annual seasonal cycle is bottoming. Since 1999, the intermediate cycle has pointed up in the month of August 7 times, and gold has risen in each case. In 5 years, the cycle pointed down, and gold fell only twice and rose 3 times.

Thus, the price action after the cycle high on the 5th may only be a sideways trading range. The cycle hits a low in early September, and does not rally in a strong fashion until October. If gold does fall, there is support at $1550 and at $1480. I doubt that we will see prices lower than that.

Bill Sarubbi, a strategist and portfolio manager currently operates his own business from Europe. He spends most of his time in Vienna, London, Tokyo, and Abu Dhabi.

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