Financial Markets Critical Signals Updated
Stock-Markets / Financial Markets Aug 09, 2007 - 09:58 AM GMT
Larry Edelson writes: In times like these, when markets are swinging wildly, I pay particularly close attention to my systems and the signals they generate.
Not only have those signals proven themselves over the last 30 years, they also help eliminate emotions from the investing process. That's a key ingredient to successfully navigating the markets.
Indeed, the last time I published my signals they should have served you very well. Here's a reminder of what I said back in May, along with what happened afterward:
I said if gold managed to remain above $653.30 on any sell-off, its short-, intermediate- and long-term bull markets would remain intact.
What's happened since: Gold never closed below $653.30 and today it sits at about $675.
Since the Dow Jones Industrials had closed above 11,410 previously, I thought the Dow could get up to 13,500. But I warned that "while the Dow could move higher, the risk squarely lies on the downside."
What's happened since: The Dow subsequently moved up to 14,000, then started its worst plunge in almost five years.
I also gave you a signal to watch in oil, telling you that a close above $69.69 would suggest a breakout.
What's happened since: We got that signal on June 29, and oil made new record highs last week.
I'm not trying to brag. Rather, I just want to impress upon you how important it is to watch my signals at important times like this.
There's no need to go into the fundamentals too deeply today. After all, the underlying trends don't change that often. Instead …
Let's Get Right to the Signals You Should Watch Now …
Gold: Short-term, gold must now close above the $695 level to stay on track for new highs.
On the flip side, if gold closes below $661.00, be on the lookout for a decline back to $610 before the next leg up begins. Here's the chart so you can see exactly what I mean …
Oil: Oil is still very much in a long-term uptrend with higher prices yet to come. But short-term, it's in a trading range defined by $77 a barrel on the upper end and $70.56 on the lower end.
If it closes above $77, I have absolutely no doubt we will start heading toward $100-a-barrel oil. On the other hand, a close below $70.56 would indicate that oil could fall further, to as low as $55.
As you can see, I expect some wild swings in the oil market as it deals with the conflicting forces of strong Asian growth and a slowdown in the U.S. Ultimately, however, I expect the long-term trend to win out, with oil heading much higher.
Ditto for energy stocks: They are likely to remain in a choppy trading range until oil makes its next move based on the signals I just gave you.
Copper : I consider this a key metal to watch because it's very sensitive to economic conditions. Copper is often a leading indicator for the economy — anticipating a recession when it falls, or pointing to a resumption of growth when it breaks out to the upside.
Copper is currently trading near $3.47 a pound. The two signals you want to watch: $3.60 on the upside and $3.10 on the downside.
In between those two points, copper has a very wide trading range and is neutral short-term.
But if it closes above $3.60, the metal is off to the races … to $3.80 … then to new record highs … and all is well with the global economy (except inflation).
Conversely, if copper closes below $3.10 a pound, it will likely fall much lower. And that would be a sign that the global economy is heading into a mini-recession/correction.
I don't expect that latter scenario to happen. Even while U.S. demand for copper could slacken, China's demand is more than enough to keep the bull market in copper (and the global economy) alive.
Now, probably the most important market on everyone's mind right now …
My Signals for the Dow Jones Industrials
You already know that I gave full-blown sell signals on the Dow in late June and early July — telling you in no uncertain terms that the Dow had peaked and was heading down to the 11,000 level.
Since then, we have seen the beginnings of a violent short-term bear market. And let me tell you, my system generated additional sell signals when the Dow closed below 13,297 last week.
I continue to believe that the Dow is headed to 11,000.
The only way I'd change that forecast is if the Dow manages to rally and close back above 13,797. Otherwise, any rallies you see will be nothing more than bounces. They should be used to exit vulnerable positions you have.
On the downside, watch the following signals …
11,887: Although that's some 1,400 points below the Dow's current level, it is the next major level of support.
Put another way, the Dow could easily freefall from its current 13,250 level to 11,887. I fully expect to see the Dow get to 11,887. Moreover, if it closes below that level, we could see …
11,000: If the Dow closes below 11,000 at any time, it could fall to as low as 9,800. However, I do NOT expect that to happen. If anything, I expect 11,000 to hold and present itself as a MAJOR buying opportunity.
I realize that this might be a bit scary. So let me make a few things very clear …
First, the long-term uptrend in overseas economies and stock markets remains very much intact from a long-term perspective. These markets continue to have the capacity to outperform the U.S.
Second, the natural resource bull markets continue and have much more to go on the upside.
Third, the short-term volatility and downside action you're witnessing is totally normal. So while it might get a bit scary out there, you'll get through the storm just fine.
Best wishes,
By Larry Edelson
P.S. If you're a Real Wealth Report subscriber, I'll be watching these signals for you. And naturally, if any of my signals are hit, I will send you a flash alert telling you precisely what to do next!
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