The Brains Trust - 2015, page-11255

When I last posted the SPX was right on its downtrend but the past week has seen a very steep rise. Typical – everything always happens as soon as I turn my back. We now have a very clear choice on the S&P. Either this is absolutely the most perfect pullback making a right shoulder of a head and shoulders TOP pattern formed over the past eighteen months or the low in August was the end of wave four and this rally is the first leg up in the fifth wave and the markets are heading dramatically higher. Short term I am looking for a correction. We either saw the top on Friday in New York or perhaps a bit more on Monday. I had a time cycle of 8^th/10^th October so with the 10^th falling over the weekend, I am happy to allow the time to stretch out to Monday.

I have mentioned many times that I like markets to roar out of bottoms before having their first correction. I know we have already had once false alarm since the low in August but on that occasion the A/D wasn’t as positive as it has been on this rise. I see this as another plus.

And just to really frustrate me – my Geniuses got down to 18% invested, the lowest level in two years while I was away. They have since doubled their exposure. It does increase the odds of a major bottom.

So, having studied the big picture, I think I favour the bullish option. But I do want to make clear that the risks are still exceedingly high. Once we see how the market behaves on the correction I anticipate in the short term, we should have a clearer view of the longer term outlook.

Looking around the web, despite the sharp rise in the SPX, the bears are still very vocal – many after four years of shouting the same bearish projections. If we start another correction then we can expect a cacophony of bearish talk.

Precious metals – certainly pays to watch the leaders and laggards in this section. Palladium took the prize on this occasion. Happily silver did a nice catch up and made a higher high than the level set in August but gold failed to do so. A bit overbought so would be happy to see a bit of profit taking. However, I do stress that despite any short term correction, the bigger picture looks encouraging. Our gold stocks have been relatively stronger than New York for some time and were quick to join in the festivities. As I mentioned some time ago, I have a long term target on NCM of around $20.

In my previous notes, I put forth the idea that the XJO looked to have formed a double bottom. Well it certainly bounced nicely off that level. Resistance above here is going to be very stiff. If New York corrects as I anticipate, we will obviously follow.

I calculate an OBV on the XJO but I use the value of turnover – not the number of shares simply because there are so many low valued/high turnover stocks in our market. On Friday this OBV exceeded its recent high in April when the index was nearly 6000. Can’t form an opinion based on one chart but I still think I have to see this as encouraging as it does mean that the money is there on up-days.

Another chart that has certainly been interesting over the past couple of weeks is the ratio I calculate of the XFJ compared to the XMJ measured against the XJO. We all know that banks outperformed the miners for some time but in the past couple of weeks the ratio of the XMJ has broken its long term downtrend going back to February 2014. The sector is getting overbought short term but to break this downtrend is a positive step for the longer term.

Copper is certainly giving our miners a bit of renewed buying. I mentioned in my last notes that here too, it looked like we could be forming a double bottom. Prices have continued to recover since then.

Having had a week away from everything, gave me time to think and I have decided to take a step back. By that I mean, I am not going to write these notes each morning. An unbelievable amount of time and work is involved with the result that I haven’t been having time to concentrate on what I actually need to do – trade to make a living. Also I have a number of commitments coming up over the next few months which is going to cause me to take time away from my desk. As well, at this time of the year when we will soon have New York not closing till eight o’clock, it doesn’t really leave time to update my charts and also have time to think about what it all means.

However, would like to thank all those members who have been kind enough to give me a thumbs up so often but more particularly have enabled me to gain a heart which I have worn with pride.

I will still post on the XSO but will not writing this material every morning.