Best Ways to Maximize Increased Market Volatility

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SEPT. S & P e-MINI

NEAR TERM: (8/13) The breakout above 1300 this week was very friendly even though the last few days have retraced the quick run-up. As a result of this breakout, first upside target is 1320 with 1332 and 1347 likely later in the week into Aug. 15. If the market closes above 1350, it would open a can of worms for the bears, and we can not rule it out. The market could retrace the following week since crude should bounce from the Aug. 15-18 for at least a week, which may limit the upside for stocks next week. Cycles for other markets suggest that stocks may not cave until after August 18. Crude may do a secondary low into that time window.

OVERALL: (8/13) Given the strength of the S & P and stocks the last few days, it appears that stocks could easily hold up as late as Sept. 3--and the chances of taking out 1350 and accelerating to 1400 are increasing dramatically. Crude could break the key 112 region and go lower to 98-100 by Sept. 3 even thought it is showing signs of bottoming. For this week, we expect to see the S & P quickly at 1320, and higher numbers are possible. The 1393-1397 region is the latest projection if the market continues higher into Sept. 3. Major parabolic resistance is at 1400.

PATTERNS and CYCLES: (8/12) If the S & P reaches up to 1400 into the week of Labor Day, then can it still make new lows into the first few weeks of October? We think so, and probably to 1150-1175, but we have to do some more research on the patterns. For now there appears to be another 100 points to the upside available.

LONGER-TERM OUTLOOK FOR 2008-2009: (8/11) We are generally bearish the stock market the first three quarters of the year but how deeply the market falls will depend on how long the government can ward off the mess they have made the past year. We think that the Oct. cycle low could be to 1150-1170 on the S & P and if we are going to see 1000 or lower, it could happen later and we have to do some more research on that. The last quarter of 2008 looks brighter for the economy and should spill over into the stock market. So a rally off of the Oct low could be nice unless crude gets in the way. We looked closely at 2009 and it is a very sideways year. If the market has a chance of recovering to DOW 16000 for a slight new high, it will more likely happen from 2010-11. The housing crisis and higher crude are likely to prevent much upward action in 2009. Crude still projects at least 175 and we get 191.50 before it completes a rally from the 1998 high on the monthly chart even if it dips to 100 first.

LOOKING OUT TO 2009-2013: (5/27) There is a messy U.S. 7-year cycle that we last saw from 1889-1896 and it was a time when labor rose up and threw out the barons who were gouging them the previous seven years during the First Gilded Age when politicians and big business were in bed together--sound familiar? (The New York Times recently called the last eight years the second Gilded Age). In 1893, there was a major bank crisis and the stock market dipped substantially. Also during the period banks gouged home owners with mortgages with extremely high interest rates and forced many into foreclosure. Will Bernanke and crew save us with their new subprime lending guidelines or will it tighten credit so much that many people will not get to refinance or buy homes? The years 2009-2016 will not be an easy time for the U.S. The stock market did manage to make important highs into the equivalent of May 2010 and 2011 and we think maybe it could return to the 1600 level by 2011. It was really the year 1893, i.e. 2013 where the stock market fell 45% so maybe the period from Oct. 2008-2011 will not be that bad for the stock market.

SEPT. DOLLAR INDEX (electronic)

TODAY'S COMMENTS: (8/13) The market hit key at resistance at 7668 and cycle lows are now due until Sunday or Monday, August 17. That means that we might see a deeper break toward 7525. The more bullish patterns for the dollar are pointing toward 8000 or 8250 if crude does fall to 100 at some point before a final bottom is in. The earliest cycle change for foreign currencies is in the yen this week and it may have come in but the SF/Euro are not due to change trends until the week of Aug. 18- 22. We can do light shorts on dollars into at least August 17.

CYCLES OVERVIEW: Generally lower into Aug. 15-17 with possible pullbacks on Aug. 12.

LONGER TERM: (8/11) Weekly stochastics are pointing lower and rallies to 8000 max. should provide a final sale looking for 6750-6800 into the week of Oct. 10. Foreign currency cycles are mixed this month but it seems like a choppy dollar could hold up a few more weeks. Given our belief that crude is higher after August 14 followed by a secondary low into Sept. 3, we have to be careful about selling dollars.

CHICAGO DEC. MINI-GOLD (electronic)

NEAR TERM: (8/13) Our long-term target of 809 hit on the continuation chart for gold last Monday and we did not bottom pick because we like to wait for a secondary low and once should be due by Aug. 15 or Aug. 17. There is a cluster of cycle lows due that date and we expect the market to be up at least until August 29 and then a secondary low may develop into the week of Labor Day or late but it may be a higher low. If gold breaks 800, we have to stay open to 769 or 742 but those seem long shorts and seasons kick in for buying gold so we will want to be long by Sunday, August 17. From there, higher cycles suggest higher prices into the week of Sept. 26.

BIG PICTURE SYNTHESIS: (8/11) The earliest cycle low is August 15. If that happens--and seasonal trends support this scenario--then the week of Sept. 26 should be a cycle high for gold. Major support on the Dec. contract hit already at 812 but if crude falls again, much lower prices are possible to 752. If crude disintegrates to 80.00 (unlikely), then gold would likely fall to 6.00.

SEPT. mini-CRUDE (electronic)

NEAR TERM: (8/13) Crude has held very major support at 112.45 twice now and the break above 116.00 is friendly for a quick move to 118.52. Because crude has a number of secondary lows into August 15 and possibly into early September, we still cannot rule out a key break of the important monthly trendline at 112.00. That means we cannot rule out crude hitting 100.00 until we get a close above 125 and then everyone will jump in and buy.

BIG PICTURE: (8/11) Crude bounced off the abyss point and a close below 112 may or may not happen now. Support is at 109.19 into Friday if we do get a new low. Heating oil is projecting 281.40 or 279 before it will bounce and it has the earliest cycle low due by the end of the week. We looked closely at cycles it may be that we get a 1-2 week bounce off of the week of August 11-15 low then new lows into at least Sept. 3, and the market should bounce strongly out of there. That seems to coincide with DOW transports, which are suggesting a cycle high into 573-582 into the week of Sept. 12 but it could come in earlier by Sept. 8. We are confident that new highs will come just because of war and hurricane cycles and we want to focus on buying on August 15-17.

MONTH CHART OVERVIEW: Longer term, the monthly chart cycle high for crude is projecting at least 175 with a more likely target of 191.50 but we are not clear when that might hit. At the moment, the second week of October, when U.S. stocks bottom, seems to be a likely target for a first high and then the peak of heating oil season into January. The market of the year for 2009 in terms of most potential profit is heating oil, so I suspect that the higher crude numbers will follow.

WANT TO SEE MORE? This article in Fast Break is only a portion of comprehensive Fortucast research, which covers 14 financial markets in Fortucast Financial Timer, published daily. Fortucast also offers Fortucast Agricultural Timer (10 markets) and Fortucast Alternative Investments Newsletter plus S&P Intraday Updates for day and swing trades. All these Fortucast services are available as extended complimentary trials.

Go here to sign up for complimentary 2-week trial of Fortucast.