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Eight months into the rally, what is next for the market and gold?

David A. Banister, Chief Investment Officer

We have come a long way since early March of this year.  After bottoming at 666, the SP 500 Index has rallied as high as 1101 at its recent peak pricing.  I wrote about the market bottoming and my outline for a bull rally prediction back in late February.  My targets at the time were 10,400 on the Dow and 1140 on the SP 500 index.  Since we came within 3% of those targets, I believe the next leg for the market is a corrective movement to the downside.  The bounce up that we are getting now is likely temporary, and will be followed by another bout of selling.  My methodology uses a confluence of factors to determine direction and price targets.  A combination of Elliott Wave Theory, sentiment indicators, technical analysis patterns, and cyclical movements.  We are looking for the SP 500 to pullback into the 840-880 ranges before a significant pivot bottom, and are moving our trading positions from very bullish and aggressive to defensive.  I continue to favor the gold stocks on a strong pullback to accumulate for a five year bull market that began in early August of this year.

To wit, the SP 500 has retraced a normal A B C pattern to the upside following a cataclysmic 5 wave pattern from October 2007 to March of 2009.  The 8 month rally is roughly 50% of the 17 months of decline that preceded it into early March.  With the sentiment readings back at very high bullish levels, many small cap stocks rolling over, and leadership spread amongst fewer and fewer equities, it is time for a corrective decline.  We see this bounce ending shortly to the upside, followed by another bout of selling.



Our advice is to maintain higher than normal cash positions at this time, accumulate Gold on large dips, and wade into Gold Stocks on a big drop as well.  We also plan to recommend the occasional use of Bear ETF’s for defense and insurance on our portfolios.



Dave Banister is the CIO and founder of Active Trading Partners, LLC.  David has been often quoted on 321Gold.com, The AUreport.com, Stockhouse.com, Ticker Trax, and other advisory venues.  His activetradingpartners.com service advises subscribers in real time with frequent updates on managing portfolios through various market conditions. You can learn more at www.activetradingpartners.com and reach Dave at Dave@ActiveTradingPartners.com

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Gold Stocks & The Market Forecast for 2010

I wrote a post here for ATP called “The bull case is not dead yet”. This ended up as an article on 321Gold.com, which you can review here: Bull Not Dead Article- Banister. I stuck my neck out, which I love to do once in awhile when the contrarian mood strikes me. I wrote a Feb 25th article this year going very bullish on the markets when everyone was bearish. I wrote an article in early August going very bullish gold and gold stocks, when they were not in bull mode. Obviously, if you stick your neck out enough you’ll get your head chopped off, but I only write these every 3-4 months or so… so far, so good.

In regards to my update on Gold, I have Gold moving to $1325 or so in the first 3-4 months of 2010.  This should be followed by a spring-summer correction and consolidation that will last into the late summer.  By the end of 2010, I'm looking for Gold to get as high as $1625 an ounce, and the Gold stocks will be enjoying another large leg up.  My article on 321Gold.Com in early August predicted a 5 year massive bull market in Gold stocks, and we are sticking with that prediction.  There will be pullbacks along the way, and we will trade around those as best as we can.  I recently picked 3 stocks under $5 for 2010 on TheStreet.Com interview with Alix Steel. 

You can view that here if you'd like:
http://cosmos.bcst.yahoo.com/up/player/popup/?rn=289004&cl=17483005&src=finance&ch=633473

In regards to the SP 500 and the broader market indices:  In the recent bullish market November article, I noted how many bears were growling and how some noted Elliott wavers were calling for a hard wave pattern down. What I was trying to outline was that the Bull case was still alive, and we needed to watch the price action and wave patterns to confirm. I was watching the IWM (Small Caps) index to confirm the Dow etc. This has confirmed and pushed above my $63 IWM targets, and this now indicates to me a 5th wave up is confirmed since March.

What does it mean in English? In the world that I am in for Market forecasting, it means a bullish impulsive pattern since March 9th lows is confirmed. This means, instead of a “corrective a-b-c” pattern since March, we are moving impulsively higher. If you have a clear 5 wave pattern up, normally it indicates the strength of the trend is bullish and not just a correction to the upside. The next shift will be an A B C market correction, but not until the 5th wave has run it’s course. Back in early February, I made the case that the bear market was ending since 2000 with an 8 Fibonacci year decline into late February 2009. I showed an SP 500 index chart making that case as well. Here we are 10 plus months later and you still have people bearish who don’t get it. Markets move on sentiment, not on fundamentals… markets predict a shift in fundamentals obviously… but they move first on sentiment.

The 5th wave is tough to predict, because they can be extension waves or they can be truncated and short. IWM could climb to 78 easily from 64 ranges here (IWM is an ETF). This means you want to keep riding the bull for now, and focus on the best sectors and stocks within those sectors. Inflation is friendly to stocks, and deflation is the enemy of stocks. When I wrote my Feb 25th article going bullish on the markets, I talked about moving from deflationary trends to inflationary trends. The market anticipated this as I predicted then, and we have moved much higher.

Look for the Market to continue higher in this 5th wave, and then we will try to be prepared for the A B C correction that will ensue afterwards.

Dave Banister
CIO-Founder
Active Trading Partners, LLC
www.ActiveTradingPartners.com

Disclaimer: David Banister does not own  any o the stocks mentioned in the video link listed above.

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5th Wave of Market Advance is Tiring Out

It’s time for a review of the broader market indices and possible implications for traders and investors:  This analysis may prove controversial, but I tend to make big picture calls at critical junctures. This analysis is getting more bearish I realize, as I’ve been bullish since Feb 25th on the markets.  I simply look at all the evidence, and instead of burying my head in the sand, I take it all in and plan accordingly.  Being a perma-bull or perma-bear is a quick way to under-perform the markets.  I try to be nimble and trade/invest accordingly.  The next few weeks are likely to be volatile, possibly to the downside a bit.  The market may not have peaked quite yet, but it’s feeling like the 8th inning in the game.  Below are my thoughts:

1.  It appears we have the qualifications to have a potential top in since the March 2009 lows.  This is due to the rebound of the Dow to above my 10400 targets I put out in late February of 2009.  We have had a 61% Fibonacci retracement of the 2007 highs to the 2009 lows. In addition, we have had about a 61% time period duration with an 11 month rally which followed a 17 odd month decline.  From the world in which I work, this means that the markets have fulfilled intermediate objectives for a top.

2.  The caveat in this analysis, is that markets could still work their way higher.  Just because we have met certain typical patterns in Time and Price movement, elliott wave patterns and the like, doesn’t mean we have peaked for sure.  The markets could continue in a higher % retracement of the 17 month decline and the indices work their way higher.  What I am pointing out today is that the requirements for a top have been met, and we need to be on guard. Also, we have other non elliott wave measures I use that are giving me some topping signals (Below).

At the bottom of this post is my 5 wave Elliott pattern on the Russell 2000 index.  I will again note that this pattern could be re-interpreted if I wanted into a 3 wave (A-B-C) corrective pattern.  It is all in the eyes of the Elliott Wave beholder I guess.  Sometimes you need to take a little poetic license in the analysis.  Elliott wave theory is not foolproof by any means, so I try to overlay other factors.  Read my Feb 25th 2009 article on 321Gold.com if you want to see my point there.     We have bullish sentiment running at extreme highs.  We have the VIX or “Volatility” index running at extreme lows.  The last time we had this many bulls in surveys vs bears was July and October 2007.  I think we all know what happened then.

Bull to Bear ratio is running at Extreme Highs



Therefore, whether this was an impulsive 5 wave pattern from March, or an A B C correction upwards… doesn’t matter much near term because in either event, the evidence is mounting for an interim top in the next 1-2 months or less.  Tops don’t usually happen in one day or one week, they are a process… and we are mounting the top of this mountain I think.  The bull to bear ratio is a warning flag.

Other Factors: Consumer Expectations index has rallied from a low of 22 in February 2009 (My bullish article period) to a reading of 70 now. This would make sense as these bottomed with a low market, and rise with a rising market.  This means expectations have soared off the lows, along with the markets.  However, how people feel about their “present situation” is rather unnerving.  It has hit all time lows even with the market rebounding.  This is a potential problem for sure.  This is also reflected somewhat in the % of bulls in the market vs the bears… again, a warning flag.




Bottom line: Markets are at a critical juncture of higher than normal risk levels here.  This does not mean we can’t trade and make profits on the long side however.  What it does mean is what I’ve been hinting at lately.  We are in the 5th wave up in this structure since March lows.  5th waves can be very difficult to forecast as they can be extension waves or “truncate” and reverse sharply.  Friday last week was ugly, but it was also options expiration week, making analysis more difficult.  Partners in this service should note that we have been aggressively taking profits and removing positions off the table in the past two weeks, as well as  general advice to raise  cash levels a bit.  Partners who are planning to stick around for the long haul should be aware that there are times in the market to be aggressive on the long side, and times to be high in cash and sit back for awhile.  Right now, the evidence is to be more cautious and to have higher than normal cash balances while we wait for confirmation of market/wave patterns.

Other notes: Robert McHugh, is a very good Elliott wave forecaster and he is also beginning to make a convincing bearish cycle/wave case now.  I often ignore his analysis as he has consistently been forecasting a top for 2-3 months now, and we have plowed ahead… but now I’m watching his work a bit closely to see if it mirrors my views.  Eric Hadik is also a strong cycle and time forecaster, and again, not perfect.  He is also looking for potential tops into latter February and early March.  I also have not reviewed his work in 10 months or so, but am starting to review it again.

We need to be on our toes to be prepared to trim back positions if needed and to cut losses quickly if needed.  This update is not to alarm anyone, as there is likely one more leg up in this up cycle to higher highs yet.  However, let’s be on guard.
Here is the current IWM (Russell 2000 Small cap) index chart.  It’s getting long in the tooth:  Does this mean the market crashes from here? No, but again, it means we may need to be extra on the guard for an interim top and to again build higher than normal cash levels…and prepare to be defensive.  Stay tuned.



Dave Banister is the Chief Investment Strategist and commentator for ActiveTradingPartners.com.  David has written numerous market forecast articles on various sites (SafeHaven.Com, 321Gold.com, Gold-Eagle.com, TheStreet.Com etc. ) that have proven to be extremely accurate at major junctures. You can read more at www.activetradingpartners.com

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Where Will Gold Bottom in this Corrective Cycle?

Feb 4, David A. Banister- www.activetradingpartners.com

Around two months ago I advised my Partners to look for Gold to drop to the 1040-1070 area in US dollars. This followed my projection in early August of a Gold rally from 900 to 1250 before the next top, and I was close as we hit $1,225 and rolled over. This correction so far in Gold is normal in a bull market, and is intended to knock everyone off the back of the bull. The bull likes to make sure as few people as possible are along for the ride.

Currently we are seeing a strong counter-trend rally up in the US Dollar. Investor’s should keep in mind that the dollar index is simply a mathematical calculation against a basket of other currencies. In this case, 57% of that formula is the Euro. The Euro has had a dramatic correction and is likely to continue to drop due to problems in Greece and other countries. This makes the dollar look better on a relative basis, but investors should remember this is largely cosmetic. Deficits continue to balloon, debt ceilings are raised, and the US Treasury has to rollover a significant amount of Treasury Bonds this calendar year. Traders and Investors over-react to the rallying dollar and start selling off Gold and Silver as fast as they can. However, at some near term point, Gold is likely to firm up and bottom regardless of the dollar rally. There has been no fundamental shift in the US Dollar or it’s merits in my opinion, and in fact, the recent economic events are only making Gold look more attractive relative to other world currencies. This pullback is required to work off the excessive optimist we saw in early December.

Most recently on January 22nd, I wrote an update to my December 4th forecast for Gold. In that update I mentioned that Gold was in a “C wave” down, and would likely bottom around 97-102 on the GLD ETF. You can read the entire article here:
http://activetradingpartners.com/articles/2010/01/gold-continues-in-c-wave-down-dave-banister-jan-22/ 

A pullback in Gold to the 102.50 area on the GLD ETF would fill a “Gap” in that chart, and represent a normal bull market 50% correction of the last swing. A further decline to the 97-98 area on the GLD ETF would represent a 61% Fibonacci re-tracement of the entire rally from April 2009 into December 2009. This correction in my opinion could continue into early March or May of this year, before the next leg up begins. Gold investors are advised to scale into Gold as 1040 US is hit, and all the way down to $980. At that point, the bull will continue to new highs as the smart money will be accumulating the gold dips in my opinion over the next 30-90 days.

David Banister

David Banister is the Chief Investment Strategist and founder of www.activetradingpartners.com. David uses his unique methods of forecasting major market turns in addition to Gold, Oil, Sectors, and individual stocks with counter-intuitive methods he has developed over twenty years of investing.

note: this article has been delayed posting due to my busy schedule over last weekend AirShow

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A Cyclical Bear Should Not Be Feared If You Trade It Correctly!

Dave Banister- www.activetradingpartners.com


Back on January 18th, I wrote an article indicating that all requirements for a market peak had been met. Articles and prior forecasts can be read by clicking HERE.

In my January market forecast, I outlined the sentiment indicators being at the same peak levels last seen in July and October of 2007. In addition, consumer sentiment had rallied up from the March 09 lows, and yet the “Present Situation” sentiment was at decade level lows.  With these factors along with my Elliott Wave patterns peaking, the market peaked on Jan 19th the following day, and has been trending down ever since.  The trend is your friend as they say on Wall Street, but the key is identifying the trend before everyone else rushes into the trade.

A bear cycle is nothing more than a bull chart flipped upside down.  If we are in a bearish cycle for a period of several months as I believe we may be, then you need to change your trading plans accordingly.  Of course investors and traders can still find stocks in an uptrend and attempt to benefit from their continuing rise; we certainly continue to look for those opportunities for my subscribers.  However, with the SP 500 likely to trend down into June to the 910 area according to my views, we are set up much better to consider using the Bear and Bull ETF vehicles for our preferred trading vehicles.

Should the SP 500 continue working it’s way down in an “A-B-C” fashion as I suspect, then we want to hone in on the bear ETF’s that will be climbing in an A B C fashion in order to best profit.  Avoiding single stock risk is wise in a bear cycle, and investing with the leveraged ETF’s is a way to avoid single stock risk and still be on the “right side of the trade”.  You see, the best traders know that it doesn’t pay to be a perma-bear nor a perma-bull.  It pays to be on the right side of the trend, and right now that is obviously down.  Emerging Markets and Small Cap stocks are the most vulnerable to continuing market downside corrections into June.  The paired ETF trades at key pivots for the 3x leveraged funds are EDZ for the bear side, and EDC for the bull side.  In the small cap arena, you are looking at TNA for the Bull side and TZA for the bear side.  My subscribers are profiting from trading the extreme sell-offs and counter-trend rallies by entering either the bull or bear side of these ETF’s at those extremes. 

The advice is not to continue to bang your head against the wall looking for stocks that will fight the normal cyclical corrective downtrend, but instead to focus on ETF’s that you can easily enter into and exit out of, while removing the single stock risk factors that can damage your portfolio.  My forecast since my market top prediction on Jan 18th is for an ABC correction at a minimum to about 900-920 on the SP 500 index.  This will not happen in a few weeks, more likely 3-5 months or so.  There will be counter-trend bounces along the way, but the general trend will be down.  I had two major buy signals flash in January on the TZA Bearish ETF fund when it crossed over $9.00 a share.  Those signals tell me that the main trend is down until further notice.  Higher than normal cash balances, less trading, and more focus on ETF’s are the recipe we are running with at Active Trading Partners.  Stay cool and calm, and keep a level head.