Bits of evidence – not proof

Market Letter

August 16, 2016…………………………………………..

Hello!

The Dow, the S&P 500, and the NASDAQs had been trading generally sideways for at least two weeks in an overbought condition attended by extremely high bullish investor sentiment.  Then, as a child tests his parent for days on end, the bulls continued to challenge and prod, leading to several days of gap-up Opens which settled back into sideways moves for the rest of the day.  The situation was akin to that of an inflating balloon, in which the observer knows what the eventual outcome will be – the only question being When it will happen.  It’s too soon to be certain; but it may be that the balloon popped today.

In recent weeks and moonths, the Russell 2000 and the S&P 600 SmallCaps had been lagging the Dow, theS&P 500, and the NASDAQs; but recently they had caught fire and had set new Highs of their own, which signaled a return to the Bull party of the “man-in-the-street” investor.This phenomenon typically occurs at the very end of a bull trend, and is characteristic thereof.  It is a powerful warning that the party is ending.  It is also a signal that the “little guy” is about to be burned, unless he is very careful and fleet of action.

On the 60-minute chart of the NASDAQ Composite, please note the worry at the top, where a series of small downmoves (together) bearishly engulfed the single spike-bar to the top; and, especially, the Gap on the downswing which followed – and the relatively strong Down Close.

Please also note the clearly bearish cast of the topping-and-reversing pattern shown on the S&P 600 SmallCaps chart.

All of the factors cited above are bits of evidence – not proof – that the tide may have turned, to the downside.  I think that the odds favor a decline; and it could be substantial.  My suggestion is toseriously consider taking some of your chips off the table.

Silver seems to be especially vulnerable to a decline.  We can see what appear to be Exhauston Gaps on the way Up, and a large Rounded Top.  The most powerful argument lies in the Commitments of Traders chart, which shows that the Large Speulators (“hedge funds”) are in a higher Net Long position than EVER.  This situation cannot continue forever, or for much longer.  It is a recipe for a massive implosion.  The Silver bulls have been testing, testing, testing the limit.  The “little guy” is right in there too, Net Long; and when the dike finally breaks there will be a mass rush for the exits that will be a sight to beold; and not everyone will be able to escape unscathed.  I think that the “little guy”should call it a day, pack it in, and get out now.

Respectfully submitted.                                                                                                                    

CandleWave, LLC                                                                                                                

By William Kurtz, President

906 Whippoorwill Dr., Palm Harbor FL 34683 USA

Wkurtz1@verizon.net     info@CandleWave.com

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