Good Evening,

Sometimes the best thing to do is to do nothing at all and this is one of those times. I had a few people call me today and ask me about alternative investments. In all cases it was about gold and bonds which have done well the past few days. We have talked about both in recent weeks. So the question is: why not jump right in?

For bonds, there are two issues. The first it that while the charts are good, they are very extended and could take a dip at any time. The second is that they are very sensitive to talk about rising interest rates which obviously is on the table at this time.

Gold has gone up five out of the last six sessions. Has it bottomed? Possibly. However, the current chart is a wreck and is totally upside down, meaning that the longer term EMA’s are on top. It is going to take a lot of work to repair that damage and that will mean watching some gains go by while a new upward trend is established. Gold is actually opposite of the situation with bonds. It is a solid sell, while bonds are clearly in oversold territory. Both are making money today, but given their less than ideal chart set ups, there is no guarantee that they will do so in the coming days and weeks. Now lets factor in stocks. They are very, very, very oversold. Can they sell off more? You bet. No ones calling a bottom here. Nevertheless, when you take into consideration that the best seasonality of the year begins in a few weeks and that the projected 10 week, 20 Week, and 9 Month Cycle lows are in the first three weeks in November, coupled with the fact that they are so oversold, there is the nice potential for a bounce into the new year. I’m not counting on anything, but I’m not counting it out either. I will surely deal with whatever the charts give me, but consider what will happen if stocks do pop. Bonds and gold will almost assuredly drop and as long as there is more than an average chance that they will drop, I favor cash. We are sitting on an awesome opportunity to make some money here. We just have to be cautious not to jump too soon; given the right conditions it could be costly. The bottom line is that I’m not willing to risk being in the position to take advantage of a rally to make a few bucks in gold or bonds that may or may not be a sure thing. That’s me. You’ll have to decide what you want to do.

***************************** CYCLE PROJECTIONS *****************************

                          Last       Next  Estimated  Estimated  Estimated
                         Cycle  Projected  Cycle Top      Cycle  Cycle Top
PRICE Count                Low  Cycle Low  Bull Bias  Mid-Point  Bear Bias
-------------------   --------  ---------  ---------  ---------  ---------
5-Week Cycle......:   09/10/14   10/14/14   10/02/14   09/27/14   09/21/14
10-Week Cycle.....:   09/10/14   11/17/14   10/25/14   10/14/14   10/02/14
20-Week Cycle.....:   06/26/14   11/10/14   09/25/14   09/02/14   08/10/14
9-Month Cycle.....:   02/05/14   11/06/14   08/06/14   06/22/14   05/07/14

Something else to consider is that if indeed this market is going down for the count, as my friends say that it is, then there will be plenty of time to invest in precious metals, bonds, and other alternative investments. How will we know when that time comes? That’s simple: when the 50 EMA crosses the 200 EMA on the way down you’ll know it’s time to look somewhere other than stocks to make some money. Likewise, and I’m thinking of gold, when the 50 crosses the 200 EMA going up, you will know that you are in an upward trend and that if will be safe to invest in that chart at that time.

The main thing we must be careful of is that we not get caught up in a bad investment because of our emotions. We must base our decision on solid technical analysis. That said, let’s again take a look at gold. It was up +0.34% today, it is up 1.19% in the last week, and it is up +2.39% for the month. That’s a nice start, but it’s only a start as it is dropped 20 points during the last six months. There will be plenty of time to get back in and make a nice profit without all the current risk, if it heads up.

Consider this chart of GLD which is the gold ETF. If this were a healthy chart, the 20 EMA would be on top, the 50 EMA would be next, the 100 EMA would follow, and the 200 EMA would be on the bottom. That is the opposite of what we have. This chart is upside down. Now take a look at how far the 20 EMA (Red) must go to overtake the 200 EMA (Purple). I have annotated this with the blue arrow. That crossover would be the earliest time that we might consider this chart to be in an upward trend. Anything else would be speculation. Unless you’re day trading, it is best to avoid a chart that looks like this.

As far as today went, there was more selling. I said last night that we probably had not reached the bottom and today’s selling followed the cue. The Dow plunged 173 points after falling as much as 460 so the day could have been much worse. Both TSP and AMP were safe at 100/G and 100% cash. With God’s help there were no losses for us! Let’s look at the news and the charts.

Fear Rises in Stock Market as Dow Drops 400 Points

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The day’s action left us with the following signals: C-Sell, S-Sell, I-Sell, F-Buy. We are currently invested at 100/G. Our allocation is now -5.74% on the year not including today’s results.

10/14/14
Fund	G Fund	F Fund	C Fund	S Fund	I Fund
Price	14.5497	16.7149	24.6605	32.3077	23.9383
$ Change	0.0039	0.0643	-0.3719	-0.1104	0.1064
% Change day	+0.03%	+0.39%	-1.49%	-0.34%	+0.45%
% Change week	+0.03%	+0.39%	-1.49%	-0.34%	+0.45%
% Change month	+0.09%	+1.39%	-4.72%	-5.17%	-5.36%
% Change year	+1.84%	+6.18%	+3.29%	-4.05%	-6.36%
	L INC	L 2020	L 2030	L 2040	L 2050
Price	17.1092	21.9801	23.5516	24.8436	14.0027
$ Change	-0.0209	-0.0740	-0.1030	-0.1254	-0.0788
% Change day	-0.12%	-0.34%	-0.44%	-0.50%	-0.56%
% Change week	-0.12%	-0.34%	-0.44%	-0.50%	-0.56%
% Change month	-0.85%	-2.46%	-3.19%	-3.70%	-4.23%
% Change year	+1.74%	+0.85%	+0.39%	+0.04%	-0.43%

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One thing that was encouraging is that small caps had a small gain on a very bad day today. Could this be the start of our bounce? Lets take a look at that chart. Chart courtesy of Stockcharts.com.

The S Fund had two positive days in a row and today’s gain came against the grain. The possible upturn is annotated by the blue circle. All the other annotations are what would be needed to turn this chart from a sell to a buy.

It’s a stretch at this point, but it could be the start of the bottom. Remember that small caps started this decline, so as we mentioned a few days back, they will more than likely be the first to bounce back. Our strategy remains the same in that we will watch our charts for a new uptrend and an entry point when that occurs. It is better to simply stand aside and wait for improvement. You might miss out on some early gains but you will definitely avoid some of the late losses. That’s all for tonight. Be sure to thank God. He has clearly blessed this group again. Have a great evening and may God continue to bless your trades!

God bless,

Scott