The current market turmoil may be scary, or it might be profitable – and it’s connected with how able you are to take action in this environment.
We just cashed out of the short positions in FCX – right before its bottom and subsequent rebound. We also bought SPXL (3x bullish ETF for the S&P 500) and it’s already profitable as well.
Yes, stocks are still likely to slide in the following months as the current dramatic escalation of the tariff situation and the threats to the world trade are of the same magnitude as the 2008-style real-estate-led collapse or the 2020-style covid-scare-based slides. Perhaps the current situation is even worse than both above, as in this case, we don’t have the sector-oriented chaos as we had in 2008 (at first it was just real estate), and we don’t have the good likelihood that things will be back to normal soon (based on hopes for cure in 2020).
What we have now might be more lasting and more devastating – globally. Of course, I’m comparing just the economic damage (I don’t mean everything health-related that we suffered in 2020 and its aftermath).
And yet, no market moves in a straight line and periodic rebounds are likely to take place. We’re experiencing one right now.
Quoting my yesterday’s Gold Trading Alert:
“Markets continue to be volatile as emotional are getting red hot. Amid this turmoil, I stand by my Friday’s analysis.
In other words, I think that it’s time for a correction in stocks and copper and this might also trigger a correction in the precious metals market. The previous drop has been particularly volatile in case of stocks and copper (as well as silver), so while I continue to think that all of them will slide further relatively soon, I also think that now (today or maybe tomorrow) we’ll see a volatile rebound.
Why volatile? I pretty much already told you – because the emotions are red hot. With fear and greed roaming the Wall Street, it won’t take long for people to go from “it’s all going to hell because of those tariffs!” to “it’s just a buying opportunity, the tariffs are not that big, and they might get reversed – didn’t Elon say something about that?”. Of course, after the rebound, the markets will likely get back to the former, as the increase in tariffs is not just a big deal, it’s a HUGE deal.”
That’s exactly what we see right now.
The above is a headline from Yahoo!Finance. It doesn’t say anything specific, and yet it has this optimistic vibe to it. The statement “Trump appears open to trade talks” is meaningless, but suggests that some things might change for the better. The real issue (China’s retaliatory stance) is downplayed a bit – being put at the very end of the whole headline.
Yesterday, I wrote the following on the S&P 500 Index chart.
“The 50% Fibonacci retracement failed to keep the decline in check, but the 61.8% Fibonacci retracement is likely to succeed.
Why? Because it’s not the only thing that we have here. We actually have two additional retracements (based on rallies with different starting points) that confirm the strength of the current support zone.
Based on the 2022 – 2025 rally, S&P 500 just moved a bit below its 38.2% Fibonacci retracement, and based on the 2020 – 2025 rally, it moved (approximately) to the 23.6% retracement.
Which one is important? They all are, and the fact that they reside in the same zone (at similar, but not identical price levels), makes it much stronger.
This comes on top of two strong support levels – the 2022 high, and the psychologically important 5,000 level.
All this, plus the sharpness of the decline suggest that were likely to get a correction from here.
It might have been pre-mature to enter a quick long trade on Friday, close to the mid-2024 high, but it seems to be that we’ll go above this level soon, anyway. I’m viewing today’s decline as another quick buying opportunity for stocks.
The emphasis goes on “quick” this long trade might last only 2-5 days or so.”
This is exactly what is happening right now.
How high can the stock market rally during this rebound?
Probably to the 5,430 – 5,520 area – that’s where we have the two Fibonacci retracement levels and the previous low.
This means that our profits on SPXL are likely to increase [the full version of this analysis includes specific, just-updated profit-take levels].
Meanwhile, FCX (my top shorting candidate, but not yet) is back above the $31 level.
We’ll probably re-short it around $33 as that’s where we have the 2023 lows and the previous low before the massive price gap. My intuition tells me that FCX might want to try to close this gap before declining further.
Please be on high alert – even though I think we’ll need to wait 1-3 days for this level to be reached, this might also happen as early as today.
While we’re in the stock market area, please note that the world stocks have finally decisively invalidated their breakout above the 2007 highs.
When it happened in 2021, it meant big declines not just in stocks but also in the miners. This time, the situation is way more dire (tariffs! major underperformance of miners relative to gold from the medium-term point of view!) so the declines in both will likely be much more severe.
And speaking of mining stocks, the below HUI Index (proxy for gold stocks) provides a roadmap as to what’s likely to happen next.
I copied two important declines from the past to the current situation. The red line represents the 2008 decline, and the green line reflects the 2012-2013 decline.
Given the current situation in the markets, it seems that the analogy to 2008 is more appropriate. Translation: the slide is likely to be sharp – just like what we’ve all seen in recent days.
I marked some of the possible rebound zones with red rectangles, but I’ll provide more information as we move closer to them.
And yes, miners can slide below their 2020 low during this decline.
Gold price itself moved back above the $3,000 level and it also invalidated the breakdown below its rising support line.
How high can gold go during this corrective upswing? My best bet right now is the $3,080 - $3,110 area, but with this kind of volatility, I might need to update this target frequently (and I will).
Thank you for reading this analysis. If you'd like to access our complete premium analysis, including specific technical targets (even options), detailed analysis of mining stocks, and comprehensive portfolio insights, consider subscribing to my Gold Trading Alerts. I also invite you to stay updated with our free analyses - sign up for our free gold newsletter now.
Thank you.
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief