2. Rising Wedge Chart from June, Very Dangerous Formation

4. BOTTOM LINE We have been watching for signs of THE top approaching. It is not here yet, and the recent strength in the Dow Utilities promises us another upward attempt for the Dow Industrials and other big indices. But bad times are coming, especially after the FOMC meeting Sep. 16-17. Best bet for THE top is Aug. 20- 26. As stocks wane in popularity, gold should start rising, and should do well for the first few months of the new 13- 1/2 month cycle starting now. T-Bonds are still headed higher in price and lower in yield, at least for the next 3 weeks.

5. What To Expect The bottom cluster for stocks due Aug. 7-12 and the top cluster Aug. 20-26 suggest that we should continue to see a messy stock market this month. That Aug. 20-26 top cluster is now our best guess for when the final top should arrive ahead of the autumn swoon we have been anticipating. T-Bonds should top Aug. 10-12 as stocks are re-bottoming. Another pair of top signals due Aug. 20 looks better for an end to bonds’ up trend, assuming that crude oil prices can find a bottom Gold appears to have bottomed at the end of July, and now we are just waiting to see the start of the uptrend. The small number of signals now gives us little info about what that new up trend will look like.

6. One More Up Leg We have been anticipating a big market downturn to start in August and to make the last few months of 2015 a bad time for the bulls. But the start of that downturn is on hold for the moment. One big reason for that assertion is that the heretofore weak utilities sector has seen an upturn. The first chart compares the Dow Jones Utility Average (DJU) to the Dow Jones Industrial Average (DJIA). Just recently, the DJIA has been looking weak, and making lower highs and lower lows, while the DJU has been doing the opposite. History shows that when the two disagree, it is usually the DJU that ends up being right about where both are headed.

7. That certainly was the case at the DJIA’s lows in February 2014, and at the Ebola Panic in October 2014. Each time, we saw the DJIA making lower lows while the DJU made higher lows, and the result was an upturn for the DJIA. Later this month, if we see the DJU start to turn down again, then that should give us an opportunity to see a bearish divergence with a bearish message for the DJIA and the overall market. One other problem with getting a bear market started right now is that we already have oversold indications in some places. The A-D Line saw its peak back on April 24, 2015, and is apparently setting up for an ugly 2007- style divergence later this year ahead of a big drop.

8. But volume has already been weak, and we can see in the lower chart that the Ratio Adjusted Summation Index(RASI) for NYSE Up-Down Volume is already down to a bottom-worthy level. It would be much easier for the bears to get a campaign organized if they could get all of the bearish indications to pull together. Right now, indicators are disjointed.

10. One longer term problem that is going to need to get addressed is the downturn in new home sales. The chart on page 2 shows that when the monthly numbers for new home sales reach a peak and turn down, then that brings bad news for the stock market some number of months later. How much of a lag there is seems to vary in each episode, but it is normal to see some response. Bottom Line: We still expect to see stock market ugliness in the final months of 2015. But the start point for that decline is on hold at the moment, as the bears need to spend more time getting organized.

12. Major Cycle Low Appears To Be In We have been looking ahead for several months to the major 13-1/2 month cycle low in gold prices that is ideally due in August 2015. The rapid drop in late July seems to have finished the downside work, and now gold is just waiting to get its new uptrend started. Knowing that this major cycle’s bottom is due is really important, because gold prices typically see a really strong rally on the ascending phase of the new cycle. So sometime over the next 4-5 months, we should see gold make its powerful rally for this new cycle. But the cycle is also problematic because the actual price bottom can arrive plus or minus a month from the ideal date, and still be considered “on time” for how this cycle works.

13. And occasionally we see the really frustrating behavior of a cycle bottom splitting itself into two, like what happened with the 13-1/2 month cycle lows in 2014 and 2012 A split bottom does not appear to be what is happening for this current cycle bottom. But the point remains that we cannot simply look at the cycle and know for sure when the bottom will come. For that, we have to turn to other tools.

15. The middle chart shows one big sign that we have seen an important bottom. The 26-day rate of change seems to “work” really well with gold, going to very high levels at tops and very low levels at bottoms. In this version we are measuring raw points instead of percentages; the difference between the two methods is not that significant.

17. What it does is look at today’s price and that of 26 trading days ago, and finds the difference. The very low reading seen in July does not guarantee us that we have seen the final bottom, but it does hint at that. At the same time, the sentiment picture for the precious metals as a group is getting to a bottom-worthy extreme. The bottom chart shows data from the weekly commitment of Traders (COT) Report, published by the CFTC. The “commercial” traders are the big money, and thus presumably the smart money in most futures contracts

18. It is an interesting peculiarity that the commercial traders of silver futures have never once been actually net long as a group in all of the history of the COT data (since 1986). So the game consists of evaluating the size of their net short position relative to recent values. It works almost the same in gold, where the commercials have not been actually net long since late 2001. Right now, the commercial traders of both gold and silver futures are at a really low net short position. That does not mean that the bottom has to happen right now, but it does say that we are at a bottoming condition for metals prices. Bottom Line: There could be a few more days of bottom construction, but the next several months look good for precious metals prices.

19. Focusing In On Timing For Final Top The eurodollar COT leading indicator which we last featured in MMR #486 on July 3 has been calling for an early August top and then a major decline. But the correlation of the minor patterns of the SP500 to that leading indication have not been as tight recently, and other signs on page 1 are saying that the top still lies ahead of us. We will update the eurodollar COT research in future issues, but want to look at a couple of tools which can help us home in on a tighter time frame for when the top should actually arrive. The top chart updates a comparison we have shown before, looking at this year in the SP500 versus how the SP500 behaved at the 2000 top.

20. The two patterns are aligned on a calendar day basis. While the replication this year has not been perfect, it has been really good. A few minor pattern inversions have happened along the way, which is not unusual with such price pattern analogs. Back in 2000, the final peak for the SP500 came on Sep. 1, 2000. There were other peaks that year for the SP500 at nearly the same level, but that Sep. 1 top was the one from which prices actually started going down for good. We have a cluster of Timing Model top signals (see page 6) due Aug. 20-26, which would be just ahead of an equivalent Sep. 1 top for this year.

22. The lower chart looks at the leading indication for stock prices which is given by the lumber futures COT data. In this chart, we are examining the commercial traders’ net position in lumber futures, which is shifted forward by 8 weeks to reveal how the Nasdaq Comp seems to follow in the same footsteps after that 8-week lag time. Exactly why this relationship works is something we have not yet figured out. Lumber futures traders are influenced by banking liquidity, and evidently a wave of good or bad liquidity will show up in those traders’ decision making process a couple months ahead of that same wave hitting the stock market.

24. This leading indication says that a top for the market should ideally arrive the second week of August, which is earlier than the 2000 analog shown above. It is also earlier than our Timing Model signals say that a top should arrive. Each of these predictive tools has its own wiggle room for actual price turns to be slightly early or late. So it would not upset things too much to see stock prices make the actual top in the Aug. 20-26 time window suggested by our Timing Models. But it would upset a lot of things if stock prices do not turn down in September. So we plan on joining the bears before we get to that traditionally ugly month

25. Crude Oil Says Bond Yields Still Headed Lower The September 2015 crude oil futures contract is the current “near month” contract, and it reached a closing low price of $45.30/barrel on Monday, August 3. The top chart here on page 7 updates the relationship we have been following a lot in the past few issues, where crude oil prices are seen as foretelling the subsequent movements of 30-year T-Bond yields. So if the August 3 price of crude oil turns out to be the final low of this crude oil price downtrend, then that projects a final low for the Treasury Yield Index (TYX) around August 24, or 3 weeks later.

26. And it is far from certain that crude oil prices are done going down. Our point in referring to the August 3 crude oil price as a potential bottom is to note that we are at least 3 weeks out from a bottom for T- Bond yields, since 3 weeks is as far out into the future as this particular tool can look. We would love it if we could get the precise answers a year or more ahead of time, but that’s not how the universe works at the moment. We don’t want to sound ungrateful about getting “only” a 3 week leading indication; it is what it is, and our job is to use it as best we can. And it really is fun getting the answers ahead of time.

28. With bond yields falling, bond prices have necessarily risen, since the two move in opposite directions. And we have seen a lot of the last few trading days with bond prices closing higher. That shows up as a somewhat overbought reading on the indicator in the middle chart, which features an indicator measuring the number of up closes for T-Bond futures prices over the past 20 trading days. Readings at or above 13 or below 7 show an extended condition for bond prices, although that does not necessarily mean bond prices have to reverse course right away. It just says that the rubber band is stretched, and at some point that ought to matter. In the case of bond prices, this indicator tends to be somewhat more authoritative at very low readings than at very high ones, but a trend can continue in either case.

30. The final chart provides us with some confirming evidence that the uptrend in bond prices (downtrend in yields) ought to continue. The 14-3 stochastic has an interesting property that it shares with the McClellan A-D Oscillator. “Complex” structures on either side of the 50 neutral level indicate who is in control, the bulls or the bears. A “simple” across-and-back structure shows an absence of control. The current structure above the 50 level is overbought, but it is also showing a complex pattern that says the bulls are in charge. And that presumption of control should be expected to persist until such time as a divergence appears to say that the period of control is over. We don’t have that yet, so the bulls get the nod. Bottom Line: Bond prices should rise, yields fall, for at least the next 3 weeks. When crude oil finds a bottom, then we’ll find a yield bottom 3 weeks later.

32. China ’ s Crash: “ 1929 ” Again? The top chart is our version of a comparison that has been making the rounds on Wall Street lately, pointing out the similarities between the price pattern of the DJIA at the 1929 top and the current price plots of the major Chinese stock market indices. In this case we are showing the Shanghai B Share Index, but others look similar. We love to use chart pattern analogs, because we like anything that can give us the answers ahead of time. But great caution must be used, first in selecting and evaluating the prior price plot for comparison, and then second in terms of how much one decides to believe in the message. All chart pattern analogs eventually break correlation, and usually at the moment when you decide to most count on them continuing to work.

34. One interesting point about this comparison is that it really only fell into step beginning around April 2015. The dance steps have matched up well since then, although the magnitudes of the movements in each are quite different. Matching up the dance steps is important, because the dance steps seem to matter more than the magnitude. And on that basis, the message here is that the carnage in China’s stock market ought to be almost over rather than just beginning. Our take is that China seems to be just getting an early start on the stock market weakness we have been expecting for the final months of 2015. But we do not see another Great Depression starting, at least not yet.

35. One reason for hope about the long run comes from the message for stocks from crude oil prices. The two charts at left show the same comparison, but focus on different time periods. What we have done is to shift forward the price history of crude oil by 10 years to reveal how the DJIA tends to follow in the same footsteps. This leading indication relationship is different from a price pattern analog, which involves a temporary and fleeting resemblance of price patterns. This comparison is a much more enduring relationship, and has been “working” since the beginning of the price history for crude oil in the late 1800s.

37. Crude oil prices had a relatively minor dip 10 years ago, allowing for stock prices to echo that dip in late 2015. But such a dip should not usher in a big new period of recession and calamity. That should come about 9 years from now as the echo of crude’s recent drop to below $50/barrel. The price effect of the fracking boom is reminiscent of the oil price drop during the drilling boom years of the early 1920s, and which had their echo 10 years later after the 1929 stock crash. A much more difficult question is how stocks may replicate the 2008 commodities bubble and crash, which was more of an exogenous event like the 1990 Iraq War. The oil blow off then was not repeated by stocks