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All markets regress to the long-term mean over time. And almost all markets are stretched and due for a regression event.
- 2015 has been a sideways year for the S&P 500, allowing the long-term moving average time to catch up to price. We probably won't see any big breakout until at least the middle of 2016, so price still needs to regress to to the mean yet more.
- The dollar is stretched very far above the long-term average and will either need to churn sideways for a year or more, or correct before another significant leg up can begin.
- The CRB is ridiculously oversold, very similar to what occurred in 2009.
- Oil is probably the most extreme of any asset. When the rubber band gets stretched this far in one direction, it usually leads to an exceptionally violent regression. If OPEC succeeds in cutting production, we could see a particularly aggressive move in oil.
- And finally, gold is also extremely oversold compared to its long term average. The chances of gold dropping below $1,000 during this intermediate cycle are very slim and would almost trigger an exceptionally violent snap-back rally if it were to drop that far in the next several weeks. Talk of $800 or $600 gold are absurd. It would take several years for gold to reach those levels. It's taken 2 1/2 years to go from $1180 to $1060.
- Mining stocks (via the XAU Index) are just about as extreme as oil and would need to bounce 100% or more just to move back to the long term average.
