The U. S. stock market  bull has been running for several years.  Pulling back and digesting the gains is a normal part of the process.  So far nothing has happened outside the parameters of normal volatility.

Overnight S&P futures touched 2000.  Here are the probabilities of how far this correction may go:

• Up-move after 1960 – 2000 zone — 20%
• Up-move after a fall into 1920 – 1960 — 20%
• Up-move after a fall into 1860 – 1920  — 50%
• A fall below 1860 —  10%

Our algorithms calculate these probabilities daily.  If there is a significant change we will inform you and also suggest actions to consider.

For the time being, consider continuing to follow the plan.  In simple words, the plan is to scale into good companies on dips and buy to cover short positions on dips, to take profits on long positions on rips and establish new short positions on rips. Unless something changes in the data, consider continuing to hold long-term and very long-term positions.  Long positions were 35% hedged going into yesterday.  Yesterday’s dip provided an opportunity to book handsome profits on 7% of the hedge.

Further, significant profits have been booked this year and new investments have been significantly less than the cash generated by profit taking of the older positions.  The portfolio has been correctly positioned for the volatility in the markets.

In the Morning Capsule, we have shared with you that our very, very short-term indicator has been negative every single day this week.

Our algorithm filters out the noise before making any determination.  There is too much noise in the data today for the algorithm to produce any meaningful conclusion.

Overnight there has been solid economic data from Europe.  Eurozone PMI rose  to 54.1 vs. 53.7 consensus; this is the 26th consecutive month of PMI beating the estimates and the economy showing expansion.

China Flash PMI came at 47.1 vs. 47.7 consensus; this is a six and a half year low.

A PMI reading above 50 indicates expansion and a PMI reading below 50 indicates contraction.

Oil and interest rates are range bound.

Overnight Chinese aggressive bought gold running it up to $1168.  Chinese buying was followed by aggressive selling by Europeans.

Gold futures are at $1153, silver futures are at $15.38, and oil futures are $41.09.

S&P 500 resistance levels are 2038, 2063, and 2100; support levels are 2017, 2000, and 1962.

DJIA futures are down 89 points.

From FOMC minutes, lift-off in interest rates is ‘approaching.’  However some markets, such as gold and U. S. bonds, have interpreted it as though there will be no lift-off in 2015.  On the other hand, emerging market currencies such as China, India, Brazil, Mexico, and Russia have interpreted it as though the rate hike is imminent.  Overnight  Kazakhstan devalued its currency by 23% as it ran out of dollars to defend its currency.

In our analysis, gold and U. S. bonds are wrong in their interpretation of no lift-off.

After FOMC minutes were released, the U. S. stock market went from a deep loss to breakeven and then back to deep loss again.

Gold, silver, and bonds are going through a massive short squeeze.

Oil threatened to break $40 before a short squeeze started carrying it upwards.

There is a ton of important economic data due at 10:00 am ET.  This data is likely to be major market mover.

Our very, very early stock market indicator is negative but can easily turn positive after release of the data at 10:00 am.

Gold futures are at $1141, silver futures are at $15.53, and oil futures are $41.30.

S&P 500 resistance levels are 2100, 2111, and 2132; support levels are 2038, 2017, and 2000.

DJIA futures are down 95 points.

Copper hit a six year low.  Copper is called Dr. Copper because historically if has been a good indicator of economic activity.

Core CPI came at 0.1% vs. 0.2% consensus.

FOMC minutes will be released at 2:00 pm ET.  Market participants will be looking for clues regarding the timing of the next rate increase.

Gold momo crowd sees no reason to wait for the FOMC minutes, they have already concluded that the minutes will be very dovish.  For this reason the momo crowd is aggressively buying gold.  Interestingly there is very little buying in silver.

We are switching over to October oil contract from the September contract.  The reason is that now October contract offers the most liquidity and is a better indicator of oil price.  The October contract price is trading at about $0.50 higher than the September contract price.

Interest rates are ticking up ahead of the Fed.

Our very, very short-term early stock market indicator is negative.

Gold futures are at $1120, silver futures are at $14.98, and oil futures are $42.30.

S&P 500 resistance levels are 2100, 2111, and 2132; support levels are 2063, 2038, and 2017.

DJIA futures are down 102 points.

CHINESE RALLY FIZZLES, SOLID HOUSING DATA IN THE U. S.

Oil has broken below $42.  However it is approaching a level that a short squeeze to the upside has  a high probability.

For a change, this morning dollar is weakening against euro and yen.  Weakening dollar is causing buying in gold and silver.

Stocks are likely to be under pressure as investors are becoming more risk averse.

Interest rates are ticking down because of risk averseness.

Our very, very short-term early stock market indicator is negative but can quickly reverse as the probability of a short squeeze is high.

Gold futures are at $1119, silver futures are at $15.30, and oil futures are $41.80.

S&P 500 resistance levels are 2100, 2111, and 2132; support levels are 2063, 2038, and 2017.

DJIA futures are down 64 points.