Amazon boosts Nasdaq to the moon – and stop there?

Amazon boosts Nasdaq to the moon – and stop there?

Amazon is a rocket of a stock with seemingly plenty of fuel left.  While traditional stock watchers hardly believe their eyes with the off-the-scale valuation investors/gamblers are putting on this share. the price just keeps on going just like the Voyager 1 probe that became the first rocket-propelled probe to leave the solar system.  The difference is that stock markets do eventually return to earth.

But my dear readers know that in a mania – which this most certainly is – valuations have even less meaning here than when placed on mere earth-bound Dow companies (the P/E is popular).  That is, precisely zero.

No in a mania, the majority spy the up escalator the market is on, buy into the story, and want a piece of that action regardless of the price they pay.  That is simply because they believe they can sell their position at an even higher price (sadly, they usually don’t).

Many know the sad story of the speculative campaign of Isaac Newton, the Father of Physics (of apple fame – no, not that Apple!).  He was bitten by the speculative fervour sweeping the country over the South Sea story and reportedly lost the equivalent of £3m in one of the biggest stock bubbles in history.

This very smart man made the universal error of riding it to the top and riding it all the way on the down escalator – and even adding to positions as the shares had become a ‘bargain’.  I am sure he rationalised his actions by telling himself the bullish story was still valid but failed to spot the game had changed, although the story hadn’t.

But he did make one of the earliest and most insightful remarks afterwards about the different world that financial markets inhabit: “I can calculate the movements of stars, but not the madness of men“.  He correctly recognised that financial markets do not operate under the immutable laws of physics (which he helped to discover) and that in a bubble, the participants are in a mania (a state of mind marked by periods of euphoria, delusions and over-activity – otherwise known as madness).

This common error is a result of thinking financial markets behave like economic markets and stocks have a natural ‘value’ like bread or shoes.  If the same loaf of bread triples in price in a short time, what happens?  Of course, demand goes down and in general, a person will think twice before buying it.

But if the price of a share triples, what happens?  Of course, everybody wants to own it!  As George Soros says: “When I spot a bubble forming, I jump right in with both feet”.  There are not many Soroses in this world that can escape a mania with a profit.  Incidentally, he certainly has not been successful in every campaign – far from it, but at least he has the correct attitude for riding a mania.

Last week, I sent VIP Traders Club members a Special Report on US stock indexes, the most bubblicious of which is the tech-laden Nasdaq, which was making new highs every day last week in a near-vertical ascent.  We naturally are amazed at this performance and wonder when the bubble will burst.  But my analysis strongly hints that the bubble will expand to an even greater size before that day arrives!

Here is the very long term chart

If my labels are correct, we are in the final wave 5 up which will take the index to above the historic 1999 high around 7,000.  For a closer analysis, here are the various charts I used in my Report.

First is the monthly long range chart showing the excellent tramlines from the 2009 wave 4 low

The wave labels are textbook and in the past few months, the market has broken above the upper tramline in what will likely become an overshoot.  But admire the strong momentum – this is no hesitant weakling bull market!

On the shorter range charts, I believe we are in wave 3 of 3 of 5 and if correct, at just over the half-way point of the most powerful wave in the book – wave 3 of 3.

 

Amazon reaches for the skies!

Of course, one of the leaders of the pack is Amazon, so let’s look at the AMZ charts to see what they can tell us about the upside potential from even these record-busting heights.  And remember, in a bullish mania shorting the shares is a definite widow-maker.  Please don’t be tempted. Here is the long term chart

With the shares gunning for $1,000, they have almost become a ten-bagger from the  sub-$100 lows of the 2008/2009 Crash. In terms of the Elliott waves, I have a pretty clear 1,2, long and strong 3, 4 and we are now in the final wave 5 up – and what a stunning wave it is!  Note how the slope of the ascent is becoming more and more vertical over time – a sure sign  of a mania in its latter stages.

Of course, we can think of any number of valid fundamental reasons why the shares will continue to sail into deep space for ever.  AMZ is the first mover – and overwhelmingly dominant player – in the category-killing realm of internet shopping.  There is no other company to touch it – or is there?

There is a certain Mr Jack Ma with his Alibaba that dominates the fast-growing China market.  Could this company be a serious rival to AMZ here in the West?  Hmm.

Here is the weekly chart showing wave 5

The labels wave 3 of 3 of 5 fits the picture and the only danger to it is if the market tops out here and breaks below red wave 2.  Here is the daily chart

From the wave 2 low, a lovely five-wave wedge formed with the upside break which gave a classic buy signal at the 780 area.

With the round-number $1,000 in sight, how will the bubble pop?  Usually, manias pop with one final spike into outer space – way beyond where most believe possible.  Volatility becomes extreme – but I believe this moment is well in the future.  Anyone riding the AMZ rocket will get more and more excited on the way up – and most will miss the top in their euphoria and hold positions in the decline, which will be very sharp.

 

Fashion news flash!!!

Two weeks ago, I asked the question: “Are women’s fashions telling us anything about stocks?” and as evidence, offered the sad picture of the actress Sienna Miller in her ‘do-not-fancy-me’ attire.  And now I have come across another example of this genre in the form of the actress Cate Blanchett

I am no style guru, but she wears this shapeless frock with a high buttoned-up neckline, revealing little or nothing – totally in keeping with Sienna’s mode.  I wonder how far this trend will go – a Western version of the full-face veil, perhaps?

And the hemline is undoubtedly plumbing depths.  To my eyes, this is certainly do-not-fancy-me fashion in keeping with the latest trend.  When stocks do finally top out, we shall see more of this.

Sterling rallies – and most are surprised, except us

Sterling collapsed to 1.18 on 7 October in the notorious Flash Crash that made headlines around the world. Many blamed a fat finger, setting off trading algos.  But that move was the final selling climax in an established downtrend. In fact, that was the spike low that set the stage for a recovery.  Since then, hedge funds have been shorting the relief rally, believing the trend was still down

Consensus had it that sterling was due another big leg down because of ‘hard’ Brexit worries that would result in the UK leaving the single market.

In fact, hedgies became so convinced the other shoe would drop that they built up a staggering 4 or 5 to 1 net short futures position (COT data).  Also, comment in the MSM was similarly bearish. That is waving a red rag to the bull (an entirely appropriate allusion in my case).  So during the period since October I hardly traded the cross, waiting for a more definite pattern to form on the charts – and by January, I had a nice ‘sterling wedge’ in formation.

As usual, I was looking for a low-risk entry to trade long against the hedgies – and I got my chance in early April when I advised VIP Traders Club members to buy at the 1.24 level with a close stop.  I had a target around the 1.30 area which is on a Fibonacci level as well as on the upper tramline. This is the result:

Yesterday, the market rallied to within 35 pips of my target.  Nice.

Note the textbook five waves within my wedge.  A very adventurous trader would have been buying near the wave 5 low at around the 1.22 print – if he/she had been paying attention and rejecting all the bearish comment at the time.

But the recovery is a classic fourth wave and when it tops out, wave 5 will begin to take the market below the wave 3 low at 1.18.  But in the meantime, let’s make some hay on the bull side.

If you wish to benefit from my analysis in real time with specific trading orders, come and join the VIP Traders Club – details here.

Select your currency
GBP Pound sterling