This is starting to get monotonous. The Dow/S&P/Nasdaq all made new ATHs again this week – and the Treasury market finally cracked right on cue at my forecast top. And the Almighty Dollar remains the reigning currency.
So when will the ear-splitting complacency of the bulls ratchet down? It is very long overdue. In fact, the Dow has just about reached the outer levels of my most bullish upside projection
And is the virus winning the great battle with the Fed?
This is the latest major leg up off the year-ago low showing my excellent blue tramlines and my new most likely Elliott wave count. The high this week so far is at 29,520 which is pretty much on the upper tramline. As I write, it is off by 500 pips. Hmm.
Last week, we were in fact at the Moment of Truth. A good thrust above the high it would herald further gains. But will it?
We know, surely by now, that major highs are put in when conditions look extremely rosy to the casual eye. And so they do. Here is a list of some of the factors:
- US consumer confidence at or near ATHs with their ‘current financial position’ extremely high.
- The Fed is straining every nerve fibre to pump cash into the markets in QE4 and they will never give up, will they?
- Just yesterday, US non-farm payrolls came in way above expectations and average earnings also way up. So maybe Trump is right – the US economy is hot, hot, hot!
- The virus is seen by some to be ‘contained’ depending on who you read.
And I have shown several measures of market bullishness recently that back up the idea we are at or near extremes of confidence in the future – an ideal time for the top to be reached.
The chart above suggests we are in the final wave 5 of 5, so the question is always – when will it turn?
One of the leaders of the pack on the way up is Apple. This share has been a no-brainer investment for years now but it has more than doubled these past twelve months. As I point out in this week’s COTW, no tree grows to the sky, no matter how vigorous it appears. The Apple tree will be no exception.
Much of the gains recently have been inspired by stock buy-backs. But with interest rates poised to rise, and the Apple valuation out of sight, there is pressure on the company to cut its buying. And there is the China virus stalking the financial land. Here is the long term chart
The Elliott waves are textbook – the only question is when will the final wave 5 top out? With momentum and all other oscillator measures extremely over-bought, odds are high we are at or close to the major high.
It hit a high of $320 last week and my guess is that this will remain the high for a long time. If so, the Nasdaq and the Dow and S&P (Apple is a component of them all) will follow.
Of course, there is all sorts of speculation what effect the virus is having on global economies and the markets. Be in no doubt, this is a major epidemic and hence a result of a darkening social mood (not vice versa, as most assume). In many sectors markets were already in bear trends from Crude Oil to Gold/Silver to Base Metals to Treasuries. Their recent advances are really bear market rallies. Here is a major commodity – Iron Ore
Has just completed a corrective a-b-c along beautiful tramlines. A sharp break of the lower line approaches. As demand for Iron Ore wanes, so does the demand for shipping it (mainly to China). Here is the stunning collapse in the Baltic Dry Index of bulk shipping costs
From the ambitious highs last September, rates have fallen from 2500 to the current 415 – a decline of a stunning 83%. The bulk freight companies must be losing big money at these rates.
But bulk companies shares are still elevated – here is one of the majors, Star Bulk Carriers
The rally off the 2016 low is a lovely three up on a strong momentum divergence to the high which coincided with the high in the Baltic Dry Index. And I have a lovely tramline pair where the recent rally to the Fibonacci 62% retrace kissed the lower tramline and proceeded to enter a Scalded Cat Bounce lower. This is pure textbook.
So with established bear trends in key economic markets, the last hold-out is the stock market which is in the financial sector. Be assured, when it cracks, it will join the others in a very big way.
It’s also China Central Bank vs the virus!
With major health and economic disruption spreading around the globe, it seems investors in Chinese companies still cling to the belief that the People’s Bank of China will continue to ensure no harm will come to them. But maybe they should look at this chart of the top 50 companies
The standout feature is the very rare Triple Top – first in 2016, then in 2018 and recently the spike high in January just after Christmas. I have a lovely blue wedge to that top and a gap down with last week seeing a partial recovery. If that gap is not closed soon, it will be a Breakaway Gap heralding a major leg down.
This is getting interesting!