I do not want to turn this into a political blog – goodness knows there are too many of those out there already – but my sceptical piece on the ‘climate scare’ last time was (hopefully) a cheeky idea that does impact investments and financial markets. One final point on this theme – it is abundantly clear that the alarmists have won the day with politicians everywhere on board and throwing big money at the coming ‘crisis’. Climate sceptics have been defeated – except on the science, of course.
And just to show that I personally do not bear any kind of grudge, I have this week advised my clients to buy shares in a carbon capture and hydrogen fuel company. How’s that for hypocrisy?
And today, I have one more sceptical theme that I hope will stir up some debate and thought. I came across a well-researched piece on the pandemic and the effect of the various global lockdowns. Basically, they conclude that hard lockdowns, as we have seen them in the UK, Europe and many US states – but importantly, not all (including Texas) – have had little or no impact on the death rates nor the Covid case rate. The article is headed Why is not everyone dying in Texas?
But I slightly digress – and back to the markets. But before I do, I cannot help chuckling about the recent hedge fund implosion causing major losses for Credit Suisse and Nomura – called Archegos! Boy, they were well named as it must have taken out-sized egos to ramp up the leverage on their positions to the extent they did. And that name fully describes the manic bull sentiment in stocks today.
And provides a great lesson for we lowly traders. Hwang’s positions were wiped out in one day with only a small correction in the underlying assets. The leverage employed was so great that NAVs were hugely magnified – on the downside. When markets are booming, the temptation is to ramp up the leverage (borrowing) to exploit the assumed continuation of the rally.
But that is precisely when good traders should be reducing their leverage. That is my approach and I believe that provides the greatest chance for a very long lived trading life. Mr Hwang sadly will likely not have one of those!
The euro has reached an important support level. at 1.17
VIP Traders Club members have been riding the decline in EUR/USD since January and on Wednesday it hit my important downside target at 1.17 which is where we took major profits. Here is my analysis of that trade:
In January, the market advanced to an important tramline I was monitoring on the monthly chart (upper arrow)
Previously, the market had bounced off my superb lower tramline in 2015 (complete with an accurate PPP and three accurate touch points) on a very strong mom div that heralded a strong rebound to the upper tramline. So far, so good. And that was the ideal place to enter shorts at the 1.23 region and/or exit longs early this year That is what I advised for VIP Traders Club members in my Trade Alerts.
But note the huge waves leading up to that point. The advance from the 2001 lows is a clear five up (impulsive) and the decline off the 2008 highs was in highly overlapping waves that has the feel of a very large three. Five up and three down equals a larger bull trend. So today, with the dip off the upper tramline appearing tiny compared with the other waves, we must keep in mind the larger trend likely remains up with the possibility the market could recover and move above the upper tramline in a very bullish show of strength.
So that was my dilemma last week – a choice between two vastly different possible scenarios. This is a position all traders face at all times.
So that is why I decided to take profits in a Trade Alert to members last week at the 1.17 mark for a superb win of about 500 points – here is the daily showing my dilemma
I have a clear five up to the 6 January high at 1.23 and a likely ending diagonal with a break of the lower wedge line on 5 March and last week’s decline to the Fib 38% support on a good mom div. I judged the odds for a decent rebound at least was very high – and that is what prompted me to take profits.
Trading direction and duration of a trade is always a percentage guestimate. More often that not, the market will move in the greater odds direction as judged by your own set of trading rules (mine is the Tramline method). But as 100-1 outsiders sometimes win horse races, expect the unexpected sometimes to occur (but not often!).
So now with the market in rebound mode, I believe odds favour a continuation of the rebound in the short term. And here is an intriguing idea:
This is the 2-hr chart and anticipating a little more development, this is a possible outcome with the current RS(?) completing in a day or so and then the market surges up to break above the now-confirmed neckline. The mom div at the Head should ensure a sharp move if a rally is now on the cards.
That means a buy stop placed just above the neckline should catch a decent move to be instantly in profit (I like those!). On the other hand, a failure of the pattern would keep the market under the neckline and lead to new lows below 1.1700. The results should be clear early next week.
Either way, members have taken profits on the short side and by using my Split Bet Strategy, still hold part position for a possible H&S failure. This is a great position to be in psychologically. We have money in the bank and have a free ride on part position. It doesn’t get much better than this.
Moral to this story: Using a solid system of technical analysis can highlight accurate turning points for a swing trader to exploit the reversals for large potential gains. There is always two opposing (at least) valid directional options in any time scale, but the Elliott model combined with Fibs and tramlines offers accurate targets where one option is highly favoured – and that is the one you should always with.
British Airways gets off the ground
I have been trading International Consolidated Airlines Group (ICA) – the owner of British Airways and many others – for my Pro Shares members in recent weeks. Naturally, the shares have been hammered in these pandemic-affected times. But I saw this presented a major opportunity in January The charts display several interesting features. Here is the long term monthly:
I started tracking it about a year ago just after the Corona Crash and I figured it would be some time before the dust would settle. I did not want to get in too early as I felt the other shoe might drop but I saw the potential for the Double Bottom pattern was there . Remember, Double Bottoms are usually heralding a major reversal. But the three down off the June 2018 high at 660 was compelling as it strongly suggested the five up, three down = bull market scenario. It was only a matter of time before an upward trend would emerge.
In fact, it bumped along the floor for many months before giving me a clear signal to pounce
It made the 82p low in October on a strong mom div and my interest really started to perk up. It was late January when I had a decent dip to the 146 level and went in. That was the low for the move and it has been moving upwards since (latest 210). And the gap around the 400 area looks very alluring…
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