Are the bulls still in the China shop?

Dear Trading Diary: It has been a few weeks since the Great Chinese Rocket got off the launchpad with the infamous 40% one-week surge to the precise Fib 50% retrace of the major decline off the January 2021 ATH. That destroyed many hedge fund short positions I am sure. And as I predicted, the market has been digesting that shock after I had taken profits. I have been sitting this phase out and the A50 index is off by 18% from the Fib high, But I see signs the market wants to try to push higher and I am now long again for VIP Traders Club.

Many pundits do not believe the rally has legs and the recent stimulus measures will fall flat in the economy. But as we all know, it is not the economy that drives market prices. It is the reverse! So are there more nice surprises in store for the bulls in the China shop?

Extreme Complacency Rules as stocks advance! I have been banging on about the extreme manic investor optimism to keep loading up on shares (but not all!) esp in the US and Europe. Yes, I have mis-judged the ability of the indexes to keep exceeding even the most extreme manic levels of risk.

As one measure of the buying frenzy out there, here is an illuminating chart of the Goldman Sachs Bull/Bear ratio. This ratio is made up of several sentiment measures including economic data and internal stock data (put/call ratios and P/E valuations). It is a well-respected indicator:

The chart goes back to the 1960s and encompasses many bull and bear phases. The 987 Crash is marked by the lowest reading. But we are today close to the three latest highs.

The first high in 2000 started a 78% Nasdaq crash.

The second high in 2007 started a 58% S&P crash

And the latest high in 2018 started a 20% S&P decline.

Here we are in 2024 in October – the notorious month where many major historical declines have originated.

Of course, it is the mania for all things AI that powers the Big Tech sector. But one straw in the wind that the mania may be reaching its zenith, the leading chip making tool manufacturer, the Dutch giant ASML reported weak results on Tuesday. This company is at the leading edge of the AI revolution as it sells its tools to the likes of Nvidia who make the chips to sell to Google that uses them in its data centres (soon to be nuclear-powered – see below).

But ominously, the high for its shares occurred in July at 1,000 euros at the same time as that of the Nasdaq. A coincidence? It now trades at 640 euros – down 36%. So if AI is the future, why is the leading global chip tool maker down so much? Hmm.

It looks like AI investments will follow the well-worn path of other revolutions – the canals, the railways, autos, air travel, radio (in the US) and the internet – not to mention EVs. At maximum investor mania, the shares become out of touch with reality and start major declines as late investors/speculators bail out. All the while, the underlying technology keeps developing to humanity’s benefit.

But for now, the music is still playing and we keep dancing.

My Best Guess is that the Nasdaq powered by AI will make new ATHs while the Bull/Bear ratio moves higher into regions above those of 2000, 2007 and 2018 possibly to the 0.8 area before topping in a blaze of glory. Who knows what levels the US indexes will reach by then? Some are calling for the Dow at 100,000.

Update on the EV revolution: Despite the huge EU and US tariffs, China will still produce the best-selling EVs but pricing will edge a lot lower (lithium prices are low but climbing). Sales of high-end BMWs and Mercedes have tapped most of the wealthy and fleet sectors. The German car industry is in crisis. To continue the EV revolution, vehicles must now be priced for the average non-fleet private buyer. And the charging structure needs to become more available. And insurance and repairs need to be cheaper. If those little problems can be solved, the next stage of the revolution can get going. I will not be holding my breath.

My Uranium campaign: I have been long uranium shares for Pro Shares for some time. It’s a simple story – Western governments in their zeal for wind and sun have deliberately shunned nuclear. Maybe that is because in their simple minds they see wind and sunshine are free and therefore we shall all have free electricity soon. And nuclear power plants can blow up.

The other slightly more cynical reason is that they have friends that own land and mandating windmills and solar ‘farms’ makes these land-owning rent-seekers very rich. They will be very well placed to take care of their politician friends when they are inevitably kicked out of office.

But with power cuts looming closer – and the much-hated natural gas plants being deployed out of necessity, they are being forced to take a serious look at nuclear again. Labour has always been the most rabid Net Zero anti-nuclear zealots but they will be forced into another 180-degree U-turn kicking and screaming as they do.

And we hear that Amazon is planning to invest $500 million to deploy some Small Modular Nuclear Reactors to power its Web Services division. It is not alone. Trust the Big Tech juggernauts to out-play governments in producing 100% CO2-free power. Data centres will require huge amounts of power as the AI revolution gathers pace. It is unlikely they will be sited in the red tape- clogged UK shores.

Cameco is one of the granddaddies of the Uranium mining sector based in Canada where the first Uranium Boom started in the 1960s. That was when the nascent nuclear power mania was in full flight with predictions that electricity would be so cheap it would not be worth metering. Does this ring a bell for the current claims for renewables?

But a few months ago, uranium was in the doldrums with little prospect of demand picking up with Western governments dead set against it. Cameco traded at a summer low of $36 and now trades at $56 – a 55% hike. How times – and opinions – change!

With uranium suddenly back in favour – at least with Big Tech – not only the miners will benefit. I remain long several miners and Yellow Cake for Pro Shares

I am re-starting my bear Dollar campaign: I confess the recent strength in the greenback has been a tad surprising. At the round-number 100 lows of a month ago, sentiment was hugely bearish as hedge funds piled on the shorts in anticipation of rapid Fed rate cuts to come.

Of course, I should have seen the rally coming with huge mom divs at the lows that forecast a likely vigorous short squeeze rally phase. That much I did foresee but expected the rally to turn around on a kiss on the underside of a major trendline. In fact, we had a kiss miss as it overshot the line!

Now at the 1003.50 level it has made a tidy Fib 62% retrace on overbought mom with sentiment now hard bullish. I have restated my bear campaign and I expect to see the market well under the 100 level is due course. If this develops as expected, we shall see the Fed cutting hard into 2025. Of course, they will follow the market rates, as usual.

Update on my Gold/Silver campaigns: Not much to report as Gold continues making new ATHs over $2,700. The surge has been even sharper in euro, sterling and especially yen and yuan terms. Central banks around the world have been big buyers. Do they know something we don’t? Are they getting alarmed by the ballooning US debt which now stands at a staggering $36 Trillion with a Debt/GDP ratio at a record 124% along with a budget deficit of a mammoth $1.2 Trillion. Ouch!

I believe the looming debt implosion is the major reason why the US government has mandated open borders to allow the millions of immigrants to provide the taxes that they hope will plug the gap.

Of course, ballooning debt is not only a problem just for the US. Global debt levels are also on the same path as is global money supply.

Rough estimates:

Global debt: $315 Trillion

Global Money Supply: $107 Trillion

Value of above-ground tradable Gold: $18 Trillion (6% of Global Money Supply). The value of Gold supplies is only a fraction (6%) of money supply (which is growing and may grow further if QE is re-introduced). Gold has a lot of catching up to do!

Adding to this bullish picture. the BRICS nations will announce their gold-backed unit of account UNIT at their upcoming meeting. Watch this space!

But this PM surge is not headline news in the MSM (yet). Search Google for “Gold price” and the numbers are falling! A silent continuing bull signal.

When Gold pushed up above the $2,670 ‘ceiling’ last week, I added to positions. Silver lags but shows great potential for further advances along with Copper. I remain long for VIP Traders Club and Phoenix.

Incidentally, the rise in Gold at the same time as the US dollar is advancing gives the lie to the old worn mantra that Gold trades contra the greenback. Hmm.

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Update on my Crude Oil campaign: I took all profits off the table about a week ago just before the recent slump on the China news. As it was falling, I posted to VIP Traders Club members that my major target was in the $69 support area. As I write, the market is trading at a new low at $68.50. Will this support hold and am I preparing to go long here? Or will the market make new lows below the important $64 low set in March?