Exit Bidenomics stage left, enter Trumponomics stage right

Dear Trading Diary: Like my left/right inference above? I was not the only one caught off guard by the crushing Trump come-back and took a few hits to my trades, but by using my trusty Break Even Rule, the damage was well contained. That BE Rule of mine is a true life-saver. Now, a few days later, the thunderbolt has not entirely been absorbed. In fact, the huge Trump win Made the Dollar Great Again and pushed US share indexes to new highs. Now, everyone is agreed – it’s boom times for America! And that is the perfect condition for major dollar and index tops to appear (see below).

We here in the UK face a double whammy – looming US import tariffs on British goods and massive tax hikes courtesy of the tax-and-spend-on-steroids Labour government. And with Trump now announcing tax cuts for Americans to come, the gap between us is as wide as the Grand Canyon (or wider – even as wide as the Atlantic Ocean!). (Seems Trump is following the Liz Truss formula of lower tax and less spending. What ever happened to her? Did she become a top Trump economic advisor? It’s a funny old world).

Incidentally, if you plan to visit that wonderful spot in Arizona (swung to Trump), may I suggest going to the North Rim – much less touristy than the famous South Rim and a good 1,000 feet higher! Sunsets there are spectacular.

But with US stocks already at over-blown valuations, those that are excited about a lot more of the same under Trump are likely to be disappointed somewhere down the line. Could be soon.

For one thing, the VIX Fear Index is showing maximum complacency again with a dip back to the 15 support and at the edge of the July gap. It is getting the clicks – but mainly on the sell buttons. This is a critical juncture since if that gap is not closed, a stock index reversal is not too far away. That is why I am watching it very closely.

And here is another big warning sign – the S&P advance appears highly vulnerable to an imminent sell-off

The rally to the very round number 6,000 is my wave 5 of 5 and on a large mom div. Yes, despite the huge Trumpian 3-day 300 point surge to the 6,000 level, the breadth was weak and yesterday the up/down volume on the NYSE was negative. This is not the sign of an internally strong bull market.

My best guess is that even if next week starts out with advances, the rally should peter out by mid-week. I will be looking for short entries. Remember, fifth waves are terminal waves to the main trend.

Update on my Gold campaign: Many traditional analysts are completely flummoxed by the exponential rally in Gold this year. In normal times, the Gold price follows Treasury yields (inverted) and the US Dollar (inverted). But not this year. Far from it. This amazing chart below is a real stunner -with the gap exploding wider.

Note that the de-coupling all started with the Russian assets freeze and then the Ukraine invasion. This focused the minds of Russian and other global central bankers into diversifying away from the dollar/Tresuries and into the only sure store of value, the barbaric relic. That was one factor in the ‘surprise’ rise in Treasury yields. Also, the latest BRICS conference was a flop for the adoption of their new UNIT unit of commerce (a mix of gold and currencies) between the BRICS nations and hence boosted the dollar as reserve currency.

China has been especially active in accumulating its Gold holdings despite the rise in Treasury yields and the rise of the dollar. So with the textbook relationship having completely broken down, there must be an overriding compulsion to store Gold and that is the central banks see a financial collapse ahead. They foresee a collapsing dollar and the emergence of cryptos as an alternative. Bitcoin has just made a new ATH as investors take the same view.

In recent days, Gold has begun the wave 4 correction that I have been waiting for with a dip to $2,645 which is $155 below its £2,790 ATH on 20 October. That may be the extent of wave 4 but it is of such short duration and scale that we may see more development before any attempt to new highs can be made. But I am willing to give the upside the small benefit of the doubt and I have taken a new long position in readiness. I do not want to be very long out of this market that has all the hallmarks of remaining in a historic bull phase that has a lot more upside to come. But we may be due for more froth-blowing first.

I have a tentative major target around the $3,400 area and will continue to buy major dips.

In terms of the Mind the Gap chart above, Treasury yields appear to be topping after a strong run (unexpected by the majority as they slavishly follow the Fed).

That is another long-time relationship that has broken down. Now, lower short term rates are translating into higher long term rates. Curious, no? But it is likely pointing to renewed consumer inflation ahead.

The yield rally off the Double Bottom low in mid-September at 3.9% has taken it to 4.6% – a whopping 18% increase. Who saw that coming? Not the public who were happily snapping up Treasury ETFs with abandon as a typical knee-jerk reaction to the first Fed rate cut in September in many months of 50 bps. It was the obvious trade, wasn’t it? But often in markets it is the opposite that is the obvious play.

So now I expect a pull-back in yields (rally in Treasuries) as investors knee-jerk to the Trump win. But down the line, yields will surge again as the enormity of the ballooning national debt takes centre stage once more.

Update on the Net Zero revolution: The eco warriors are in total shock and disbelief. Just as the latest COP extravaganza for the CO2-spewing private jetters is about to get under way (yes, it is 30 years since the first one set out to ‘fight climate change’ and save the planet) – ironically being held in the enemy camp of Azerbaijan which is a major fossil fuel nation. This is what they are staring at: Headline; “Trump wins Presidency: Net Zero, UN Climate Pacts, Green New Deal, Inflation Reduction Act face ruin.”

And with that news, shares in wind and solar firms slumped and coal shares rose. Here is Peabody Energy Corp – a major US coal exporter making new highs

So which is the better investment? Actually, I admire the touching faith investors had in the technology surrounding the Net Zero project – mostly built on massive taxpayer subsidies that coal certainly does not receive (they pay huge taxes instead). But with the biggest producers of CO2 – China, India and Indonesia – showing no signs of reducing their use of coal for electricity production, the whole thing has been doomed from the start. Recall this chart I posted in July

The lowest (dark blue) line is the contribution from the wind and solar ‘renewables’. The upper red line is that from fossil fuels. I rest my case.

And with EV sales in deep trouble in the West, the legacy auto manufacturers are in crisis. Latest German figures show EV sales in a deep slump there. Ditto the heat pump roll-out in the UK.

In the UK, the government is planning on ‘upgrading’ the grid. just as electricity use is already falling (less industrial heavy manufacturing) and greater use of LEDs pushed on by record high consumer prices. If built, will it be not just huge pylon eyesores on the landscape, but a while elephant project similar to HS2 – paid for by taxpayers?

Yes, the data centres will consume much electricity but many will be powered off-grid by the small modular nuclear plants.

It seems our shiny new Labour government is completely out of step with the US now, as is almost the whole of Europe and especially Germany which has been a leading eco revolutionary (and is driving the nation down the same slippery slope as the UK). Now, politics there is also in crisis. Germans can only hope a Trump-like figure can emerge to right the ship.

So now a new Trumpian US administration is almost certain to roll back much of their fantasy eco projects (carbon capture?), where does that place the fossil fuel picture? On the face of it, their Drill, Baby, Drill mantra is bearish for crude and possibly NatGas (although prices are near rock bottom anyway).

In my October 26 post I highlighted the likely bearish global supply/demand picture ahead and suggested that the market would be unlikely to move away from its established trading ranges with no clear medium-to-long term trend for the foreseeable. I have no reason to amend my stance. It remains a market for short term swing trades.

Update on my US Dollar campaign: Trump has won – let the dollar soar! That was the consensus last week that pushed the DSI index up to 75 – near the very highest bull readings ever. So that is setting off my contrarian antennae twitching. Take a look at this chart of the Dollar Index

The surge is a small scale fifth wave (not marked) on a very strong mom div and took it to meet my trendline. My Elliott wave labels are valid and if correct, we should expect a sharp wave 3 reversal soon that would only be nixed if the index moves sharply above the trendline early next week. Remember, third waves are usually the longest and strongest in the book.

So what catalyst could appear to throw the bull trends of the dollar and stocks off course in this way?