Facebook has been grabbing MSM headlines again – but for all the wrong reasons. Most of these headlines point to the ‘loss in value of $19 billion in one day – the biggest one day loss in US corporate history’.
Actually, the plunge took only two hours to unfold from $190 to $164 starting at 9 pm UK time when not too many retail traders were in front of their screens. Blink and you missed it. That was not a trading opportunity for us – unless you were already short, that is.
Here is the fascinating chart with my Elliott wave labels
and is a textbook case of the final fifth waves of many degrees pushing to just above the major multi-year tramline in a classic ‘overshoot’ and then descending very rapidly in a Scalded Cat Bounce back towards the lower tramline – and on a momentum divergence. Looking closely at the final purple fifth wave will reveal another very small scale complete five up to the $219 top, which I believe will never be exceeded ever again.
A lot was made of this plunge by the MSM but note prices are only back to where they were less than three months ago. Many investors have held shares for far longer than that, so I am wondering what their reaction would be if they continued heading south near term.
And with all that dust being kicked up, I view these traumatic events as a spectator sport – for now. I have tried to trade them in the past, but whipsaws are all too common and I would much rather get involved with third waves – they are much more secure in producing trading profits. In fact, we have third waves running in several markets (see below).
I like to pick my campaigns carefully when I consider the odds are generally on my side. And I start with the question: what is the downside? I conduct my chart and sentiment analysis and then look for an entry where I can place a sensible stop loss. Then I look for my targets if successful. My recent dollar campaign – which I have covered here in previous posts – is a case in point. My original long entry was accompanied by a close stop and I exited at my target at 95.
Of course, not all of my trades work out quite so well. But if they don’tt, they are always covered with a close stop loss where my losses are small. I can comfortably take several of these small losses before I latch onto a good entry where the gains promise to far outstrip the sum of losses.
Mercury goes retrograde
According to the ancient art of astrology, the speedy planet Mercury is the planet of communications and expression and was also the Roman winged messenger god. Before you rubbish any connection with the markets (as so many do) consider the Romans achieved some great things and did an awful lot of good for us (despite what the Monty Pythons said). So maybe their gods really did have a highly practical use.
According to any good astrologer, when it is in retrograde (appears to move backwards), expect to see a disruption in normal communications, such as ‘fake news’ – which is already it in the news (I see a headline today reading: Facebook Twitter and Google face tech tax on crackdown over fake news.
And this morning on the BBC radio news, the UK government says the UK faces a ‘democratic crisis’ over ‘pernicious views’ and the manipulation of personal data. It is obviously considering more laws against the US tech titans that can only spell bad news for share prices. Already, the EU has just imposed the biggest ever fine on Google. The war on the tech titans has only just begun.
And what perfect timing for Mercury to go backwards! Last week, Facebook plunged 20% and yesterday, Google (Alphabet) lost 3% even after posting blockbuster earnings that most considered super-bullish.
According to astrologers, this is a period of pandemonium and not a good time to be starting any major undertaking or making important purchases. If the latter admonition applies to stock purchases, the market for the FAANGS in particular will find a dearth of buyers – at least at these sky-high valuations. Facebook already is skating on thin ice – and who would want to make a big FB purchase now with the sentiment tide going out?
So in this period, we can expect stock action to become much more volatile with trading volumes picking up substantially – as well as daily ranges widening. VIX will get up off the floor and rocket.
In fact, the current POTUS in the shape of The Donald is an exemplar of this move towards discombobulation in communications. One day, he says the EU is a ‘foe’ of the US and on the next, they are all buddies. He once called the NK leader all the names under the sun and in their meeting, it was all sweetness and light. How can you square that? When he became the Pres, I called him the Great Disruptor – and he sure is living up to that name in spades.
Yesterday saw a major light bulb moment in stocks
Around 4 pm UK time yesterday, stock indexes were telling me their uptrends were looking wobbly (a technical term) and I sent a Special Alert to VIP Traders Club members with this chart of the S&P
It had been in a strong rally phase off the 28 June low and I was then on sharp lookout for a termination – hopefully at or near the blue major trendline that had been acting as strong resistance. The key level was the blue trendlline that had resisted many previous attempts at penetration -and my eyes were peeled for a possible break.
On Wednesday, it managed to poke a little above that line but quickly fell back under it in a possible ‘overshoot’. It spent most of Thursday and Friday knocking on its door and when it made the third failed attempt, I felt that was the final try and when it started to fall back on a large momentum divergence, the odds had suddenly moved much higher for the trend change I had been patiently waiting for.
And by the close, it had plunged in a clear third wave to this finish on the 2-hr
Now I had an internal tramline pair in blue where the action of the past few days was in fact an ‘overshoot; of the very reliable upper blue tramline (that confirmed the similar overshoot in FB).
And by the close, it ha fallen heavily and tested the lower blue tramline in wave 3 (which may or may not be complete). Isn’t that pretty? I love overshoots!
Here is the bigger picture on the daily from January’s Top:
My long-awaited wave C of 2 is now in place and I can project major declines in wave 3 of 3. Wave 2 came within 30 points or so of The Top and was obviously a very deep correction that far exceeded the Fibonacci 76%, which is normally in my last chance saloon for a turn. I have seen similar very deep retracements for major second waves, so this one is no great surprise
I believe everything is now in place for major declines. The bear trend will be lead by the tech-heavy Nasdaq, as I have previously forecast. The previous trade of Buy Growth/Sell Value has run out of puff. The trend will now be to buy value (many are in the Dow) and sell tech. Smart fund managers will now be leaning this way as the 20% plunge in Facebook (the most widely held stock) will have given them nightmares. They will start to fall in love with some knocked-down banks again – and even telecommunications. The smashed up Vodaphone share price may well to become a major beneficiary!
But this is not the time to be planning long-term investments. It is the time to start liquidating equities and convert to cash.