We have had a few problems with our email service last week and some members and subscribers may have been dropped off their list. If you have not received your VIP TRADERS TRADES CLUB TRADE ALERTS or PRO SHARES TRADE ALERTS for a couple of days, I urge you to let me know right away. Also, if you are not receiving my free blogposts by email, please sign up again from the home page. Thanks.
At the end of the first week of my Free Trial to my VIP TRADERS CLUB, I have come up with some very promising trades. But this is a long term game! Last year, I issued a US Grains Report where I highlighted my analysis of wheat, corn and soybeans. These huge markets are often overlooked by UK traders. Big mistake. Last week saw soybeans stage a massive rally that I had forecast – and Club members were delighted.
So hurry if you have not yet taken up my Free Trial Offer – it will expire next Friday.
Next week promises some excitement especially in US stocks. US markets are closed on Monday for Martin Luther King Day, but the ECB meet on Thursday and the Donald will be inaugurated on Friday. There is much in that mix for some serious moves especially in the Dow/S&P and Nasdaq.
And those moves are likely to be on the upside, despite all talk in the media of Trump being unable to follow through with his tax cuts/stimulus package. The fact remains that he will come into office riding a huge wave of positive sentiment (outside of the usual establishment and conventional economist suspects, of course). For evidence, all you have to do is look at the most risky US stock index – the Russell 2000, which comprises 2000 of small and medium cap shares.
Here is the daily and shows the explosive move post-election which is typical of a third wave. Remember, these are almost always ‘long and strong’. And the minor correction off my wave 3 high is a typical fourth wave with overlapping small waves. Note that the correction is well contained by my pink tramlines.
This market is girding its loins for another run up in wave 5 which should start next week. The upper blue line is my long-term upper tramline, which has been acting alternately as support and resistance since early December (and as support for months previously). Note that the only time the market has broken below this line was on Thursday where the break was quickly recovered and produced a pigtail.
That action has shown me the line is acting as solid support. Only a solid daily close below this line could amend my bullish view.
For this picture to be valid and because wave 3 is never shorter that waves 1 and 5 (an Elliott rule), wave 5 must not extend beyond about end-February. That gives the current rally phase a maximum of six weeks before a decent set-back. So now I have a time frame to work on for a major top.
But this may not be The Top! A new high here will be a large scale wave 3 of an eventual five up where a sharp decline by end-February will be that wave 4 and then a new push up to the final wave 5 high.
A Chinese lesson in Fibonacci trading
VIP Traders Club members have been having fun trading the USD/CNH cross (CNH is the offshore Chinese yuan traded in Hong Kong). I ran over how we took massive profits on the upside in my January 5 blogpost (“Has the dollar topped out?”).
Because I doubted whether the market would make it to the round number 70 level, which many had expected, I raise protect-profit stops to just under that level and was taken out early before the big plunge set in. This was the chart I showed then:
We dodged that bullet in fine style! So presented with this picture, I naturally expected a bounce of some sort from this very over-sold position. The big question was: how high would it bounce before the downtrend would resume?
My plan was to look to short the market as I suspected there were many bulls who had missed their chance to exit and were nursing big losses or severely reduced profits – and were desperate to escape with some semblance of pride (and capital) intact.
This is where Mr Fibonacci shows his true worth. Because I knew that the most common retracement of a sharp decline was either to the 50% or the 62% levels (with the 62% being the most favoured), I immediately set my Fib levels when I saw the decline has stopped. Here is the 4-hr chart I sent to VIP Traders Club members on Tuesday:
I noted the rebound had already carried to the 50% level but I was willing to forecast a further push up to the 62% level at around the 6700 area. I wanted to see if a momentum divergence could be eked out. That would help confirm the bounce was to be short-lived.
In Tuesday’s Trade Alert I advised VIP Traders Club members to set limit orders to short at the 69.10 level with a 30 pip protective stop.
That was a great low-risk trade with such a tight stop. And Mr Fibonacci has allowed me to do this with confidence.
And this is the result:
Correction: The chart above is a 4-hr.
The very next day – Wednesday – the market did indeed push up to that magic 62% level with a high of 60.17 and touched off our sell orders before starting the decline. Isn’t that pretty? A surgical trade entry, in fact.
We now have a winning trade which can be protected by moving PS to break even (using my Break Even Rule) so that if the market turns back up and takes the trade out, we will suffer no loss. That is the disciplined way to trade.
FTSE plays footsie with the bears
There are many US shares that carry large numbers of short positions – and I imagine the same applies to UK shares. Rational investors just can’t get their heads around the current incredibly strong rally phase – and are shorting in droves expecting a massive collapse.
Meanwhile, the market continues on its upward path as shorts are forced to cover. I read that George Soros is nursing a $1 billion loss on his shorts – and it couldn’t happen to a nicer guy!
But we know that conventional rationality has little place in market forecasts! We now know that it is sentiment and liquidity that drive markets. Reduce either one and markets fall off their perch. While both are increasing, markets continue to rally.
And what a rally! We have had a record 24 consecutive up closes! Not a decent down day since 12 December!! But that long and strong performance makes wave interpretation quite simple – we are in a third of a third up.
Here are my labels – and now I am able to offer a forecast for the near term. It will be down, then up to a new high and then a large wave down. After that, we should embark on the final wave up (in five waves) to higher highs and then……watch out below,
Incidentally, my red line forecasts are not necessarily to scale!
I intend to guide Club members along this road-map.