We are in the last leg of the gold bull – and what a leg! While many MSM pundits are suddenly very bullish on the PMs (after the silver price has advanced from $14.50 to $16 this week alone), I am watching the waves play out that tell me the bull is getting tired.
In terms of silver, which has been the stronger performer this week, I note that DSI gold bulls have now surged to over 90%, having shot up from the 20% mark set at the late May low. In just six weeks, the bulls have come from nowhere to dominate proceedings. And thus the conditions are ripe for a reversal.
Why? Simply because when too many bulls rush to one side of the ship, it often capsizes. The speculative majority are always wrong at market turns.
And no wonder silver has surged, with stocks still around their ATHs and the market debating whether the Fed will cut rates by 0.5% to be announced 31 July and thus send the US economy into the stratosphere – or so they hope. The risk-on feeling is in full flow as the bulls expect the Fed to deliver up even more goodies.
So what are the odds that they will cut the Fed Funds by a very large 0.5%, which Fed members are falling over themselves to deny. Here is my favourite tell – the 3-mo T-Bill yield
A sudden plunge late last week has taken it to the 2% level – a full 0.5% lower than last April! And since the Fed always follows the market, odds are pretty good for that big cut.
But the nonsense around the Fed is a distraction. Can anyone seriously forecast whet they will do (except us, of course!) – and more importantly, how the market will behave after the act? And is the market driven by what the Fed does anyway? We shall soon find out!
I can make plausible cases for several scenarios from the Buy the Rumour/Sell the News result to a shrug of the shoulders.
But there is one thing I can forecast with high confidence. With bullish sentiment at near record levels, any ‘positive surprises’ will have a much smaller impact on shares than if we get a ‘negative’ surprise. There is a whole heap of disappointment lurking in the wings ready to pounce.
Naturally, many conventional pundits will claim that the recent advance in PMs is being fueled by lower interest rate expectations. I say that it has been the self-generated switch to more positive and optimistic feelings by traders that has done it. It is the same Goldilocks sentiment that has driven shares up.
So how did silver get here and did we make any profits? This is the long tern view
As you can see, silver has made some stunningly large waves over the years – from the $48 high in 2011 to the $14 low is 2015 – which was almost matched in September 2018, Since then, it has only edged up very slightly to the current $16 level when seen on this scale.
Thus, with a series of lower highs and lower lows, the long-term trend remains down. But that doesn’t mean a swing trader can’t make profits on the long side (which is precisely what we have done).
But back in May when the market was on the slide, I noted a complete Elliott wave pattern and together with a strong momentum divergence (selling was drying up) I pounced, sensing a strong rally lay directly ahead as the DSI bulls reading was around the lowly 20% area.
And I wasn’t disappointed – here is the 4-hr
And as the market reversed, I advised VIP Traders Club members to go long at the marked points. And last week as the market shot up to break the upper tramline, I advised taking some profits.
And from our initial entry at 14.73, that was a scoop of 130 pips and at a small spread bet of only £25 a pip, that is a tidy profit of over £3k.
But now, with bullish enthusiasm running at steam heat, I ask did the rally run into a brick wall yesterday?
Latest COT shows hedge funds rushed to the long side in both gold and silver in the latest week. Currently, hedge funds are an amazing 6/1 net long (commercials are 2/1 short). I do not recall seeing this elevated level of bullish fervour by money managers ever before.
In addition, I have a potentially complete five up in gold
and on a momentum divergence to the likely wave 5 high at $1450 on Thursday. And with yesterday’s sharp decline to the $1425 area, we could be looking at a move back down to the $1400 area soon.
In swing trading, it is absolutely necessary to anticipate the waves before they turn – and that is why I advised VIP Traders Club members to take some profits near the wave 5 high yesterday morning.
Has the Nasdaq finally turned?
It is no secret that I have been warning that when the share bubble bursts, the Nasdaq will lead the way down as the speculative juices have been running riot in the tech arena – lead by the infamous FANG Gang. And now, I believe the group is in danger of losing the ‘N’ to become the FAGs (no sexual pun intended).
Yes, Netflix has been on a tear as the pioneer of TV streaming, but suddenly, competitors are coming out of the woodwork in droves – and is looking to knock N off its perch.
And late yesterday, all of the FAANGs slumped in unison. For my PRO SHARES members, I have been stalking ALPHABET (Google) waiting f or signs of a major top. In fact, it has made a beautiful Double Top already – here is the daily chart
Isn’t that pretty? The tops at the $1,295 area were made in July 2018 and in May 2019 and from that high, the shares slumped down to the $1,030 area last month before climbing back in a nice three up to the Fibonacci 50% retrace. And that is where I pounced to advise short positions to members. I am looking for a substantial move lower.
Of course, Alphabet is one of the leaders of the Nasdaq and that too slumped late yesterday – and I now have a textbook setup for a rapid decline
All the ingredients are there from an ending diagonal in five waves to the likely termination of wave 5 of c of c of B. Odds are very strong that last week’s 7980 high will stand for a very long time.
And DSI bulls reached a near-record 93% last week – which is where previous highs were put in.
The run-up to the Fed announcement on the 31st will be of great interest!
Have the T-Bonds have more gas in the tank?
Last week I laid out my case that Treasuries may well have topped and I outlined my case to take short positions near top tick. As a terrific example of changing horses in mid=stream, I had a change of heart early in the week as signs mounted that in reality we had a three down – and that spelled new highs to come.
And that is why I advised VIP TRADERS CLUB members to take some profits near the low.
The give-away was the large momentum divergence at the C wave low!
In fact, I advised taking part profit at the low and to retain the other short position with Protective Stop (PS) at break-even. That way, if I am wrong about a new high, we still have a profitable short trade working – plus having banked the earlier profit. But if I am correct, we will be taken out of the remaining short with zero loss – having banked a net profit for the campaign.
In my book, that is a win-win scenario.
My bottom line: With near-record bullish sentiment in shares and gold, when they start turning, they will decline very hard together. And that would be highly deflationary!