Stocks continue in their levitation mode. But of course, the ‘stock market’ is a market of stocks – some will be in full bull mode ( we are in some of these for our Pro Shares service), some in bear trends (see EV below) and some doing nothing. The averages such as the Dow averages out the various movements of all of the 30 components. It’s the same in all other indexes with some sectors advancing and other in free-fall.
Free-fall, you say? Surely not when all the MSM headlines are screaming BUY BUY BUY! All I read about is the huge profits the small investors are making with the likes of Gamestop or AMC or even the FAANGs. It’s the Age of the Little Guy. But there is one sector that is bucking the trend – and doing so big time.
Have EVs reached the end of the road?
There is little doubt that the mandated transition from fossil fuelled vehicles to electric is in the very early stages. I have been highlighting Tesla’s rocky progress (and decline?) to EV dominance, but here is a fascinating chart of the EV sector that includes ten of the new start-ups that are hoping to get a look-in on the action
chart courtesy www.elliottwave.com
Since the February peak excitement over the bullish potential of EVs, the index has crashed by a Fibonacci 2/3. Ouch! So much for the uncertainty of ‘potential’.
So is reality dawning that the almost-universal desire of the ‘authorities’ to move away from fossil fuels an impossible dream? For one thing, is it likely that outside of the advanced economies of Europe and North America – where uptake of EVs will be highest – a farmer in Africa will be tempted away from his reliable Toyota truck? And where will he charge an EV? And how will he pay for it at the hugely more expensive sticker price? Will the eco warriors in the UK chip in (pun intended) to subsidise the EV purchases by the poor in Africa and South America (and Russia)? I don’t think so. Much personal transport is by tuk tuk in India and motor scooter in other parts. Can I see a move into electric here? No I do not.
With any prospect under the rosiest scenario, I cannot see EVs taking over the world. Perhaps hydrogen is the answer but it seems much more development is needed and that is some years away. Meanwhile, we are getting more strident alarmist messages the end of the world is less than ten years away – and that is getting closer and closer. Pretty soon the catastrophe will be upon us – and most will be driving old school vehicles.
So with some of the more speculative sectors turning lower – including crypto and SPACs that have had a terrible May – are the more traditional investments (backed my real earnings), such as captured by the small cap Russell 2000 index nearing a similar denoument?
On the face of it, it appears there may be a little more life in the old bull yet
This is the daily chart off the US small caps (the ‘real’ economy) and right away I spot a likely wedge/triangle in formation off the 15 March ATH. These patterns are most often set in the wave 4 position of a five wave impulse sequence. This make it a high probability that we shall see one more push up to new highs in wave 5. That should be matched by pushes up in the other US indexes – with the possible exception of the Nasdaq.
And that should cap off all fifth waves of the entire bull market at least since the major lows of the Credit Crunch of 2009. In fact, looking at the chart of the Dow since the 1929 Wall Street Crash, I can make a case that the mania for owning company shares by the public is at or close to terminating.
One further warning – there has been a massive swing into share trading my the younger members of society who are being seduced by the get-rich-quick stories proliferating on social media. When rank amateurs flock to shares in droves, it always ends in tears – eventually.
I still maintain that The Top in stock indexes will most likely occur this year, so we have only seven more months to check that out!
Coffee is still perking
As we all know, commodities have been very hot lately – and none more so than Coffee. VIP Traders Club members started trading it back in September when the astonishingly low price of 88 cents/lb was achieved – the lowest for sixteen years. I stated then that this was a major buying opportunity to get in on a possible major bull market that would span several years.
Of course, there was every ‘fundamental’ reason to remain bearish on Coffee then – production was the highest ever and stocks were also at record high levels. So why would anyone buy?
As we all know by now in ag markets, the cure for low prices is low prices. In other words, low prices deter farmers from growing coffee next season in favour of more lucrative crops. Also, there was also the possibility that next season, the weather may take a turn for the worse. That would trap all those confident shorts as prices recovered.
And that is precisely the scenario we are now seeing with the Brazil drought showing few signs of easing. And with the recovery in most other ag markets, there is a tailwind working on all ag markets.
Already prices have moved up to the current $1.60 region – an almost doubling off the 88 cent low. But I believe there is more to come. So be prepared for your favourite brew to cost more this year.
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Is there more upside for Lloyds?
We have been trading this major UK bank for some time in Pro Shares and have maintained my bullish stance since the October lows around 25p. As it reaches the 50p level will it be running into a lot more resistance – and even turning lower?
The recovery has been impressive – and fully flagged by the huge mom div at last year’s lows. But now it is running up into the major pink resistance area. And the recovery is in a classic three waves (corrective). With the Fib 62% around 52p just ahead and the February 2020 gap close by, a reversal down soon is on the cards. Traders who are long should prepare to take at least some profits in the days ahead.
In terms of fundamentals, with the furlough scheme and the mortgage relief scheme about to undergo major withdrawals later this year, many house owners will be exposed to the harsh reality of life with little or no income and a large mortgage. Is it possible the red hot housing market will come to a shuddering halt later this year? Hmm.