Have I nailed a major Gold/Silver low?

Dear Trading Diary: Last week was OK and I am still making profits weekly. One reason is that I took profits in my long Nasdaq trades (too early, I hear you cry!) and then stayed out of the market while it churned after digesting the latest FOMC and US data points, as I forecast it would. And despite several pundits proclaiming a strong (bearish) crude oil surplus by year end, the strong advance off the 2 June $73 WTI low, energies paid little attention and continued upwards in their bullish ways. Remember, global fossil fuel use is still climbing, despite all the claims of the wind lobby.

And on Friday, I took new long positions in Gold and Silver on a good signal.

In addition, I could ignore the JP Morgan call for much more Big Tech upside into year end. I took that as a bear signal (with others) and with momentum off the scale I entered small Nasdaq (and Dow and FTSE) shorts on Friday. I figured that if wrong, I would still be net ahead with my recent Nasdaq long campaign.

Update on my new Gold and Silver campaign. Both have been in corrective patterns for over a week (see last week’s blog) with Gold off its recent high by $100 by Friday morning. That is not a large pull-back compared with the huge recent gains. But with a clear three down look on a mom div, I could wait no longer and re-entered with a long trade. My whole approach has been to keep in mind that they likely remain in an incomplete wave 3 of 3 up pattern where corrections are usually brief and shallow.

Here is Silver which shows a clearer wave structure than Gold, I am able to draw two parallel lines connecting recent highs and lows (they are not truly tramlines since they require at least three touch points). On Thursday the market dipped below the lower trendline but I noted the key huge mom div building and I was on high alert for a reversal.

And on Friday morning I decided to pull the trigger and I am now long from 29. And it encouragingly closed up on the day, as did Gold where I went long at the same time).

If my roadmap turns out to be accurate, I expect huge gains next week – and beyond – to new highs for both. In this case, I will have nailed the lows and will be looking to add on dips. My stop is the Thursday low.

Update on my Sterling campaigns: I thought I would recap my GBP/USD campaign since it is a great example of a textbook swing trade. I wish they were all like this.

Before I started it in mid-April I noted the lovely triangle formation that would likely contain future trading activity. I was looking for a long entry as it approached the lower trendline support. And when it touched the line on a good mom div, I entered at 1.2380. It then reversed on cue and moved higher.

The uptrend continued into June when it approached the upper triangle trendline and that was when I raised my trailing stop to 1.2780. The market spiked higher on Wednesday and quickly reversed to take me out for a profit of 4 handles (400 pts). I had a similar successful campaign in EUR/USD.

Many traders would have viewed the spike above the triangle as bullish. But while that might have been correct (nothing is certain in the markets) the prudent approach was to raise the trailing stop to lock in the profit. Position traders would remain long. As a swing trader, I am just looking for strong directional moves lasting from a few days to a few weeks, such as this one.

But on Friday, I noted the sharp rejection down off the upper trendline and I took that as a strong bear signal and took a short position.

My view remains that the currencies (and dollar) are mired in trading ranges and the best way to play them is along the lines described above. There are so many cross-currents in the interest rate outlook that longer range forecasts are highly uncertain (at least for me).

Alas, politics is starting to rear its ugly head again

In my Friday Trade Alert to my VIP Traders Club members, I suggested that currency traders would soon start to focus on the upcoming UK elections in three weeks (which they have largely avoided so far) – and draw the logical conclusion that a likely strong Labour government and their policies might bring. In basic terms, Labour is a high spend/high tax outfit. Always has been and always will be. We have already had 14 years of just that with the Conservatives (irony alert!) so even more of the same implies continued weak growth and weak exports and a lower sterling in a long period of stagflation.

My bias will now be for weaker sterling (but depending on the EU and US) and weaker FTSE.

We are in the final run-up to the July 4 election and we are seeing the usual ramp up of tax ‘giveaway’ promises (aka bribes). What is entirely missing from the media coverage is the underlying fact that it is not the government that implements policy but the Civil Service! Politicians are powerless before them.

It is well known that the Rwanda deportation scheme has foundered because of civil servants’ obstruction (with their lawyer chums). They are known as the ‘blob’ for a very good reason. And anyone who has ever watched the 1980s series ‘Yes, Minister‘ and Yes, Prime Minister‘ know that it is really a manual on how government really works.

Most politicians know this and just give up trying but still put on a brave face in public knowing they can fool the people most of the time. That is because the educational system discourages an attitude of critical thinking and instead forces a total compliance of the status quo. But I digress…..

It is not just the UK we now have to focus on but the EU. There is a growing swelling up of the rejection of the usual complacent social-democratic crony politics with a more populist (for want of a better word) one. The ruling elite have always viewed populists with grave suspicion if not outright hostility (because it weakens their grip on power). But all it really means is is a government where the views of the populace carry some weight (unlike at present). Today, it is all top-down with the Net Zero scheme a glaring example.

And Europeans have had enough of it as they increasingly see it destroying their way of life – and making their cost-of-living a lot worse with sky-high electricity charges foe example. France seems to be on the brink with French bonds and stocks in freefall last week.

With such turmoil growing, I expect to see massive changes in the political systems ahead but will really only get into gear once the financial markets start to panic.

So this would be a great time for EU stocks to reverse their highly optimistic bull trends. Here is my analysis of the EU Stoxx 50 (50 of the largest cap EU companies). Remember, much of the rise has been down to Big Pharma with weight-loss drugs leading the charge (compared with AI in the Nasdaq):

From the November 2022 low they have been on a tear with the recent ATH a month ago on a good mom div. That high hit the upper tramline resistance and has been declining ever since with a strong down day on Friday.

On the daily chart that high completes a five up (five waves are terminal) and with Friday’s trendline break, odds are swinging heavily towards a fresh start of a new bear trend.

I am now looking to embark on a new bear campaign.

Has the VIX just signaled maximum bullish complacency?

VIX is called the Fear Index for a good reason. It is a measure of how S&P put and call options are trading. A low VIX tells us that there is a lot more call buying than put buying. When investors believe stocks will always go up and never fall, they load up on calls. When they are fearful that stocks may decline, they buy puts for protection.

Also, call premiums are expensive and put premiums are dirt cheap when stocks are riding high. Nobody believes even the cheap put insurance is worth buying. Such is the nature of a mania.

With the VIX back down to levels when previous highs of complacency were reached, prudent traders start looking for signs of a reversal up to reflect a likely increase in fear. Events in the EU last week (see above) must have given some US investors a reason to ease up on the Buy button.

This is the 4 hr chart showing the market has been hugging the max complacency 13 level. Every attempt at a rally has been hit on its head as investors have been shorting fear as they remain confident stocks will never fall.

But on Wednesday the market gapped up to create what may turn out to be a ‘breakaway’ gap. Some prudent traders have acted! This type of gap signals the start of a new bull trend – unless they are closed promptly (if the S&P continues its sharp rally phase). But in recent days, the S&P 500 has been showing a decline in the number of new highs versus new lows as fewer shares are leading the charge up. This is a potentially bearish factor. And will be max bearish when the leaders roll over.

Stocks have been in a one-way affair for some time. But on the way to Dow 1,000,000 (see latest blog), my hibernating bear will surely open its eyes – and the VIX may well be all it needs to prod him from his reverie.

I showed the Dow chart last time which has the Fib 50% retrace as my key level for the wave 2 high prior to the start of a mammoth wave 3 down. And so far, that level has been holding. Hmm.