Have the FAANG s finally been de-fanged?
Last week I saw – and forecast – a major breach in the defences of the Tech Titans – and I was there ahead of the game to advise short positions to Pro Shares members before the dams broke. My main target was Amazon as I have long believed we are reaching Peak Amazon.
The media has been full of gloomy stories of the retail sector getting clobbered due to the ‘Amazon Effect’. In brief, it is claimed Amazon pays little in local taxes, uses warehouses with ‘cheap’ property rates and uses ‘cheap’ labour, and offers good for ‘cheap’ prices for just about anything. Retail shops just cannot compete with this juggernaut.
In fact, The Sunday Times ha a glowing article out it today – and if my Headline Indicator is still working, it could be its Kiss of Death.
But there are rumblings from the authorities that this advantage cannot continue for much longer. New taxes are being mooted.
But just as no tree grows to the sky, no share – no matter how bullish the case – goes to the moon. Here is the chart highlighting the precarious position Amazon has been in for some time as it shoots straight up
How’s that for a rocket to the moon (or so the bulls believe?). The rate of climb has been increasing since 2016 (as have most of the Tech Titans) and this year has gone almost vertical. If you go over historical charts of similar manias, you will note that they all end more or less in the same way – sliding down the Slope of Hope (whereas they climbed the Wall of Worry going up).
Many will ask: With Amazon in such a dominant position with earnings growing, why would the shares fall at all? And that is a typical question from someone who adheres to the ‘news makes the market’ mindset. For myself, who is a proponent of the Elliott Wave school, I ask: Have all the fifth waves completed yet? If so, they are due a substantial decline, notwithstanding any news! .Remember, shares top out on great universally-held prospects with data looking terrific. They rarely/never top out on ‘bad’ news. That’s what happens at the lows.
With most traders/investors feeling bullish on the current ‘good’ news stories, the scene is set for at least a major correction – and this is how I played it
I have been keeping a beady eye on it every day for weeks, looking for a top, and when it seemed to complete a small five up to last Tuesday’s high at $2,052, I drew in the pink mini trendline and noted the strong mom div, I pounced at the $2,032 level and sent my Pro Shares members advice to short. Talk about great timing! The market has been falling ever since. Remember, I had been stalking this trade for weeks with my hands in my pockets.
Tellingly, I have not read a single bearish article in it for some time. This is usually an indication of how complacent the market is. Now with the market off about $100 off the high, are some investors starting to question the staying power of the bull?
Have we also reached Peak Apple?
With the imminent release of the latest smart phone device priced higher than the last model, how many die-hand Apple fans will stump up this eye-watering amount just to upgrade (as they have been in the habit of doing since the smart phone was launched)?
One very bullish commentator has argued: “Apple could pretty much sell anything” in response to the now-profitable wearables. And if they started selling package holidays, you just know people would buy them”. That is extreme bullishness that usually attends peak market.
And even Tim Cook states: “The smartphone market is very healthy. I think it’s actually the best market in the world to be in”. If that isn’t peak bullish sentiment, please tell me what is. Complacency reigns!
But is it possible the Apple magic is wearing thinner? They are now complaining about Trump’s tariffs and this could mark a major sentiment swing. Here is the exponential ascent
with this year’s surge almost vertical )as was Amazon’s) with the share price adding 50% since February).
Here is the short term that shows how I identified a short trade
I have a beautiful tramline pair with five waves leading up to wave 5 of % on a strong mom div. Had a break and then a kiss back to the lower line and now at the start of what should be a scalded cat bounce down.
Of course, these shares have been two of the leaders of the Nasdaq which has lead the US indexes during the bull phase with the Dow lagging. But last week, the Nasdaq has been leading on the way down, as I forecast.
And I have now a complete five waves of several degrees completed. On Thursday, it broke below the lower pink tramline in the first major clue the trend is now down. We are trading this index for VIP Traders Club and we are short from near the top.
And even the granddaddy of tech – Microsoft – hasn’t escaped the bullish mania
Again, I have a potentially complete five waves up of several degrees. Here is latest action
The market has been toying with the upper tramline and a hard break down now would confirm the new downtrend.
So what news could accompany any downtrend (the news follows the market, remember)? Any number of things from a slowdown in global iPhone sales to a disruption of components to an announcement they are cutting back on buy-backs. It will probably be something I have not considered!
Perhaps with other Tech weakness, it will fall in sympathy as investors raise cash as interest rates rise.
Is Tesla coiling down?
But the star performer on the downside is undoubtedly Tesla. I trust you are following the sometimes hilarious antics of Elon Musk who seems to be having a major breakdown to prove he really doesn’t walk on water, despite what he lead gullible investors to believe.
As I wrote months ago, I found it difficult to believe Tesla could dominate the growing EV market given the years of experience and firepower of the major auto companies. Being a first-mover in autos was not likely to be a good thing, unlike in Amazon’s case. I will stick to my prediction that the Tesla will in the years ahead achieve cult status, much like the De Lorean (would they dare to make Back To The Future IV with a Tesla?)
The shares have been all over the place and I am unable to attach wave labels with any confidence. And that is why I am not trading it just yet. But a sharp break of the blue trendline past the kiss would be a clue we do have a Double Top.
What bothers me from a bearish stand point is that the news is so negative at present, sentiment may be just too negative for a sustained move lower. Hmm.
I have no doubt stocks markets are entering the final four months of 2018 in very volatile moods (unlike the relatively calm summer). Traders and investors will need to stay very nimble – and I am here to guide you throughout his tricky period. If you trade stock indexes, currencies, gold/silver and many other markets, take A FREE TRIAL to my VIP Traders Club. If you trade individual shares, take a three-week FREE TRIAL to my Pro Shares service.