Have the judges put in the FTSE top?
Just when I commented on Tesla and the electric and self-driving car phenomenon last time, Bloomberg has an article The IEA is Skeptical Electric Cars Will End the Age of Oil. The head of the International Energy Agency says that the big demand growth for oil is coming from trucks, aviation and the petrochemical industry, not cars.
So many believe the electric car will replace the internal combustion engine that petrol pumps will virtually disappear and be replaced by charging stations. Crude prices will plummet, or so goes the story.
The consensus has it that solar will be very big and usher out fossil fuels at least for electricity generation. But the solar landscape is littered by failed companies. So will solar suffer the same fate as the railroads in the 19th Century when although they built a great transportation system we still rely on today, many firms and investors lost money doing it. They were not great long-term investments.
That seems to be the fate of companies at the cutting edge of new technologies. A similar fate fell to the canal builders of the 18th Century who flourished for a while but couldn’t make money when the internal combustion engine and tarmac roads appeared.
My point is that new game-changing technologies usually have many false starts and the first movers are not necessarily the great investments many hope. The big exception of course is Amazon (at least so far). I would be very surprised if Tesla emerges as the big winner in the electric car battle. It is based around the cult of Elon Musk. Investors who put their faith in him are risking an awful lot on one man who has shown to be fallible in the failure of his Space-X Falcon 9 rocket to an explosion two months ago as well as another failure a year ago.
All of the major car manufacturers as well as Google are developing their own electric and self-drive vehicles with General Motors said to have a winning design already.
So will Tesla be the new De Lorean (another flashy company built on the back of one charismatic man)? Although the remaining gull-winged cars have reached an iconic status today, the company went bust in 1982.
Next week will be historic
On Wednesday, the US will have a new President and whoever “wins”, the markets will have a torturous time trying to figure out what it means for their prospects. At this stage I find it impossible to make any forecasts for the near term, but I am sure volatility will zoom up and we will see wild swings especially in the stock markets.
Spread betting firms have already increased their margins in anticipation of this activity.
In my last post, I asked if the FBI had put in a big Dow top and today not be be outdone, have the UK judges ensured a FTSE top here in the UK? They certainly threw a spanner in the Brexit works.
While sterling climbed, the FTSE declined in a complete reversal of the process on the way up.
and this sharp reversal has brought the index down to major support (blue line) and if it can break solidly below it (very likely), I have my Fib targets marked with the 6200 area my most favoured (the 62% level).
Incidentally, the furore over the judges’ Brexit verdict where a national newspaper called the three judges The Enemy of the People in banner front page headlines is unprecedented. In all my years I cannot recall such vitriol aimed at High Court judges who are supposedly independent pillars of society. And it is just one more piece of evidence that the public are increasingly angry about ‘the establishment’ and that anger has been building for a while.
This is a bearish sentiment – and accords perfectly with the current stock market decline. That is because public mood/sentiment drives the markets and we are now seeing more and larger examples of divisions in society.
The rise of The Donald in the USA has precisely the same genesis.
But it seems now the establishment agencies are switching sides and are suddenly ganging up on stock markets – after years of enabling them to climb all sorts of Walls of Worry with ‘accommodation” (aka bubble blowing) with central banks leading the way.
If you have to pin just one chart on your wall in your office, make it this one
It is worth more than the hundreds of thousands of words written about QE, ZIRP/NIRP, will the Fed raise in December, will it be The Donald or Hillary, will Russia invade us, etc.
I guess with fear and risk-off now the prevailing mood, stocks had to try and close that yawning gap – here is latest daily S&P chart
The shelf of support at the 2120 area gave way and market is currently testing the Fib 50% support. If that gives way, it is on to the 62% level at around the 2070 level. But the decline is in three waves, so far. If next week provides a down escalator for stocks with the election results, we should be in a wave 3 of a five down.
But I have a note of caution: DSI bullish sentiment readings are only around the very moderate 30% area which means if we do see more downside next week (which will reduce the bullish reading even more), a large snap-back short covering rally is certainly not out of the question at some stage.Also, the record consecutive eight-day declines in the S&P hit this morning’s news bulletins. And that is always a danger sign that the decline is about to reverse when a trend appears in headline news.
My bottom line: extreme caution is required trading into next week – and beyond.
The decline is being accompanied by a huge increase in fear as shown by the VIX
Incredibly, the VIX (see my previous post) increased in value for the past nine days – an all-time record for this index. It blasted past the blue trendline and will go on the test the old high at the 26 – 27 area, but probably not before some kind of correction. But what a stunning change in sentiment – from utter complacency a week or so ago to blind panic. That is how instantly the mood can change in markets.
My forecast that we are in a five wave continuation in VIX is proving correct. I have liked this pattern for along time and I have found it very reliable as a forecasting tool.
Gold’s rally continues
Bullish sentiment had fallen to low levels a few trading days ago as the market plunged to the $1240 level (which was a Fib 50% support level)
The recent rally partly fueled by hedgie short covering is my long and strong wave 3 which has either ended or will do so with one more push up. Then a wave 4 down and a big rally in wave 5 which should take it above my pink trendline above $1320. this will coincide with a plunge in stocks.
if this plays out, that five up will be my large A wave. That will lead to a B wave down and then a C wave taking gold to new highs above the $1375 high of July.
I believe that a long gold/short Dow trade will work out spectacularly in the coming months/years.
Finally if Trump wins, markets will be rattled and if Hillary wins, I expect within months a move to impeach her will gather momentum. Either way, the souring mood will keep markets on the back foot.
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