I came across this hilarious/frightening video of what happens when a mobile phone is taken away from a baby.

Are babies born today tech-savvy with a smart phone attached to their little fingers?  I hope not if only for the mothers’ sake.

But surely it is the modern take on the old aphorism that you can’t take candy from a baby without copious tears. The moment I saw it I realised it is the perfect parable for several features in today’s society and markets.

First, asset markets have been sucking on the teat of the Fed (and other central banks) with its imposed NIRP and ZIRP and QE policies that has engendered so many financial manias (aka bubbles).  And then much of Western society lives on expanding benefits of a bewildering variety and availability, not to mention tax credits, electric car rebates, and other state-granted ‘incentives’.

Even in that long-ago bastion of self-help and enterprise the USA, there is a staggering 40% plus of households on welfare – and they don’t even have the UK’s Child Benefit that all parents receive that boosts our own stats..

Here in the UK there is big stink surrounding the introduction of Universal Credit, which is aimed at replacing the myriad of separate benefits into one payment.  Naturally with a government IT project, it has not gone smoothly (to put it mildly) and some claimants are being left for weeks without their money.

What a comment on the state of affairs of many that they spend all (or more) of what they receive from the state as soon as they receive it (or before), and even a short delay puts them in a crisis.

The MSM commentary on this is revealing.  Nowhere have I seen even a gentle suggestion that have they considered pulling themselves up by their bootstraps (to re-coin an old phrase)?  After all, many a successful person started out life with no silver spoon in mouth. Are these not suitable role models, rather than the celebs they worship?

And the sense of entitlement is practically universal. Being scammed by an online fraudster?  No problem, it wasn’t your fault – just claim it back from your bank who was in error in letting you do it in the first place.  It seems no-one takes responsibility for anything negative in their lives any more.  It is always someone else’s fault. The Compensation Culture is alive and well!

Excuse my rant, but my point is that these are all manifestations of a multi-decade bullish environment where there is plenty of money to hand out to those with the loudest voice.  In the upcoming recession/depression, much of this largesse will dry up.

 

The dollar starts a multi-week bear phase

Yesterday, that nice man from the Fed, Mr Powell, made a comment during an interview that the Wall Street algos read as Buy,Baby, Buy.  And the Dow responded by starting a climb of 600 pips the nanosecond it was uttered.  It’s amazing what today’s computers can do!  It can parse live on-air utterances from someone quite important and that drives the virtual finger to push the Buy button in less than a blink of an eye.

Not only that, but because his throwaway line prompted the dollar trading algos to sell, it promptly fell hard – and no wonder.  It helped fulfill my forecast for an imminent dollar decline that was based on my reading of the charts and the sentiment picture that describes a very crowded trade.  It was definitely not based on anything the Fed has/has not done.

Two posts ago, I outlined my strategy for trading the EUR/GBP cross and since then, it has been following my roadmap well.  Sometimes (but not always) the long term weekly (or monthly) chart shows up clear Elliott waves

eg

The rally off the July 2015 low at 6950 shows clear impulsive action in wave 3 to its high at 94 in October 2017. But for the last year, it has been swinging inside the wedge/triangle that has very accurate lines of support and resistance.  It was tricky to trade inside it and I mostly stayed away – until now.

With the recent test of the lower support in wave 4, the market appears poised for a rally out of the triangle in wave 5.

If so, would that surprise a lot of people?  After all, the outcome of the Brexit fiasco (if there is one!) will be weighing on traders minds. We are getting Project Hysteria from the usual suspects who proclaim seven years of famine if we leave the EU with ‘no deal’.  If they are trying to push sterling down in order to gain a mercantile advantage, let them!  That will help propel EUR/GBP northwards in our favour!

The latest DSI reading on the dollar is around 10% bulls which is about as low as it ever gets before a reversal emerges. And it has been even more extreme lately in the euro.  I saw back-to-back days of 5% DSI bulls. Now that’s what I call a very crowded trade.

 

How not to trade – MSM-style

As you know, when a trade goes bad, I bail out – PDQ (usually on a stop). This approach is very different from that of most investors, which is Buy-and-Hold after they have been sold a bullish story. Here is a well-known tipster from a national newspaper who tipped Indivior in March at £4.60 and saw it fall all the way down to the recent £0.97 – a decline of 75%

Last week at the low the author offered his readers two options: “Expect further losses” or “Dump ‘em”, which is obviously the most bearish advice you can think of (he was super-bullish in March at £4.60).

My conclusion? With that extreme bearish sentiment probably widespread among Indivior investors who bought at £4.60, they must be a screaming buy now for a patient investor! I see they have crept up to £1.05 as I write.

But what a vivid example how most investors act – they Buy High and Sell Low. If there is one thing I want to impress on my readers it is this: Do the opposite and Buy Low and Sell High (in either order!).

Even well-known fund managers are prone to these errors.  But naturally, they are keep their high salaries and bonuses especially when their fund does no worse than a particular ‘benchmark’.  Of course, the latter can be concocted by the office junior in his/her lunch break.  Here is one such self-satisfied manager being asked the question: Last year you were at the bottom of your sector. What happened?”.  

This was his response: “We don’t think we did anything wrong – we actually performed in line with a benchmark we look at internally.  Last year was a really bad time for ‘value’ investing.”  In other words, “We were not smart enough to see that ‘value’ investing’ was not a good strategy, and we only lost a little more than the other guys”.

Some consolation for investors to see their statements showing a smaller loss than their neighbours’!  In my world, that cuts little ice.  A loss is a loss is a loss.  And that is why I try to keep them as small as possible with the use of my two Money Management rules.  You must use them or something similar.

 

Is Crude Oil making a bottom?

Most of us have stood by in astonishment at the speed of the savage decline off the $77 high two months ago to Thursday’s $49.50 low.  But as I emphasised all summer, this was an accident waiting to happen with hedge funds piling into the long side at a ratio of 10/1 to shorts.  Bullish sentiment was off the scale as the prevailing story was one of imminent shortage that would push the price up to $100 – and beyond.  Many bought this line.  I covered this debacle last time.

Naturally, I was highly skeptical as all it would take to prevent that would be a slight change in sentiment instigated by a ‘shock’ build-up in stocks that would force the over-exposed hedge funds to liquidate losing positions.  And that is what transpired.  But have they done enough selling to form a base?  Here is the latest COT

Yes, they have sold down their positions but remain at a bullish  4/1 ratio. Meanwhile, the savvy Commercials are more evenly balanced long/short, so they evidently do not strongly believe a major extension of the bear trend is imminent.  Hmm.

So what does the chart say?  Here is a close-up on the 2-hr

With last Thursday’s $49.50 low on a very strong momentum divergence, odds are growing a rally phase beckons, especially on a push above the pink resistance bar and my upper tramline. Evidently, last week saw accumulation and I will be looking to establish long positions given a good signal.  I can see a move up to the $60 area at least.

Just as a slight revision in the stocks picture to the bear side produced a $22 crash, a more favourable data point could reverse that – at least partially.

If you believe the crude oil market has potential why not join us as a member of my VIP Trades Club?  Take your two-week Free Trial now!

 

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