How to win elections: Get arrested!

Dear Trading Diary: What a bizarre week! Profit-wise, it was very good with a large win in my short Dow trade and in my long NatGas and GBP/USD campaigns. No, what was bizarre was the Trump verdict. He is the first US ex-President to be found guilty of criminal conduct with two impeachments as President – and therefore his poll ratings zoomed up with huge donations to his campaign flooding in. Only in America! Memo to Sunak: Just get yourself arrested asap.

Stock indexes – higher or lower?

Stocks came off their highs last week and at one point the Dow was off by 2,000 points. But was that the start of the huge bear market I have been flagging? I was not sure because I had pencilled in new ATHs to come especially in the Nasdaq. I did enter a Dow short near the high but when it hit the 38,000 region low on Wednesday I decided to take my profit as I was still undecided. And late Friday, it bounced off the lows with the S&P gaining a massive 40 points. That sealed it – we are very likely off to new ATHs.

That late action has put my roadmap below for another down/up sequence to the top of the table of plausible options.

Back on 15 May, I posted this Nasdaq roadmap as my Best Guess (and posted in last week’s blog). It was still in a ‘long and strong’ bull run that looked like a third wave off the April lows that would terminate in a new high. Then, a future dip in wave 4 and finally a surge into new highs in the final wave 5 of 5. That seemed to me to be a very reasonable expectation for all three of the senior US indexes.

So is it panning out this way? Here is updated 4-hr chart zooming in on the latest action

On Friday morning I had my wave 4 low and I then expected a push to new highs in the final fifth wave. That is the textbook Elliott wave sequence. And Bingo! I had my wave 4 dip and it appears wave 5 up has started Friday afternoon. Note that the size of the wave 4 correction is on a par with that of wave 2 so that that very useful ‘looking right’ EW guideline is satisfied. In an Elliott wave sequence, the sizes of the various waves must not look too large or too small compared with the others. That is a common mistake budding EW students make.

So now, I expect perhaps a stuttering path to new ATHs in the Nasdaq, S&P and Dow in the terminal wave 5 of 5. I may decide to trade long again for another quickie since I do not yet have a handle on the size of my expected current fifth wave. I will monitor the action for clues.

Of course, the above is my Best Guess. If I am wrong, and the market declines next week, then I will shift tactics. But for now I am happy to have taken my Dow profit right at the wave 4 low. Sometimes, taking the money and running may be the coward’s way but it puts money in the bank (and that is what we are all here for, are we not?)

Note: Yesterday produced the ‘critical’ core US inflation data that is said to be the key data point used by the Fed. And it was neutral – but what was not neutral was the Chicago PMI that screamed ‘economic contraction’. So the bottom line is that bad news was good again. Hmm.

And that sets up for a renewed rally in US Treasuries (lower yields) after the mini-scare of last week when yields shot up. My latest campaign in the T-Bonds ended with a Break Even trade but I am ready to re-enter.

I know that many MSM pundits avidly follow the US economic data for clues to the market, but really they need not bother. If they just learned a little about the Elliott wave theory (they won’t), they could save themselves a lot of bother. But of course, it would not fill many column inches they get paid for.

Did you Sell in May and Go Away?

We are all familiar with this old market saw. So was that a wise move this year? On May 1 the Nasdaq traded at 17,400 at the wave 2 low and finished the month at 18,600 (+7%). On May 1 the Dow traded at 37,900 and finished the month at 38,700 (+2%). The FTSE 100 managed a gain of 1.5%.

On the face of it, selling in May was not advisable. Of course, the index changes hide a lot of poor performers which makes individual stock picking very tough as it has been for some time.

But at least the MSM got it right with headlines such as “Sell in May and Go Away isn’t as useful as it was”, “Sell in May and Go away? Think again”, Don’t Sell in May!” and so on.

These strong opinions only go to show how bullish is the MSM. How bullish? Off the scale bullish!

And here’s how bullish with this headline from the US veteran Forbes magazine: “Dow hits 40,000: On the road to 1,000,000″. Just take a moment to savour this. After a near record-breaking rally off the October lows with all bears now having turned bullish, their forecast is for a 25-fold increase. Do you find this staggering? Remember, the Dow is a collection of 30 ‘industrials’ with little AI-related shares in it (the leader Nvidia is not among them).

Yes, maybe the Dow will at some point in the future make it to seven figures. But on the way, many ‘accidents’ can occur – and I believe the market is poised to suffer a very large one very soon. With all traders and pundits on one side of the boat, only a small puff of wind will be enough to sink her with a large chunk of wealth ending up overboard.

No, buying shares here in the high flyers is fraught with risk, Of course, some sectors will perform well and I remain positive on uranium and energy (oil).

But with the huge gains in NatGas as it reached a resistance area, I decided to take my (very large) profit. I am looking to re-enter.

Update on my Grains campaign

Wheat has surged by 30% off the March lows. I have taken most profits in the three grains: Wheat, Corn and Soybeans in the last few days on trailing stops and taken a loss in my latest Corn trade. But I remain very bullish on the long-term picture. Here is updated chart of the S&P Grains Index that shows a crystal clear Elliott wave pattern – five up and three down to the Fib 62% (my favourite setup) and now a move higher in either wave 3 or a C wave

Recall I was able to nail the wave (c) low in March, much to the surprise of the bearish hedge funds as I noted at the time. That was when I started to trade from the long side. All of the fundamentals were highly bearish with near record stock levels noted.

But as Wheat prices started to rise, I read more references to the poor weather and a ‘threat’ to the carryover stocks that were in danger of being depleted.

A lot of the upside progress now will be determined by the Northern Hemisphere weather ahead and I will be buying major dips as and when they occur. But my main first target is the (B) wave high – about 30% above current. And if we are in a third wave, the market will reach the old high at 700 and beyond.

The Corn chart sows the identical a-b-c pattern with the ‘c’ wave low in a huge mom div. The market has rallied into major overhead resistance and may dip further from the current 445 but I will be looking to re-enter if it does.

On the minus side, the rally looks like a three up (corrective) so far which means that a new ATL is possible. I need to see a strong move up from the next low to nix this option.

We may see near-term gyrations but I will treat dips as a great buying opportunity to take part in what I believe will be one of my major campaigns for this year and beyond.

For traders who have not traded the grains, they are as easy to trade as the Dow or the EUR/USD. Your spread bet platforms have identical Buy/Sell boxes!

Update on my Phoenix Traders Club – A string of recent wins has pushed up my Phoenix account to over £15,000 (I started in March 2023 with a small pot of £5,000 and the valuation has never dipped below it). I am trading only the Dow or Nasdaq, EUR/USD, Gold, US Crude Oil and now JPY/USD. Of course, if I had started with a large account, the valuation would be up by the same 300%. Not bad in little over a year.

I am very conservative in bet sizes and use trailing stops to exit positions. I risk only a maximum of 3% on any one trade. If I reproduce this performance over the next say three years, my account valuation will grow to around £405,000.

If you wish to follow my trades, take a Two-Week Free Trial here. Fees are only a bargain £99 a month thereafter.