I am a strategic bear but a tactical bull – for now

Dear Trading Diary: Nvidia results on Wednesday came and went off just like the damp squib I had suggested. That must have been a surprise to most as so much anticipation had been built in. It did though break the mould of all previous quarterly reports that inspired an immediate boost to the share price. There was none of that this time. But as I said on Thursday, that is likely a bullish sign, contrarily.

But with my best guess wave 5 of 5 looking incomplete, I re-entered long Nasdaq positions on Thursday. I figured that since there was little reaction in the index post Nvidia results and the main impetus for the general rally has been the large expected Fed rate cut next month, odds definitely favoured more upside in wave 5.

The Dow managed a new ATH on Tuesday but I sensed there was more upside here as well in this final fifth wave. After all, investors could be looking at a hoped-for 50 bps Fed cut when they report on the 18th. And the weaker dollar lends some support to a continued rally at least near term. Treasury yields so far suggest 50 bps cut is a strong bet.

Elsewhere, there was no dramatic action and my accounts marked time. After a strong bear trend, the US grains appear to be finding some kind of bottom with my Soybean position gaining.

Coal is still King! While our Western eco warriors continue to try to push non-fossil fuels ahead to the death – much like the do-and-die Japanese warriors in the Pacific islands in WW2 – their hated coal continues to forge ahead in global energy production and use

2023 saw a record coal usage (again) with China (dark red) leading and the Asia/Pacific region (pink) coming second. Europe and the USA are minnows compared with them – for doctrinaire not logical economic reasons. Consequently, Europe especially has some of the highest electricity prices with China being among the lowest (about 1/4 that in the UK). I wonder if here is some connection?

The bottom line is that China and the Asia/Pacific region consume a whopping 83% of global coal use. They are therefore responsible for the lion’s share of the man-made segment of CO2 production from coal. Paging Greta!

As to the constantly rising CO2 levels (much of this is not man-made), a recent report has linked the record high crop yields in commodities such as wheat, corn, soybeans, rice to the more abundant CO2 levels. That makes sense since those of us that stayed awake during school biology classes know that CO2 is an essential plant food. And since feeding the world is generally looked on as a good thing, even rabid eco warriors should thank China for their contribution to this blessing. But they won’t of course. It would destroy their belief system. They are too locked in to their fantasy world. There is none so blind as they that will not see. But I digress…

Update on my Gold Miners campaign: I am long several miners as most made new highs last week. Newmont is the updated US grandaddy Newmont chart

I have a powerful zone of resistance ahead (latest $53). The Gold market is also approaching a major upside target around $2,580 (currently $2,520) from where a correction would not be unexpected to start.

I am feeling more anxious now that the MSM have recently paraded a plethora of bullish articles. But on the plus side the COT data do not show a strong long bias by managed money or the public. That implies any correction will likely be contained and fairly brief.

My plan is to lighten up on any further strength in the miners but with a view to reinstate on dips.

My take on the state of the world and the markets: We are living in an increasingly fractured world from angry politics to AI mania while Main Street suffers to crazy Western ‘climate crisis’ dogma to regional wars that appear on the brink.

So who would not be a bear as US company bankruptcies continue to set records as do consumer credit card defaults. Yet US stocks continue to make new ATHs and the financial press believe all is right with this picture as they herald a new era of low interest rates and lower inflation to come. Stocks will actually reach the moon!

But on the principle that traders should continue to dance while the music is still playing, I have been trading on the long side (of the Nasdaq and Russell 2000) but now I am acutely aware that a very large iceberg may be looming in the dark.

I am a strategic bear but a tactical bull. For now.

I have been asking the question for some time: why is gold in such a strong bull market making new ATHs at this time in history? I am hardening my belief that it is because the ‘smart’ money sees a major financial collapse ahead with the Fed being forced to bring back some kind of QE (ballooning debt) that will flood the world with depreciating US dollars in a weakening global economy. In other words – financial Armageddon.

I am seeing manias in lots of places. In our financial arena, of course it is the manic AI industry. But in the pop music world, the stage-managed ‘reunion’ of the Gallagher brothers (Oasis band) is its own mini-mania. That follows closely on the heels of the record-breaking (pun!) tours of Taylor Swift.

Incidentally, I see that re-sale ticket prices are going for up to £6,000 – 40x the £150 face value. But fans are willing to stump up crazy amounts to just be there. Inflation in pop concert tickets is huge. But that stampede to see just the hottest acts has not translated into the lower-level open-air festivals this summer. many have struggled and been bankrupted.

As in many areas of life today, we have a stark two-tier structure – the haves and the have-nots and is leading to expansion of the wealth divide sweeping the globe. History tells us that when that divide becomes unbearable for the have-nots, violent insurrection follows. We have already has a small taste of that in the UK this summer.

I see more such ‘reunions’ as former star artists jump on this bandwagon. For me, I will only get excited when the the Beatles get back together.

But I jest – or do I? The powers of AI have been harnessed to create a ‘fake’ Beatles track so why cannot it be used to conjure up realistic moving images of the Fab Four?

That would be fitting since after all, we live in an age of the fake – from fake news to fake politicians to fake food. In fact, AI is the perfect source of fake facts. Students use it to create their very own work and there are programmes for teachers to try to catch them out.

In our financial arena, our very own fiat currencies are essentially fake. Read what it said on your old £10 note; “I promise to pay the bearer on demand the sum of ten pounds” At least it did. Not any more. Today’s money has been so defiled that notes today do not even state that. It was meaningless anyway.

Last time I offered a Sliding Doors alternate world where our money was linked to something tangible. Today’s sorry moolah is just an accounting unit in digital form ( or slips of plastic). It can be (and is) created out of thin air at will by central banks as we discovered during the pandemic.

Of course, today’s currencies are valued relative to another one so it is really a race to the bottom for each. Today, the US dollar is losing that race

My wave labels are offering a very bearish outlook with the market in a wave 3 of 3 of 3 down. Currently, it is in a relief wave 4 bounce and near to planting a traditional kiss on the lower triangle trendline. Next should come a strong Scalded Cat Bounce down.

One word of caution – DSI bullish sentiment is near record lows and the current bounce could stretch higher near term as the sentiment extreme cools off.

But this overall bearish picture is entirely consistent with the bullish outlook for gold. But what does dollar weakness hold for US stocks?

Recently, it is making US stocks less expensive for overseas buyers. As I see it, the market-leading Nasdaq is poised to move higher near term based on my Best Guess roadmap. At this stage, I am not totally confident it can make a new ATH above the 10 July ATH around 20,000 (currently 19,500) but I am giving it the benefit of the doubt at least until the critical FOMC on September 18. That gives me a little more than two weeks to firm up my ideas.

US markets are still in the grip of the expected 50 bps Fed rate cut and unless Treasury rates move sharply near term, that is my bet.

So that sums up my tactical reasons for trading long the indexes. So where am I with regard to my strategy longer term?

The Dow did make a slight new ATH in its wave 5 of 5 last week which was unconfirmed by the others. That has set up an amber warning to my near term bull stance. And the market-leading Nvidia has recovered some of its 35% plunge to the Black Monday low. Remember, many investors are using this share as the prime indicator of the state of market sentiment.

This is my Best Guess roadmap going into the FOMC on 18 September. If it pans out, I fully expect the new high in wave 5 of 5 to be followed by a savage plunge in stock markets that will be a sight to behold. That is what I am lining up for. In the meantime, my long positions are making money and expanding my equity in readiness for the Big One.