I am poised for the hibernating bear to wake up – soon
Dear Trading Diary: I had another very decent week – until Friday, that is. Huge reversals in Gold and the dollar took me out of promising positions at my trailing stops for profits diminished by the sharp reversals. But hey – making any profit is an achievement in these volatile and highly emotional markets is it not? On the plus side, my long Nasdaq trades performed well – but…..
My ‘but’ is there to alert myself to the very likely impending major change in trend in stocks. The S&P and Nasdaq made new ATHs but the Dow lagged badly (see below). That non-alignment of two major indexes should be a Red Alert warning only to be nixed if the Dow goes on to make new ATHs. For now it is a bearish long-term signal.
Friday’s Non-Farms was a total shocker to most pundits as it showed US payrolls surged, thus dampening the ardour of the bulls who were expecting inflation to fall with Fed rate cuts now less assured. And the dollar surged on the news.
This weekend, traders will be digesting this development and its implications for shares. Will this ‘bad’ news continue the tradition of being always ‘good’ for shares? Because if shares start to roll over next week, we may well have seen a 180 degree swing around in that sentiment – and the start of my long-awaited bear trend when ‘bad’ news really is bad.
The charts (and extreme bullish mania) strongly allow for this option. I see fifth waves potentially complete at several degrees of trend. Here is the 4-hr Dow
The ATH was made on 28 March at 40,360 which is a major fifth wave top on my roadmap. Since then it has traced out major swings down/up/down/up to the Fib 50% retrace on Friday on a mom div. If my wave labels are correct then we are starting the huge wave 3 down which a break of my trendline should help confirm.
Also, my wave 2 retrace has a definite a-b-c look that appears textbook corrective.
In terms of sentiment, I posted headlines last week that were off-the-scale manic with this from Forbes: Dow hits 40,000: On the road to 1,000,000″
And here is another one even more over the top from MarketWatch: “Dow 2.5 Million? It’s not even a stretch – for your grandchildren.”
Any advance on 2.5 Million anyone? You can see what they are doing – digging out their old school 12-inch ruler and drawing a straight line to continue the slope off the October lows to the moon – and beyond!
But we all know that real life markets never act that way. They rise and they fall from tops where sentiment is most bullish to lows where it is most bearish.
Yes, that target is possible in decades to come but what will happen in the meantime? Will we see 50%. 60%, or even 80% dips along the way? Will anyone buying shares today hang on to them in these ‘corrections’ in the hope of reaching the 2.5 Million Dow?
Or will they do what most investors do and Buy the Tops and Sell the Bottoms?
With not a bear in sight (they have all switched sides), the conditions are perfectly set up for a historic reversal. No, this is the time to Sell High and Buy Low for investors/traders who can resist the siren call of the super-bullish MSM. The potential rewards will be life-changing.
We have just witnessed the historic June 6th 1944 D-Day 80-year commemorations on the Normandy beaches. That was another supreme life-changing event for almost everyone on earth. Now, 80 years later to the day, are we about to witness a similarly historic life-changing event for everyone on earth in the financial arena?
If so, then this perfect synchronicity will go down in the history books and mark a major event in financial history.
And incidentally, another fourth year of a decade – 1984 – is highly significant as the year chosen by George Orwell in 1949 as a year he set in his dystopian future novel that is widely quoted even today. War is Peace. Freedom is Slavery. Ignorance is Strength. Double think, and so on. Propaganda from the state then (Big Brother) and propaganda today (government, War on CO2, etc). I am tempted today to reverse the 1984 slogans to read Strength is Ignorance, etc.
That covers the Dow but what about the AI-leading Nasdaq that keeps making new ATHs?
Last week it perfectly tracked my highly accurate roadmap for a wave 4 down and then a new high in wave 5 of 5. And right on cue, that new ATH was achieved on Friday at 6 pm UK time following the non-farms that pointed to a ‘higher for longer’ outcome. And note the huge mom div on the 2-hr scale (not marked).
The crucial point is that all of my wave labels and momentum flare-out have now completed the very minimum needed by the Tramline Trading and Elliott rules and guidelines to consider complete the mammoth multi-decade bull market.
If the happy near-coincidence in the dates of June 6 D-Day 1944 and the Nasdaq ATH of June 7th 2024 is a valid omen, then watch out for a brutal invasion by the newly awake bears on the beaches of the maxed-out complacent bulls.
There are so many parallels between two armies clashing and the tug-of-war between the market bulls and bears. Is that why many ex-armed forces personnel make good traders?
Finally, I noted the Sell in May MSM commentary last week where the vast majority were advising us to ignore it. I said then that this was clear evidence of the manic bullish mindset that was setting up for a major surprise. With the Dow ATH in March and the Nasdaq and S&P highs this month, the average comes in around May, so maybe we should not ignore it after all?
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Update on my Gold campaign. I had an ouch! moment on Friday morning when I added to my long position – right before the start of the major $80 plunge as the dollar surged. I took my $20 loss in minutes and was stopped out of my first trade at Break Even (BE) on my trailing stop. It could have been a lot worse and thank goodness for my BE Rule.
I am afraid that stepping in front of a tank (financially) does sometimes occur and this one makes me look foolish with such appalling timing. But there is no way to avoid these (hopefully rare) mis-steps. The key though is to lose not more than a small pc of your account by prudent stop loss placement so that you can live to fight another battle on Gold Beach. Taking only small wounds keeps you alive for the big prize.!
The PM picture has turned cloudy and I expect a wide swinging market now and will just watch the action. But the main trend remains up and I will be looking to re-enter.
Update on Nvidia: I am not trading this share (pity, I hear you cry!) and at the mammoth $3 Trillion valuation, it has reached a likely turning point at the $1200 per share area with the upcoming 10/1 stock split. At that price only the big boys are able to play but with the split, Mom ‘n Pops investors are able to buy the tops.
Normally, a stock split is considered bullish as more investors will be able to buy. But being able to buy is not the same thing as being desperate to buy compared with the sellers anxious to take profits (and short sellers picking tops).
Naturally, it has mirrored the progress of the Nasdaq and should be turning together. It has done enough to consider my wave 5 of 5 complete.
We are seeing more negative reports on the use of AI and I am still looking for news of competitors to come up with chips that are bigger, faster and cheaper. That will happen. Look at what happened to Tesla, the former EV darling. As I wrote a few years ago, I believed other manufacturers would come up with stiff competition – as the Chinese surely have.
This summer looks set to bring traders back to the office from their holidays in their droves. It will be hot in more ways than one!