I’ll say it again: Are we there yet?

 Memo to my regular readers:  I did not have a blog last weekend for one simple reason – I had nothing new to say.  VIP Traders Club members knew I was waiting for a major high to be formed in the Dow when it was still in an incomplete upward pattern.  I was hoping for one more upward push to complete the pattern.  I set a maximum upside of 33,200 area and voila! it duly appeared on Thursday right on cue.  I now have something new to say.

As many know, I have been searching for a major long-term top in the Dow for some time. Last year and into this, my attempts have been thwarted as the bulls have managed to push stocks into even greater unbelievable territory – particularly the big name Tech Titans.  Just when I did manage to catch a short term top and see several hundred pips decline, the market came roaring back.

But as stocks moved higher,  rationalisations for the rallies became more and more preposterous. And the MSM have now become united in their urgings to load up on stocks.  The language used has become highly instructive.  For instance, here is a recent headline:  The simple way to become an ISA milliionaire – save £100 a month and in 34 years our pot will be over a million.  Of course, this assumes a steady 12% pa compunded growth year after year.  For 34 years.

If I had known that when in my twenties, I could be challenging Bezos or Musk for top dog by now!  Any rational person would see that this formula cannot possibly work in the highly volatile world of stocks when returns fluctuate wildly over 34 years.  And note the use of the word ‘simple’.  Seems risk-less doesn’t it and so easy?  Only at major tops do pundits have the supreme confidence to maintain stock investing to riches is easy.  I believe most of my readers know otherwise.

Oh- and here is another classic MSM business section headline just spotted: Forget the dotcom crash – only a fool bets against tech now. 

Where was this guy last year when Apple and Tesla were trading at pennies on the dollar? Of course, nowhere to be seen. Now the shares have rocketed, he feels safe enough to print these words.  This is classic trend-following. Labeling those not on board as ‘fools’ is the nuclear option – and I believe will blow up in his face as the Nasdaq falls off its perch.  It is already heading lower having made its ATH on 16 February – a full month before the Dow high.

The Equinox Effect

Long time readers will remember I have highlighted this effect around the time of the Equinoxes.  It is a curious habit of stock indexes to mark these twice-yearly events by setting major reversals close to the dates with a decent accuracy.  Friday is the closest trading day to this year’s Vernal Equinox and guess what? On Thursday, the Dow punched up to my latest target at the 33,200 area (overshooting by a hairsbreadth’s 30 pips) and proceeded to reverse sharply lower.

So does it mark a major top?  Note the weekly ‘key reversal’ which is often another signal for a trend change.  And if this does mark The Top, we have a potential huge ‘overshoot’ of the pink trendline and a move below it would very likely herald the major collapse.

Already, I have identified a small scale five down off Thursday’s ATH which signals a very likely trend change.  So, if we are starting a major leg lower, Thursday’s rally to a new ATH would be only two days away from a perfect hit on the Equinox – and an ideal riposte to all those bullish pundits who are screaming to investors to buy, buy, buy.  What a poetic moment to savour!

In terms of sentiment, with the seeming success (so far) of the global vaccine roll-outs, that has pushed even higher. The vast majority are expecting economies to rebound sharply later this year as movements return to more normal levels. But the canary in the coal mine in the form of surging bond yields (as I have been pointing out for some time) is flashing warning signs that a surging economy is not the same thing as surging stock prices.  Far from it as astute investors realise that with heavily indebted economies – which these are (I’m looking at you, China) – company profits will be hit hard as interest payment balloon.

My bottom line:  Confidence in buying equities is extreme, bond yields are collapsing (rising yields have even reached the speculative junk bond arena), MSM pundits are manically bullish towards tech,  so what possibly could go wrong?

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China leads the way – lower

Because the Chinese economy is probably the most heavily indebted, it should suffer the greatest when yields rise – and that is what we are seeing, despite the best pumping efforts of the central bank.  Here is the long term weekly chart showing the fabulous five-wave huge wedge/triangle in the fourth wave position

A lovely sight to behold for a chartist!  In July last year, it made the final thrust up and made the ATH last month as it hit the major upper tramline shown here

And what a reaction to that hit!  In true tramline style, the market made a swift reversal down to the lower tramline – and then broke through it to cement my bearish stance.  We are now in a bear market and my next target is the 15,000 region.

I forewarned Club members with a Special Report on 9 March.

Some thoughts on the so-called ‘climate crisis’

There is little doubt that this scare is entirely man-made with no scientific basis for the assertion that CO2 is solely responsible for the observed very gradual rise in the earth’s temperature.  Whole industries are being turned on their heads to convert from fossil fuels to so-called ‘green’ ones in this cause.  For instance, here in the UK the government has mandated a 100% conversion to EVs by 2030 in new vehicle production.  Leaving aside the question of the added pollution involved in mining and processing all the extra metals and other elements (using mostly fossil fuels), it is estimated that the national grid will need to increase capacity at least by 30% and a ten-fold increase in public charging points.  Not to mention the 50% of car owners who must park on the street overnight with no charging point handy.

I believe that soon, the sheer impossibility (and added trillions in added costs) of the global ambition to go ‘green’ will strike investors to such an extent that many of the (highly indebted) shares of new ‘green’ tech will collapse.  A true ‘Tale of the Unexpected’! They will suffer a light bulb moment.  In fact, the failure of this ambition will likely be the stated cause of the next financial crash for historians.  And because the ‘green’ agenda has become universally-held, the next collapse will be the largest in history. And with bond yields now starting a multi-decade bull market – and an advancing dollar – financing for new ventures will be highly disadvantaged. 

Remember the old traders’ adage:  When everyone believes something is obvious, it is obviously wrong.