I’m in a market fog – is there anyone else with me?

Dear Trading Diary: Pretty much marking time last week except for the new ATH in gold on Friday with silver still lagging badly. Stocks have rallied sharply off Black Monday’s lows until Friday and are at another major crossroads. The cross-currents in the US economy are swirling around like a whirlwind and creating a dense fog of uncertainly.

For Phoenix I took a long Nasdaq position as the upward momentum seemed strong enough to carry it towards a major point of resistance – and it did. But for VIP traders, I remained on the sidelines. That was simply because the rally could be a wave 2 retrace before a strong wave 3 down gets under way, or it could be the start of a five wave pattern in a major wave 5 taking the market up to new ATHs.

Here is the most bullish option I posted in the S&P

and here is the most bearish option on the Nasdaq

I would say these two diametrically opposed options have about equal validity. Hence the fog.

What is clear is that both options call for a pull-back next week. After all, the Nasdaq has closed up for seven days in a row – matching a record set earlier in June. Investors have been manic buying into the daily closes. But after that? More fog – unless a strong wave 3 down emerges.

And that sets up a decent short trade of at least a few hundred Nasdaq points that I will be examining on Monday.

As for last week’s data deluge, we had Retail Sales as ‘good news being good’ but on Friday, Housing Starts came in very weak to match latest Housebuilding Sentiment that continues to plumb new depths. It seems housing in the US is in trouble.

But is that any surprise with unaffordable prices and mortgage rates still elevated? So who will blink first? Sales activity has slowed. Top end homes are sticking and realised prices are falling. This is all characteristic of a topping process. But if Harris wins in November, all bets are off. As a devoted socialist, in her election campaign she is promising to shower money on the ‘middle class’ in UK-style ‘give-away’ schemes. If so then the dollar is doomed (it is already in decline as per my June roadmap).

Here is a fascinating quote from a little known Scottish economist Alexander Tytler in 1787: “A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship.“

He wrote that at the birth of the new American Republic 250 years ago or so. It has been noted before that the world’s great civilisations have only lasted around 200 years on average before decaying. The greatest empire the world has ever known – the British Empire – lasted 200 years.

With modern time scales shortening, how much longer can the American experiment in democracy continue? Millions of poor needy Democrat-voting immigrants have settled into the nation in recent years. If Harris does win these numbers are sure to rise.

So with the American democracy in great danger from socialism (and worse), the November election will very likely mark a major signpost for the country’s future.

Here in the UK – which has moved earlier along the socialism path (since WW2), progress (if I can call it that) will surge in that direction at a rapid pace with Labour in charge. And their voters will love it! For now times are good for them.

But as always, a financial crisis will be the only buffer to bring this party to a crashing end. Voters won’t do it. Prudent investors will be preparing for that event.

Back to the dollar and on Friday it reached the lower support line of my 12-month triangle

In fact, the dollar has made zero progress up or down for over 18 months. In that time, we have seen huge stock index moves (bullish for the dollar), a massive gold price surge (bearish for the dollar) and increasing Middle East tensions (bullish for the dollar) – all factors that would explain the current two-way market.

So now it is at a major crossroads as it tests the trendline support. A sharp move lower out of the triangle would likely set it on a strongly downward course. Of course the support may hold and I will be looking for clues next week for that option. At the same time other fiat currencies are in the same slowly winking boat with record high national debts and interest rates and inflation that remain elevated. So, at the moment I am on the fence.

Update on my Gold campaign: Not much to add to my previous analysis with the market remaining in a very strong wave 3 up and a new ATH above the round number $2,500 at Friday’s close. Because third waves often go much farter than you can imagine, I do not have a target set and will let the market decide when it wants to pause.

But I remain asking why gold is in such a strong bull market at this time in history? Is it flagging a dollar collapse with the tsunami of central bank hoarding? Is it flagging a financial crash ahead as a safe haven? Can we discount any major increase in commercial use in electronics (AI)?

Update on my Crude Oil campaign: Crude had a good pull-back last week which vindicated my decision to raise my trailing PS to $78 and thereby took a tidy $4 profit on my latest trade.

Look at this! We have the very same triangle pattern but also in the same time frame! The highs and lows are pretty much coincident. Is that a coincidence? One big difference – the dollar is testing the lower triangle line while crude is trading well up off its lower line. If this pattern continues, I expect crude to be supported near term. I will be looking to re-enter my bull campaign.

Update on my Newmont campaign: I remain long this long-established gold miner as gold surges to new ATHs. But a curious divergence remains

Gold miners surged during the Covid Crash period with Newmont hitting a high at $86. As interest rates moved higher, both gold and the miners declined with Newmont hitting a low at $30 in March. It has since climbed to the $50 level last week – a gain of 67%. But gold itself has just made a new ATH. Surely, with gold priced at these levels, mining must be a vastly more lucrative endeavour than it was back in April 2022?

So why are the shares lagging this badly? Could it be that the company accumulated so much low interest debt during the pandemic that the coupon payments are now eating at the profit margins top line? If so then I see that the pink resistance zone may well be a major hurdle to cross over. I may be taking profits there.