Is Alphabet (and other M7s) in the soup?

Dear Trading Diary: Following the previous week’s stellar trading results, my account took a typical breather last week – until mid-week, that is. That is when I was presented with a quick 500 pt profit in USD/JPY that was in a strong correction. But have you noticed that after a winning phase, the trading gods deem that you must now relax and just try to hold onto your gains without making too many stupid mistakes? Because I had two competing options for the US stock indexes (particularly the Dow), I decided to hold off trading the Dow until the fog had cleared (see below). It is very much clearer now.

Last week, the major AI player Alphabet/Google reported and according to some, the Q2 results were not half bad, if not of the normal blockbuster variety. But ominously, the CEO stated: “More patience is required before concrete results are seen on AI“. Translated: “Profits from AI will be a long time in coming – if at all“. Regular readers will know that this has been my stance for some time. Show me the money!

But my scepticism over the profit potential in AI did not prevent me from buying into the last flare-out of the AI mania. I had been trading Alphabet long and was stopped out for a good profit on my trailing stop a few days ago. Last week’s blog Has the AI bubble burst? may now have a more definitive answer. Last week I showed the Nvidia rocket chart and here is Alphabet

Already the shares are down down 12% and I expect a bounce-back this coming week in wave 2 but not to new highs. When complete, we shall see a long and strong wave 3 down (perhaps around the time of the upcoming FOMC meet in a few days?).

After Tesla and Alphabet results, right on cue on Wednesday, the Nasdaq fell hard and broke below my lower tramline as the AI bubble was pricked by another pin (see the Alphabet CEO comments above). I was using that line of support as the key to determine my next move. But when it started breaking down on Wednesday, I pulled the trigger and I was off on my long-awaited bear Nasdaq campaign. It lead on the way up and will lead on the way down and is my preferred index for my bear trading.

Do you want fries with that? Sometimes, you can get a major clue about where the economy is heading from the unlikeliest places. I see that US fast food restaurants are suffering from falling sales. Demand for the ever-present french fry (“Do you want fries with that?”) is in freefall with a major company reporting sharply lower sales and profits. To me that is a clear pointer to a slowing economy ahead that will soon be revealed in the numbers (if they are not too massaged to ensure a Harris victory).

But before that, the stock market – as always anticipating the economy – will be way down. And anyone reacting to the poor data as released will very likely be shorting at a low. What a cruel world.

But experienced traders will have already positioned short and taking profits in the usual “Sell the Rumour, Buy the News” style. And that was the method I recently used in reverse in my long Dow trade that netted a quick over-1,000 points just before the Reversal.

Swing traders need to be nimble in today’s volatile and highly emotional markets.

Longer-term, bullish mania has reached a major peak. Here is an interesting chart showing the Bulls minus Bears index against the S&P

Just as with many other sentiment measures, this one is pushing at extreme levels where market tops were made previously. History is about to repeat (again). Of course, it may go higher near term but that would set up an even greater crash for later.

On Friday, the Dow gained 700 pts – impressive. But I had been expecting this rally phase since one of my options included the Dow making a new ATH in the final fifth of a fifth termination.

This has been my main roadmap all along and the only other main option I have is for a move up to not a new ATH and the formation of a triangle leading to a move lower.

The FOMC next Wednesday may determine which option it will follow. In the meantime, I am happy being on the sidelines in this very volatile phase.

It is a very different story in the Nasdaq. It has hardly bounced off last week’s deep low while the Dow has surged by a Fib 62% retrace as the Great Rotation continues apace. All M7 issues are well off their ATHs. I saw an opportunity in Apple (down 10%) and put out a short (Pro Shares). That was my first foray into my new Bear campaign.

Update on my Gold campaign: Gold has been on a tear this year and I have been trading it long and taking profits near tops using my trailing stop tactic. I had been flat the market until Friday when I went long again without a strong conviction. As I see it, the correction may have a little more work to do on the downside but I was prepared to re-enter on my basic wave 3 of 3 thesis where surprises come mostly on the upside.

The a-b-c correction may not be complete since the ‘c’ wave has not kissed my major trendline. But with the strong mom div here, I am willing to take a chance.

Silver has lagged Gold badly and because it may also have a little more downside ahead, I am cautious this week with the FOMC interest rate decision and outlook.

FTSE surges: I had been anticipating moves lower last week but boy, was I wrong:

In fact I was caught up in a false breakout from the lower tramline and with the market now firmly above it and also breaking above the down-sloping minor trendline, the uptrend is intact – for now, It was certainly good that I did not have a short position last week.

My Copper campaign: This base metal has been in a bear trend since making its ATH in May on the back of assumed massive demand for EVs. How wrong can you be? In the case of EVs, very. But can I make a case for a reversal now following the significant pull-back?

I have a three down to the Fib 62% on a good mom div. That is my ideal setup for a potential reversal. The alternative is for the market to continue crashing past the Fib 62% and into deeper chart support.

OK so is the long-term bullish outlook from expanding energy renewables (and EVs) still intact? We have a new eco-zealot in the UK cabinet that is hell-bent on his Net Zero targets that assures UK copper demand will be high. But if Trump wins, he may cool down the ‘green’ movement (and slap huge tariffs on Chinese EVs) which would hit global demand for the red metal. A mixed bag. But this could be a major buying opportunity nevertheless. And a Harris win would be uber bullish. In this case I can see new ATHs ahead.

But as ever, the pictures on the price charts will hopefully offer me clues for the next direction. I will be on high alert. One share I am looking at is Teck Resources (Vancouver listed).

My Pro Shares members have been following my dealings in Chargepoint Holdings, the largest US EV charging station installer. The US EV disaster has sent the shares crashing to well below $2 (from a $46 ATH) but I see a little life creeping back with the shares now poking above $2 again. With poll ratings now putting Harris closer to Trump than was Biden, investors are warming to the idea that a Harris win would likely set a fire under the EV revolution and its infrastructure for adoption. If car buyers see that charging stations are being installed in their neighbourhood, EV sales should increase – provided prices are kept reasonable.

Now that would be a surprise!