Like most traders, I have been following the progress of the incredible market-leading Apple shares as they have steadily climbed into the stratosphere in recent weeks to Tuesday’s ATH at $268.50. But can they keep advancing even higher and higher for ever and ever amen?
That seems to be the judgment of most as I have seen zero negative opinions of it in the MSM. And that is a dangerous situation. I have been around the financial markets for more than a few years and have seen many market tops. One that stands out is the dotcom top at the start of the new millennium in 2000.
As the dotcoms surged higher and higher, I recall very few voices urging caution – or even cashing out. Indeed, the upside forecasts were stretching ever higher as bullish sentiment exploded. That is a constant feature of all major market tops. But of course, with few new buyers left, the tops were finally in – and prices plunged.
That little episode reinforced in me the universal rule that no tree grows to the sky, no matter how seemingly favourable the ‘fundamentals’ are. And that major market tops are always made when there appears little downside risk in the majority’s opinion.
And that certainly is the case today with Apple. The news surrounding the company is overwhelmingly ‘bullish’ as investors point to the ‘surprise’ favourable reception to its latest iPhone and of course the mammoth cash mountain in the bank. So where’s the risk?
I have even seen one pundit proclaim owning Apple shares is just like owing a 3-month US Treasury – virtually risk-free.
But they forget that in the past, the shares have lost 25%, 30% and more value in its history. Indeed, in 2018, it crashed from $233 to a low of $142 – a loss of 40% in just four months. OK, they recovered but that is not what T-Bills are capable of, or a building Society account. Apple shares are not unique in being risk-free. All shares are ‘risky’ to some extent or other..
So with the bullish sentiment needle way over hard right and against the stop, I began asking if we had reached its ATH on Tuesday.
One measure of an extremely overbought market is the price momentum – and that can be measured in many different ways. One way is to observe the ratio of up weeks to down weeks over a period of say a year. If there are many more ups than down, we have a very over-stretched market.
Of course, this situation can persist or a very long time and we have to find more short term methods to help identify a top. But at least, we can say that when a turn arrives, the reversal will likely be brutal – and provide huge profits for nimble short sellers.
Here is the weekly chart over the past year
To date, there have been 34 up weeks and only 11 downs and since the June low, there have been 14 ups and only 5 very minor downs and this phase is of an exponential nature with ever-steepening trends. Remember, exponential trends like this are always unstable and result in sharp reversals. Always.
So are we at the top now? I have set out my analysis for VIP PRO SHARES members and I invite you to take a three week Free Trial now.
The crypto rally failed
Last week I laid out my case that the cryptos were poised for a rally phase. My view was based on the wave pattern, the huge momentum divergence and the budding wedge pattern. This was the chart I showed last week:
All I needed to confirm more fully was a strong push above the upper wedge line.
But all forecasting is an exercise in probabilities. And as the famous American philosopher Yogi Berra wisely observed: “Forecasting is tough, especially about the future”.
Here is that chart updated
There was no upward break and our long positions were cut off by our stops. So now, it is heading for my ‘last chance saloon’ at the lower wedge line. There remains a momentum divergence still operating and so the option to make a low around the $6,500 region and then start a rally phase remains.
The bottom line is that you can select the best and most likely option for your roadmap, but there are no guarantees. And that is why I always advocate using stop losses. It never pays to become so convinced of your analysis that you have a ‘can’t lose’ setup.
Top Tip: Treat every trade as an experiment where you assume some will work and some won’t. And use stop losses to limit the losses. The problem for the winners is where to take profits.
But our Platimun trade did not!
OK, I gave you an example of a recent failed trade – now for a winner. I had been tracking the Platinum market and nothing stood out for some time – until a week ago when I advised VIP Traders Club members to go long based on this setup
We had traded it before in the run-up to the September high but last week, I spotted a new high prob/low risk trade close to the pink support/resistance zone around $870 on a strong mom div to the Fibonacci 62% support. Time to pounce at $885.
And last week it quickly ran up to my target at $1920 where we had resting sell orders to pocket a tidy $35 gain in less than a week. That was a typical swing trade with a low risk entry and a planned target for profit taking.
Also, I am not sure of the wave pattern here and in these situations, I prefer to take the money and run rather than to wait and see what nasties could lie in store. In fact, as I write on Friday pm, it is trading well down below $900.
Do you fancy a cheap coffee?
We have been trading coffee for a while as I spotted a unique opportunity to enter a low risk trade at an historic low point. It is not often we are presented with such an opportunity that risks little and yet promises so much.
Because of over-production, coffee prices have plunged to below the $1/lb mark. This is a level where costs of production become uneconomic and where prices have previously bottomed.
But with coffee shops seemingly on every corner in every country on earth (even in China), demand for the commodity remains high, especially the finer Arabica growths. And compare the retail price of a cappuccino ($4 or so) with the cost of the coffee beans in that cup/mug (less than 10 cents) and you can see why so many coffee shops are in business.
So even if wholesale prices double or triple, that will not alone drive coffee shops out of business!
Here is the multi-year monthly chart showing the potential:
The huge run-up to the 2011 $3 high was inspired by production declines and growing demand – and that started from the long term support area at $1. In recent years, the $1 area is evidently a floor but in May of this year, prices dipped below it to the 88 cents mark – and that was a major reason for me to start looking for an upside reversal.
Despite several twists and turns since May, we landed a great trade entry below the $1 mark and now at $1.15 it is testing the major blue trendline in what I believe is the start of either a third wave or a large C wave (that will have a five up pattern).
VIP Traders Club members are fully on board this campaign which I expect to last for weeks/months. So why not take a two-week Free Trial to my VIP TRADERS CLUB for my expert guidance on how to navigate the treacherous markets to build your trading account in a responsible way?