As you know, I scan the MSM for some telling headlines. Occasionally, I come across a glaring example that highlights what the herd are thinking. There is a well-known ‘Magazine Cover Indicator’ that has often spelled the end of that particular trend and the start of the opposite one.
So with this week’s Bloomberg magazine cover headline ‘Is Inflation Dead?‘ with the sub-head; Who killed inflation?, I am wondering if this spells the end of the long-lasting low inflation era? That would shock an awful lot of people!
Of course, we must be careful when we talk about inflation. To me, inflation is the rise/fall in the supply of money and debt and prices of goods/services can either rise or fall in a period of low/high inflation. Generally though, prices will tend to decline when inflation is low as the supply of the means of paying for goods/services – i.e. money or debt – declines.
The overwhelming consensus in the market is that interest rates will stay low – or zero – for the foreseeable future. This theme permeates every stock market analysis I see – and provides the basis for the generally bullish stance of analysts towards stocks and bonds. But what the herd misses is that central banks react to changes in the market – not the reverse.
So with my contrarian antennae twitching feverishly, I have to question this idea. In fact, I was so convinced the herd got it wrong, that I started a campaign to short the 30-yr T-Bonds – the most liquid market on the board – in late March.
And last week, we took a hefty 4 handles out of that little trade. See my coverage of 13 April. I am now expecting a slight bounce and will be looking to short them again. If you would like to follow my T-Bond trades, get your Free Trial to my VIP Traders Club here.
You see, the way to make money in the markets is to fade (trade against) the herd using a reliable technical system – and take profits when the herd wakes up!
Can crude oil sustain the post-Christmas rally?
The arm-in-arm relationship between oil and stocks is well-known. However, many analysts still cling to the erroneous idea that high oil prices is an added ‘tax’ on the consumer and they therefore spend less which depresses company profits and lowers share prices.
Just a glance at the charts should convince any open-minded analyst that the above connection is false. But maybe finding an open-minded analyst is harder that you would think.
Here is the oil chart and I have an interesting blue line which was resistance until 2 April when the market jumped above it and has since become support.
I consider that a very reliable line of support now and any break below it should be significant. And yesterday, the market came back to test that support – and broke below it in the almost $3 plunge. The line now represents resistance again.
Of course, a rising oil price does nothing for low inflation! So maybe the Fed Watchers haven’t noticed the stunning 50% surge in the oil price this year – and the equally stunning 62% rally in gasoline prices:
Remember, the chart shows wholesale gas prices, but the pump price is starting to ring alarm bells with this a typical headline: Gas prices continue skyrocketing across the US. So is this another Headline Indicator that points to a peak in gas prices?
Is this as good as it gets for Facebook and Microsoft?
Last week’s Q1 results were ‘better than expected’, which is usually code for profits beating the deliberately low projections of a quarter ago. But facts is facts, as they say and the shares jumped. Which was great for Pro Shares members who were long.
Yes, I advised members to go long in January as it was recovering from the huge swoon off the July $218 high prompted by this time poor results. It hit a low of $124 at Christmas for an unwanted Christmas present of a loss of $94, or 40%.
My analysis said that this slump was way overdone and the shares were due a relief rally – and this is the current picture
I was looking for a low risk entry and found it at the $140 level. And following last week’s report, the shares pushed up sharply to the Fibonacci 76% retrace at $200 where we took profits of a cool $56/share.
But can Facebook maintain this supercharged pace? I believe the post-Christmas rally has a three up look and threes are always counter-trend. Incidentally, the steep momentum divergence at the Christmas low signaled a likely sharp reversal, a prophesy that was fulfilled in spades.
So the $200 region would be a highly suitable price for the correction down to start. Hmm.
I note that bullish sentiment is off the scale with DSI on the Nasdaq over the 90% mark. We have seen a veritable outpouring of super-bullish articles in the MSM following the latest Amazon, Facebook earnings. This article – Big Tech is about to become Big Cash – and watch the bulls run – even suggests that with the cash piles growing ever higher, Amazon and Facebook should start to pay dividends for the first time soon – and that will boost share prices even higher.
But values are already fully stretched as investors anticipate dividends to come. That is already in the price. Google (Alphabet) re[ports on Monday and Apple on Tuesday. Any slight disappointment could well tip the Apple cart over!
As for Microsoft, much is being made in the MSM that it now has a $1 trillion valuation following bumper results. I have noticed that strange things start to happen to the charts when they reach (or almost reach) a well-flagged milestone. And the journey to it has been spectacular. Here is the weekly chart
This is a classic exponential curve. These always end in a bust. I have five waves with the very long and strong third wave and we are now in the final fifth wave and momentum is riding off the scale into the sunset (except it will turn down before reaching it). This means I am on high alert to signs of a turn. Here is the short term chart of recent action
A move below the upper tramline would seal its fate.
Facebook soars, but Intel dumps
This is certainly an interesting earnings season and just to prove not all tech companies are in the sunny uplands, Intel slashed forecasts although beating Q1 revenue. The savage decline to the $53 level took it bang on an important Fibonacci support in one go with huge gap
If you were in any doubt about the validity of using Fibonacci ratios, this one chart should dispel them. Why did the shares open with the huge gap down precisely at that 38% level? How did the market ‘know’ that was a support level in what must have been a highly emotional period when much selling must have been in a panic? Why did not the market open at a level nowhere near a Fibonacci level? The ways of the market are mysterious indeed.
Has Gold turned the corner?
The recent Elliott wave action in Gold has been extremely tricky to navigate but I have been guided by the lovely Golden Wedge I spotted several days ago
As the market was falling off the 10 April high at $1310, I drew a line linking the PPP to my A wave low and extended it. I believed odds were good the market would test that line in the near future in the $1270 area to finish off the C wave. That made a short trade in the $1300 region very likely a winner for at least a $25 gain.
And that is what I advised for VIP Traders Club members. Last week as the market fell to place a highly accurate hit on the lower wedge line, it started a rebound and I was able to advise covering short positions and reverse to go long. We are now riding a bull run – after taking a $25 profit on the short – and my first target is the upper wedge line.
If this is the kind of trading that appeals, get your two-week Free Trial to my VIP Traders Club here.