Is my Conversion a sign of a Nasdaq top?

Wave the flags, I may have had a Damascene Conversion last week.  VIP Traders Club actually went long the Nasdaq. Yes, I know I am very late to the party and of course I wish I had bought in March last year when the Dow was trading under 20,000 in common with everyone else.  Last seen it trades at 35,650 (the Nasdaq performed a lot better). But hindsight is a wonderful thing, is it not?

And this huge miss of mine throws up a powerful aspect of trading – the trader’s psychological state of mind.  Highly emotional traders would likely storm off in anger to miss such an ‘obvious’ trade/investment, never to trade again.  More phlegmatic traders would just say: “OK, I missed that one, but I have plenty of other markets going my way and I am looking at another major campaign to start soon”.

Incidentally for the record, I have been bullish on many individual shares for Pro Shares members for months as their chart patterns pointed to advances that are still mostly in progress with good gains.  But the overall stock indexes have eluded me for the VIP Traders Club.

I would guess most of us lie somewhere between these extremes of optimism/pessimism. Yes, some days I want to crawl under the duvet and stay there. In fact, my dog would not allow me that but would insist we go for along walk in the woods instead.  I discovered long ago that it is no shame to be wrong on a market. What is shameful is to catch a good market move and exit long before the trend has played out (the fate of so many traders).

But we may now be in for a decent correction ahead especially in the Nasdaq and especially for the social media giants.  Here is Facebook (not Nasdaq as on the chart).  

From the $384 ATH set on 1 September, it has declined to the current $324 (down 13%) and has broken all support lines in the process.  It now is testing the major trendline from the March 2020 Corona Crash low. A sharp break here would surely herald much greater declines.  This is updated coverage from two weeks ago

But the decline looks like an impulsive five and it could bounce near term back to one of my trendlines.  That would be my best guess and if so, that bounce should set up a great shorting opportunity.  But a solid collapse here would herald a larger correction.

Already, social media is getting a growing chorus of complaints from its many critics and in response, Mr Zuckerberg has announced a re-branding. Could this mark the top of the social media phenomenon?  One huge argument is whether posters should remain anonymous, or easily traceable. That is a tough one. In the attempt to kill off the abusers and trolls, posting with real names (and contact details) would deter genuine whistle-blowers and posters who hold views that are outside the Groupthink of today’s mainstream.

The attitude of its advertisers is crucial and if there is any sign that its members were leaving in numbers, all bets are off.  I se the big name tech giants are being extremely vulnerable at these heights.

I have a feeling that next week’s action could well see horrors just ahead of Halloween. The big question for me is this – has my (very small) conversion to the bull side marked a major high?

Energy prices are really starting to hurt

The 18-month rocket of crude prices has taken many by surprise.  Recall in March 2020, producers were paying the ‘buyers’ to haul the stuff away as storage tanks were full to overflowing and they couldn’t rapidly shut down production.  Every oil tanker on the seas were used for storage (I wish I had bought a few back then!).

Now, a few months later and we have the opposite problem – storage tanks are depleted as the perfect energy storm is upon us.  And that consists of better than expected demand as the world economy shoots back strongly from the effects of the pandemic – and the restricted ability of the oil majors to pump more of the ‘evil’ stuff as they focus more on so-called green initiatives in an effort to be with the programme. 

Of course, the latter is the inevitable result of Western government policy of favouring ‘renewables’ to the exclusion of fossil.  What oil company can risk earning the wrath of the Green Blob by actually discovering and announcing major new oil/gas fields? So production is likely to be restricted – at least for now.  The producers are obviously happy to see prices trending higher but they are surely increasing hedging activities at these very profitable levels. Thus, a combination of government pressure to increase production (OPEC will announce something soon) and the natural growing edging/selling pressures will combine to reverse the rally – probably closer to my target $90 area (currently $84).

But after that?  I can easily see a major correction as the high prices deter demand and if economies are slowing as many expect from Fed tapering, this correction could be large,  But the next phase should be sharply increasing prices as Asian demand picks up and supply remains restricted.  This is my suggested roadmap for the winter:

Note that prices above $80 are now into heavy overhead resistance from the 2011 – 2014 period.  And the five wave form of the rally off the Corona Crash low last March points to an imminent correction.

And our favourite play – NatGas – has clearly run into major resistance

and no wonder as at the recent $65 high, it made it to the Fib 38% and chart resistance zone.  I would not be surprised if it spent a little more time in this region (latest $55), although on the shorter time scale the correction has made a convincing three down that could herald a renewed surge up soon. 

In these challenging times for short term trading, it is probably best for traders not to try to out-guess where the dips will emerge but to continue holding long positions that were taken much lower down.  Of course, we always run the risk that corrections can turn out to be very steep and you could see your lovely profits melt away.  That is why I advise taking at least some profits on a price surge to a major target and then see how any correction plays out.  That is the prudent way, but we are then left with the difficult problem of deciding whether, where or when to re-enter.  Hmm.

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Is sterling about to lose out against the euro now?

I am looking at another currency cross for signs of a major turnaround. Last time I analysed the CAD/JPY cross.  All of  my crosses are geared by the action of the dollar and I believe that is showing signs of topping out after a strong bull run (DSI bulls over 90% recently).  Many crosses that have been in major trends are vulnerable to major reversals.

I believe reversals here could well produce outstanding gains for nimble/aware traders.

But another cross that could well provide major gains ahead is the EUR/GBP.  With the EZ central bank being forced to raise rates soon (growing consumer inflation), as is the BoE, traders are revising their stance towards both currencies. UK rates are expected to be raised next month although any delay would very likely strengthen the exchange rate and induce a major short squeeze on the EUR/GBP cross.  That would send the latter skywards.

Here are my wave patterns in the EUR/GBP and we should be close to a major low

Wave ‘b’ has a clear three up typical of ‘b’ waves and wave ‘c’ has a clear impulsive five waves to a very strong mom div. This is all very textbook. This could get very interesting!