The ancients worshiped the sun, especially the Egyptians – and they knew a thing or two about how to manage their crops. Sadly, most traders today do not pay any special attention to the solar cycle: the solstices and equinoxes in particular. But perhaps they should – at 8:30 am Wednesday June 21, this was what I wrote in my Trade Alert for VIP Traders Club members:
Today is the summer solstice when the sun reaches its highest point at noon. Will we also see highest points for some markets?
Given that the Dow high for Tuesday was 21,540 – a level that still stands as the all-time high (so far), and that the market has been falling since the solstice, perhaps the ‘solstice effect’ is working this time.
I have noted over the years that following a strong trending run into the June 21 and December 21 solstice dates – such as we are seeing now particularly in US share indexes – the Dow/S&P often makes a turn of some description at or very near those dates. Sometimes, it is a major turn and other times minor. Which one depends on the wave patterns at the time.
Here is the Dow chart that explains my thinking that we are close to a major high using standard EWT
Note my rather unconventional tramline pair with the lower line sporting the minimum three accurate touch points. The upper one also has three (if you squint a little) where the high placed an accurate hit last week. Note that I drew the lower one when the third low of 18 May was put in. That enabled me to draw the upper one parallel. That meant I had an upper target in mind from mid-May!
My anchor wave is wave 3 high on 1 March. With that wave in place, a fourth wave comes next – and the most common form of a fourth wave is a three. But I had two options for this wave 4 – a simple A-B-C to the April low (marked purple a) for wave 4 and then a five-wave fifth wave up to new highs. The other option (my preferred) was as marked on the chart – a larger a-b-c for wave 4 to around the 20,400 area and then a new strong wave 5 rally to new all-time highs to finish off the entire post – WWII bull market.
One reason this was my preferred choice is one of scale. The first option would mean wave 4 would be tiny compared with wave 2 (not shown) especially in time. In EWT, I like to see the ‘right’ look for the waves, and this would not have done it.
If this option is correct, then wave c, which is just getting under way, should take it to around the wave a low at the 20,400 area.
So has wave c down started? One clue I like to see is an impulsive look on the short term chart off the wave b high.
Here is the 4-hr and shows the market on the solstice hitting my major pink tramline resistance for the b wave high. Remember, I had the other option in the back of my mind which was that the market could blast right on in a third wave. But after June 21, the market traced out a small-scale five down and that little action helped turn the tide in favour of the c wave interpretation.
And on Thursday, with severe weakness in several of the FAANG Gang tech shares. the Dow plunged to create a spike low at the 21,200 level – a full 340 pips below the solstice high. As I write, we have a relief rally working.
But the odds are swinging hard to the notion that the market will decline next week and for several more weeks to confirm the c wave and if so, it could stretch to many hundreds of points. Rich pickings, indeed.
Wheat rockets higher out of my wedge
Last year when I started getting interested in the US Grains, I noted the magnificent wedge that was forming over several years as prices were in a severe bear trend off the 2012 high at the $9.50 level.
At that time, the market had not broken above the upper wedge line and I advised VIP Traders Club members to begin accumulating long positions, partly because with the hedge funds extremely bearish on the grains, I expected a huge short squeeze at some point ahead. I pointed out that an adverse weather event would likely send the market flying – and so it is proving, despite record stocks around the world!
And that last point is another lesson in why trading on the ‘fundamentals’ can lead you astray in a very big way. And such is the power of squeezing the hedge funds – my favourite trading activity!
Last week, it was reported the US drought in the winter wheat states was getting a lot worse and that ‘crops were burning up’. Here is the chart
Note the six highly accurate touch points on the upper line making it a highly reliable line of resistance/support. And I have five waves within the wedge with the fifth a ‘truncated fifth’ where the low falls short of its ‘proper’ place at the lower line. The fact that it could not even reach this line before turning indicated very strong buying power there and that heralded a very strong rally phase, which is what we are seeing.
And with the strong break of the upper line, I have my target set at the start of the wedge in the $7 area with higher potential.
As I mentioned before in my coverage of US Corn recently, the US grains are generally off the radar of most UK traders. This is a big mistake because if you can catch a move such as we have in wheat, the rewards can be spectacular.
Naturally. VIP Traders Club members are well positioned long from much lower (near the wave 5 low).
Lloyds shares in dangerous waters
This is a share I trade for my VIP Pro Shares service and the chart is an object lesson in how to read the simple signals that can be offered to those that understand how markets really work. The shares have been much-touted as a solid and high dividend payer that cautious investors should have in their portfolios.
There has been much comment on how UK banks are now much safer with capital ratios in healthy territory after the disasters of the 2007/2009 Credit Crunch.
That may be so, but the market tries to look ahead and there are many bumps on the road from increasing competition from Fintech of their traditional profit base in retail. Also, the trend is for falling savings ratios, static wage/salaries and the extreme potential for interest rates to rise rapidly, thus putting consumers in jeopardy of missing loan and mortgage payments. Hmm.
But as you know, I try to read the charts for clues for direction and this one is superb. Here is the daily
The rally off last July’s low has proceeded within the trading channel of the blue tramlines. Also, the strong part of the rally has been contained within the channel of the pink tramlines. That is very pretty. But when the market rallied to the 73.5p level on 22 May, I noted that this was the area that contained the Fibonacci 62% retrace of the previous wave down and also was a kiss on the lower pink tramline.
There was also a large momentum divergence into this high and those factors told me there was a very high probability the rally had ended and the next big move was down. That is when I issued a short advice to Club members.
Gratifyingly, following the kiss, the market headed down in a scalded cat bounce to confirm my idea. And now, the market has retreated to the lower blue tramline at the 66p level support.
And a solid break of this tramline would confirm my first major target at the 62p area with much lower potential.
So what would the dividend hunters say then? Will they buy more? And if the price drops even further to the 50p area where they stood last year, will they start to get nervous? Such is the progress of a bear market – and one that was identified much higher up.