Is this a re-run of the Credit Crisis of 2008?

Banking crisis? – What banking crisis? So sayeth the ever-optimistic tech investors as they drive a wide wedge between the two most polarised sectors – Banking and Big Tech. While the likes of Deutsche Bank (see my recent coverage here) plummet to new lows, the FANGs merrily sail away into the stratosphere.

We have a truly fractured stock market.

But with Deutsche Bank now heading the BBC news, here is the DB chart I posted here two weeks ago:

and here is the updated chart:

Conclusion: My roadmap was entirely accurate and shorts made it big. The price has moved sharply lower in the past two weeks as fallout from the ‘banking crisis’ sweeps over Europe.

But two weeks ago, did I know anything about a bank bust-up to be kicked off by Silicon Valley Bank only a week or so ago? Only insiders knew there were problems with SVB two weeks ago. So how could I have foreseen the current banking collapse back on March 11?

That’s easy – I read the Elliott wave patterns that were forming! In this case, they were pretty clear (but that is not always so of course).

Only a little basic knowledge of the Elliott wave theory told me that on March 11, the relief rally to the wave 2 or B top, which has been in three waves, was likely leading to a five down and that wave 3 of that five down was in progress. All I did was extend that wave 3 into the future, knowing that third waves are usually the longest and strongest of the five.

And that little exercise provides a great example of how to pick the best trading opportunities with a professional trading strategy. I do it by judging which are the clearest setups in tramline, EW and Fib terms. This is all explained in my Tramline Trading method.

I tend to ignore those setups that are not so clear cut.

Of course, my main input is the Elliott wave theory. That offers the best guide to the next direction. And the move down was a textbook swing trade.

In fact, I was offered that third wave down on March 11. These are the very best waves to trade as they move solidly in one direction with few corrections.

So, is the banking sector heading straight down into oblivion as many in the MSM would have you believe? There are plenty of gloom and doom stories about.

When using the Elliott wave theory, we are dealing with relative probabilities for the road ahead. There are always alternate counts/forecasts with some more likely than others. Most we can dismiss as being highly unlikely (but not impossible), but one or two may have equal footing as the first.

Here is a valid alternate count:

The major October low is the final wave 5 of a multi-year bear market. The initial rally off that low is wave A of a three up. That is the lesson of the Elliott wave theory – after an impulsive five down comes a three up.

This A wave has the required five wave pattern and the decline off it is wave B which is in the required three wave pattern.

With the RSI indicator at the oversold 30 level (where previous hits have resulted in good rallies), this could be the termination of my wave ‘c’ of B.

The next big move should be a rally (in five waves) in wave C. If this is the correct option, I expect bank shares to rally next week – and if they do that will be the signal this option is the correct one.

Failing that, making a new low below the October low at 7.25 euro would void the above. But with bullish sentiment on the floor, this is the much less likely option.

And if bank shares do rally, you can be sure the news following it will be ‘good’. Remember, the market forms the news, not the reverse as most believe.

And by using the Elliott Wave theory correctly, you can forecast the news!

The FAANGs are moving opposite to banks

But going the other way are the FAANGs – here is Meta (a share I have been covering here)

Recall I recounted how we were long to my target at $200. When it reached that area in February, it spent some weeks consolidating at my tramline and is now poised to move in a three up towards my major target at the Fib 50% retrace around the $235 region.

The decline off the August 2021 ATH was an impulse in five clear waves and the rebound off the October 2022 $86 low will be in three.

The shares have already broken clear of the upper tramline. Momentum and RSI are already getting into the overbought ranges.

If this roadmap is correct, that will ensure stock indexes will remain skittish for a while. I do not see major trends develop that takes thousands of points off the Dow just yet (that will come).

In fact, with the momentum behind buoyant tech, odds are high that banks will rebound to play catch-up and are offering speculative bullish potential.

In fact, odds are good that next week will be positive for the banks, barring any major war breaking out. Or even if the French dust off their guillotines as they ransack the country in the kind of riots only the French have perfected.

Incidentally, if the French riots are really only about raising the pension age to force workers in their jobs for longer, that gives us some idea how much they hate their jobs. Surely, if they loved what they do, they would welcome the measure and even start riots to raise the pension age even further, non?

Of course, it is well known that most people in the West do hate their jobs – or at least their managers. I love to play a game occasionally with a new acquaintance and ask if they love what they do and if they have a competent manager. Four letter words often feature in their responses.

It’s the old story wrapped up in the famous Peter Principle that states: When a person in an organisation becomes competent in their job, they get promoted to a higher position that requires different skills and are thus thrust out of their depth. That is when they become useless managers – and disliked by those under them. And that is when the management consultants are brought in to sort out the mess.

And provided that person remains in good standing, they can be moved into an even higher position where they become even more useless (and hopefully less harmful), and so on.

Has the dollar finally botommed?

It is a maxim that currency trends often move far farther in price and time than many imagine. This has certainly been true of the current bear trend in the dollar. Conversely, the euro has been on a tear as irrational exuberance for a European recovery has mesmerised traders.

But yesterday a significant Elliott wave event in EUR/USD occurred – and it heralds a very likely reversal to recent trends. This is the chart I posted to VIP Traders Club members on Friday:

From the 15 March low – on the pink support shelf – the market ratcheted up nervously to a high of 1.0930 on Thursday afternoon. That marked a possible overshoot of a major trendline and it also touched the upper tramline in a kiss. A Scalded Cat Bounce (SCB) down was then on the cards.

To me, that nervous stair-step advance to the high is momentum at work – and that is typical of the theme of currencies moving far farther in price and time than is decent!

It’s as if currency extensions are like Wile-E-Coyote who hangs in the air for a few seconds supported only by faith and then inevitably descends to the canyon floor with a hard thump.

So from that elevated Wile-E Coyote 1.0930 high, it then fell hard to break below my lower tramline in a SCB – bearish

And the decline below the upper tramline confirmed the overshoot – bearish

And the decline is a clear five down – also bearish

So now we have at least three clues the trend has made a major change of character to bearish. Note the sharp decline is far steeper than the preceding rally – also a bearish sign.

The key for this new bearish stance is the pink support shelf at the 1.05 area. Breaking below that would set off a steeper decline towards the 1.01 area – and closer to parity.

Only a push above 1.0930 would nix this outlook.

Now who else is imagining the euro could reach parity in the next few weeks?

Surely not the overwhelming hedge fund euro longs who are almost an extreme 4/1 long/short futures. I sense a re-appraisal approaching.

_________________________________________________________

Are you prepared for the economic devastation to come? We are in major third Elliott Waves down in stocks indexes. These are the most destructive waves in the book. They take no prisoners. Already, major investors are fleeing the riskiest shares and seeking perceived safety in markets such as Gold, Treasuries, the Yen and even Bitcoin.

I am guiding VIP Traders Club members through the treacherous swings in markets today. Come join us!

TAKE A TWO WEEK FREE TRIAL HERE.

____________________________________________________________

Swing trading strategies are coming into their own

Many pundits are calling for stock markets to be devoid of major trends (at least for a while). They are said to be swinging between the hope that the Fed will be forced to cut rates as inflation is forecast to fall back hard and the hard data on the economy that is turning down.

If so then position trading along strong trends becomes untenable.

Backing up this view is the fact that commodity prices have indeed fallen back sharply from peaks reached last year.

1. NatGas is off a massive 80% from its August 2022 high
2. Crude Oil is off 50% from its March 2022 high
3. Wheat is off 50% from its March 2022 high
4. Lumber (US house building) is off 80% from its March 2022 high
5. and so on

Commodity price changes take some time to filter through to consumer price inflation (as we are painfully aware in the UK with still sky-high home heating costs). But the pressure is on for lower consumer prices – provided they do not shoot up again (and there’s the rub).

The Fed will have every reason to cut rates sooner rather than later. That is what is driving the bulls.

Thus, investors who take this view have every reason to buy bombed-out shares and support the likes of the Dow, Russell 2000 and FTSE especially.

But what if CPI fails to respond enough? What if producers try to maintain margins by keeping output prices high as input prices fail to compensate for the lower sales volumes? That would negate any Fed action to lower rates.

On the other hand, we see what is going on around the world – major lenghty strikes in the UK over pay and major riots in France (with the Netherlands coming a close second). Social mood is certainly worsening in Europe at least.

Not to mention the ongoing Ukraine war and the worsening China-US relations.

Yes, the Wall of Worry is getting harder to surmount.

And although CPI data may show an easing from highs in the months ahead, prices are still rising and still are putting a squeeze on the cost-of-living.

So, will commodity prices remain subdued or will they advance off major lows?

Crude oil is a major factor in setting inflation and here is the weekly chart

Yes, the major trend has been down from the $128 high set in March last year. But look at the sub waves – they are highly overlapping and most certainly not impulsive in nature.

These sub waves were amenable more to swing trading than position trading.

This action strongly suggests the decline is corrective rather than impulsive and if so, we should expect a reversal back up at some point that is impulsive (strong steep gains).

The market has just hit the Fib 50% retrace of the entire bull run off the March 2020 Covid Crash low (recall producers were paying consumers to take the stuff away and spot prices went negative!).

This is a great candidate to look for a major reversal – and we at the VIP Traders Club are doing just that. The rewards, if we get it right, are huge.

My plan is to engage in swing trading at first and then if conditions warrant, embark on a major position trading strategy.

Naturally, if rising energy prices occur that would heap pressure on interest rates to keep rising.

And I am keeping a sharp eye on food (Wheat) prices that have a similar potential to reverse upwards. Watch this space!