Is this the Totally Confused Analyst of the Week?
As you know, one of my favourite indoor sports is spotting the analysts/economists who get their knickers in a twist over some ‘perverse’ market move that they completely cannot understand. The strength of my guffaw is a measure of how anguished he/she is. In recent blogs, I have quoted a few doozies, but this one is my candidate for Totally Confused Analyst of the Week.
As ever, AEP is my top man in quoting these wrong-headed ‘experts’ and in today’s piece – Bets on fresh commodity supercycle court fate as dollar soars to 15-year high – he quotes a bank analyst as follows: ” It (the rally in copper) has been too fast and furious. When you have copper rising by £1,000 a ton in barely a week, you know there is something wrong. Fundamentals don’t change that fast.“
That, dear reader, is one bamboozled ‘expert’. But he is right in saying that fundamentals don’t change fast, but wave patterns surely do! And it is the waves that determine market action, not the fundamentals.
What these academic economists do not understand is that prices often change rapidly by speculative action, not hard-headed commercials who mine or use the stuff. They are totally unable to allow this speculation (and sentiment) into their models.
My guess is that Chinese (and others) speculators (who may also be commercial operators) have bought up copper contracts at low prices in anticipation of higher prices ahead as they foresee greater government stimulus down the road. They may or may not be correct in this forecast, but the important thing is that they have acted – and helped push copper prices up.
This is all you need to know as a trader. What are the wave patterns saying – and does the sentiment picture allow for a move in a certain direction with high probability? That was certainly the case when I called the copper lows.
But now we have MSM articles that express disbelief in the rally. In fact, in the past few days, copper has been consolidating the huge gains and is likely poised to move higher as many shorts have been attracted by articles such as this -and it is the latecomers who are usually punished the hardest.
Shares are at a major crossroads
With the Dow and now the S&P both into new all-time highs, the Dow in particular has reached an important target that I set several months ago at the 19,000 level. I have been watching the wave patterns on the daily chart since the low of February:
Wave 2 is a classic three down in A-B-C form and wave 3 is a five up – also classic. Wave 4 is also a textbook A-B-C down (although the C wave at the Trump Bottom was very spiky) and now we are in wave 5. But with the vertical take-off of this wave, I am not certain of the internal wave count.
But the point is this: the market has reached the upper tramline joining the highs of last November, the wave 3 high and now this one at my 19,000 target.
Now either the market will decline from here or nearby to make an ending diagonal pattern, or it will continue its rally to form a five wave continuation (see text, pp 38 – 39, 144 – 145).
And if it is to be the latter, my new measured target is in the 20,000 zone. Hmm.
Analysts following the fundamentals cannot believe this rally – they say it is totally nuts, and maybe it is. But it is real and that cannot be denied. There is a basic rule I follow: if the basic data is bearish and the market is in a rally, believe the rally, not the data (at least a ‘logical’ take on the data).
Despite the multitude of bearish background developments in the US economy (all backward-looking), maybe – just maybe – under President Trump, taxes (including corporate tax rate) will be lowered (bullish) and maybe the billions lodged overseas by corporations will be repatriated and used to continue the share buy-back and dividend avalanche under way. That would goose the market alright.
Gold breaks major support
A few moments ago, gold has broken a major support line and is heading for a major target at the $1170 area
The yellow support zone held prices for a day or two but gave way this afternoon with the market down $30 as I write. But when it hits my target at the Fib 62% at around $1170 (or with lower prob the 78% level at $1120), that should be the X wave leading to another A-B-C up to perhaps new highs.
This final thrust down is wiping up the remaining bulls and remember, DSI bulls were only around a near record low of 5% even before the current plunge. That was a lowly number in the first place and today, there must be only a few brave bullish souls left. That means the snap-back rally is liable to be violent and the market will likely turn ona sharp spike down and then up.
Under conventional analysis, this down move is surely signalling lower inflation ahead. But with crude oil on the rise again and base metals already having gained much of the lows, something is awry here. One of them is wrong and that one must get with the programme soon. Will it be gold resuming its rally, or commodities falling back?