Is timing everything?
God bless weekends! They offer us a time away from the often furious market action where we can take a more long term view of our affairs and plan our strategies. It is the time to examine our longer range charts and to catch up on our reading, as well as essential relaxation. I am lucky as I have a dog!
Good (and poor!) traders know that trade timing is not quite everything but get that right and profits will usually flow. Sometimes, large profits. Of course, you must also guess the market’s direction correctly as well (without being stopped out first). Last week my club members saw this played out in spades (and hearts) – to their great advantage.
Last week we had been holding maximum short positions in the US stock indexes (and others) as they fell hard towards my targets. My bearish analysis has been laid out in previous blogs which I invite you to revew.
But on Thursday morning, the S&P hit my main short term lower target right on a tramline. Remember, tramlines are lines of division between support and resistance. I also noted that the MSM had become ferociously bearish in their headlines – so was this a great opportunity to lift some shorts and take a large short term profit?
Since my style of trading is to trade the swings that often last from days to a few weeks/months, I advised members to grab that profit. Prudence told me to do it – and what timing!
On Thursday the market spiked down to meet my lower tramline support and we took our profit and now as I write on Friday, the market is working higher. This will go some way to relieving the compressed bearish sentiment. We now need some ‘bullish’ news to put in a top.
My best guess is for a move up to the pink target zone in a fourth wave and then reverse sharply lower in wave 3 of 5 to fresh new lows. I am hoping the news flow will allow that.
Of course, we must keep in mind that we are in a savage large scale third wave down and so surprises should come to the downside and rally reversals can arrive at any time. Because of this, members are keeping a core short position in the indexes.
Fossil energies keep heading northwards
Can you imagine the looks of horror and disbelief on the faces of eco warriors as they scan the crude oil price charts (if they dare) ? How can demand be rising for these evil products when they are scream from their glued positions on the rooftops to Just Stop Oil? Could it be the real world of energy demand is cancelling the cancellers? They have been fully indulged by the media/politicians/lawyers but will they soon be seen as lunatics trying to force back the tides?
I do sense a change in the wind in their eco sails as a re-emergence of adults start to take a little more control of the children in the room. Here is one of my favourite markers for Net Zero sentiment – the Carbon Emissions futures market:
My up-sloping trendline drawn from the March 2022 deep low has very accurate touch points up the to the current test. With stocks now in strong third waves down indicating a recession/depression ahead, demand for carbon credits will surely weaken.
And one powerful force behind that is the sudden slight easing of eco restrictions by Western governments (see Sunak’s very mild moving of the 2030 petrol/diesel new vehicle ban to 2035 to kick off the process). As the universal political will for the strict Net Zero demands starts to weaken as major elections loom, demand for carbon credits will also diminish. This is a double whammy as economies will also weaken into 2024.
Not only that but news emerges that many of the carbon offset schemes are totally bogus and have been set up just for companies to play the system. Trees have not been planted in the EU while claims for their carbon offset payments are being made. This has all the hallmarks of the infamous EU VAT carousel fraud (still ongoing).
Yes, the EU must be world-beaters at wasting taxpayers’ money with the UK a close second. But with tax levels especially in the UK at record high levels, the pressure is on to staunch the flow of government spending. But it won’t work. Taxes will continue rising until the public won’t take it any more and like so many of today’s workers, will go on strike. I see trouble ahead – much trouble.
Why are gold/silver in retreat when stock indexes are in strong declines?
The PMs (gold and silver) have been very disappointing to the bulls in recent months. From the July top in the S&P, it has lost a whipping 8%. So why are not the PMs not in rally mode as they are supposed to perform their textbook function of ‘safe havens’ in times of financial distress?
That’s simple – like shares, they are financial assets and as such are being affected by the historic surge in interest rates we have seen in recent months. When a loan costs 5% pa plus to buy gold to store, it becomes very unattractive to do so compared with investing in a risk-free 5% government note/bond.
Not only that, but the weakening economies are reducing the demand for silver. It is much used for making solar panels and EVs – both of which are under threat.
And to point the way lower. here is silver’s chart
Yesterday’s US data points produced a massive $1.50 daily swing and a major ‘outside day’. This is when the market makes a new high and then moves lower to close at a new low for the day. And that marks a clear break of solid support at my lower tramline.
Odds strongly favour continued weakness for gold and silver as financial conditions tighten further. As I have been forecasting for weeks, we will not see interest rates top and move lower as inflation eases. We will not see a ‘soft landing’ as is devoutly wished by many.
The potential for further major losses in the PMs is clear – hedge funds and the public are very long and distress selling is a clear danger ahead. But when share selling does turn into a panic, as it will, I can see gold safe haven buying emerge when bearish sentiment plumbs new depths. And that day may not be far off.
We have been mostly keeping away from trading these markets recently as I need to see the fog to clear. It is now clearing. Silver has been trendless for weeks but is now breaking lower and will follow stock indexes.
So has the dollar died yet?
Many pundits have been shouting from the rooftops that the dollar is about to die. They have been proclaiming this for many months based on the idea that US government spending is out of control and that some form of dollar-destroying QE is inevitable to support the failing inflation-infused economy.
They will probably be proved right – but their timing has been way off (see above). Meanwhile, the dollar is surging on the back of rising US rates.
We established long positions at the 102 area in early August and my first target at 104 was reached days ago and that set up my main target area at 107. I am not sure of the Elliott wave labels and so I am unable to place any confidence in any forecast beyond that. Remember one point in the DX is equivalent to about 100 pts in EUR/USD (its largest component).
The point is this: we set up my original long trade at 102 as a very contrarian play when most pundits were bearish and hedge funds were very short. As I mentioned at the time, this was a textbook setup for a ‘surprise’ rally – and so it is proving.
I see no point in poring over economic data to garner clues as to market direction – except when I spot a textbook contrarian play. When all of the data conventionally suggests a certain direction is obvious, it is obviously wrong – and nimble traders can reap the rewards of taking on that risk.
Also, when the data overwhelmingly point one way, the lower risk trade is to trade against consensus and trade big with tight stops. In this case, short covering was strong and our trades were quickly into profit. But it takes nerve to trade against the crowd.
But now it seems after the strong bull run, all traders and their dogs are now super bullish as they have suddenly woken up to the reports of the dollar’s death as being somewhat premature. Time for a pull–back, methinks to trap the late-comers.
And just a reminder that it is the value of the US dollar that is the most important chart in global trade. Talk of Asian nations clubbing together to depose the Almighty Dollar is also a little premature.
So why not join us trading these wonderful markets – the VIP Traders Club for medium/large accounts, Pro Shares for individual shares and the Phoenix Traders Club for smaller accounts where we trade the very active Nasdaq, EUR/USD and US Crude oil.
A few reflections on today’s social trends
It is social mood that moves financial markets with a darkening mood producing bear markets. We have had manic bullish mood for a very long time which is climaxing in the EV and AI manias. We are seeing the first signs of a darkening mood creeping in.
In recent weeks there has been a surge in violent knife crime and an explosion in armed shoplifting especially in US cities. Organised armed and violent gangs are bursting into retail stores and taking whatever they want at will. Significantly, the police seem powerless to stop them. I see this as an extension of a society-wide ‘levelling up’ of wealth distribution.
The public’s support for the police is hitting all-time lows. And a loss in confidence of the police is never a sign of a content population. This can only spell trouble ahead. Will we see a return to the Wild West as vigilante gangs roam our streets?
And governments are in on this wealth re-distribution as well. The current record tax take from productive workers is being distributed to the non-productive in the form of ballooning benefits payments. It is also being funnelled into loss-making enterprises especially in the so-called ‘green’ economy (see Biden’s “Inflation Reduction Act”). Many of these enterprises will never make any taxable profits in their (short) lives. That is wealth destruction on a massive scale.
And taxes are inevitably destined to keep rising. As more EVs are bought, the prospect of the loss of petrol/diesel fuel duty is putting upward pressure on policy makers to come with even more inventive tax schemes on top of the already sky-high burdens.
And then there is the ‘unprecedented’ waves of migration from third and fourth world impoverished nations towards the first world (North America and Europe). Politicians are unable to keep their doors shut (or are they really wanting it to succeed?). Millions are poring into US cities turning their downtowns into hell holes. And US politicians are positively encouraging and making way for them!
This is all part of the ‘inclusivity’ theme entrenched in today’s society – and forced on us by our politicians. When the markets turn down harder, ‘inclusivity’ will morph into ‘exclusivity’ with violent repercussions.
I have lived through many society upheavals in my eight decades (starting with the biggie – WW2) but this one will be of even greater portent, I believe. And societies that are unsure of their future are dangerous. And dangerous societies spell disaster for share investments.
We are at the end of one era and the start of another. The transition will be tumultuous especially in the markets.
I see these eras lasting anywhere from 80 to 100 years. The last major era transition occurred in the early 1930s when the Dow made a major low at the 40 level in the Great Depression. From there it has climbed (with some major setbacks) as the world’s economies grew from these depths of wealth destruction.
The Dow made its ATH in January 2022 at the 37,000 mark (a gain of 92,400% in 90 years) when bullish sentiment was at its height. Pundits fell over themselves to forecast ever higher prices with the sky the limit. Whole articles came out advising buying shares as the best way to build wealth (as well as bricks and mortar houses).
If my conjecture is correct, we are at a similar – but opposite point today – of an era transition that will last 80 – 100 years. Sadly, I will not likely be around to see how that one turns out fully. But I do hope to see how this transition period plays out because I sense events will start to move very rapidly into 2024.