It drops slowly – then all at once
The last holdout of the Great Asset Mania – the Dow and S&P – made their final highs just this month. The other major indexes, such as the Russell 2000, Nasdaq and especially China, have already topped (the Nasdaq and Russell 2000 in November). China topped a year ago and is off by a whopping 30%.
So far, the tech-heavy Nasdaq is off 9% and the Dow off by only 3.5%. Since the big name Tech Titans were the generals on the march up the hill, they will lead the retreat down, as I have been stressing for many months.
There is a very useful index for trading purposes of these behemoths – the US Fang Index
It has completed a very clear impulsive wave up (in five waves) and wave 5 topped on a strong mom div thus demonstrating the weakening of the buying power in the wave 5 rally off the wave 4 low last May.
In this period, many of the FANG company executives have been net selling shares (as have many others). This is the only group that has taken a bearish posture – the vast majority of retail and professional investors have been wildly bullish.
I believe we should all ask the question – what do these executives know that we don’t? Are these executives so poorly paid that they need the money from their shares sales to scrape by? Unlikely. It is fair to assume they really do know something about their company’s prospects ahead – and it is not bullish.
Of course, these tech shares are priced for perfection with sky-high valuations.
chart courtesy www.elliottwave.com
This revealing chart shows how equity valuations have swing wildly over the years since the end of the 19th Century. For one thing, it should remind investors that stock valuations do not stay constant. What today seems perfectly reasonable will some day seem unbelievable.
One other point – can you spot the effect of the Corona Crash in March 2020? No? My eyesight can just spot a tiny blip just ahead of the ‘Everything’ Peak’ that we are now reaching.
One more question for long term investors – do you really expect much more upside or should you pay heed to what the afore-mentioned executives are doing with their feet?
Last week I posted for VIP Traders Club a short term chart showing the S&P has just completed a textbook five down/three up that characterises a major trend change from up to down
From the ATH on 4 January, we have a clear five impulsive waves down to wave 1 of what will be a larger five down. Then an a-b-c up to wave 2 high and then the start of another five down.
In yesterday’s trading, the market is in a bounce along the lines of my small arrow and next week I expect a further decline to my first pink target area. Only a move above my wave 2 high would amend this forecast.
JOIN US ON THE GREAT EQUITY JOURNEY
VIP Traders Club members have already taken initial positions in my campaign to ride share indexes lower in what should be a 1 – 2 year journey to much lower levels. Many traders who short the indexes will still lose money! Why? Because they entered with poor timing, usually near a low and were stopped out on the bounce. Remember, counter-trend rallies in the Dow can cover hundreds of points. Don’t be one of those with poor timing!
Incidentally, not every individual share will decline! Some will advance. My Pro Shares service has identified several.
Not to be forgotten are the energy markets. We first traded Crude oil when it was around $30 (latest $83.80). It has further to run (members are long).
Free Access Week was a major success since it fell on the very week the Dow topped out. Traders who took advantage of my advice are already on their journey. If you missed the extra two week Free Trial, take it here
2021 was the Year of the Commodities – will 2022 be another?
Most of the commodities I follow and trade have seen stunning bull trends last year from Crude/NatGas to US Grains to Coffee to Cotton and so on. but one of the most difficult commodities has been Cocoa. That one has eluded me. Here is the long term chart
Since 2017, there have been no long term trends to exploit. The waves since then have been ranging from $600 to $400 which are worth trading for medium term but are almost impossible to analyse using Elliott waves. As you know, I am always searching for third waves in a five wave sequence since these are usually ‘long and strong’ and offer the greatest reward/risk profile of all the waves.
But here, I am tempted to conclude that using Elliott waves to figure out the extent of any projected reversal is nigh on impossible. That does happen. Remember, Elliott waves is a theory and like all theories are subject to failure in some markets. Cocoa seems to be one of t hem. Luckily, most of my other markets can be analysed with them!
Not only that but the usual Fib relationships also seem not to apply. The one thing I can say is that the market is in a general uptrend with higher lows (but not higher highs). Also, there seems to be a large wedge forming. If the market can break above the £3000 region, further gains are likely.
And if it can break below the lower trendline around $2,200, then lower prices are likely. I favour the upside breakout option.
Now compare this with the Coffee performance
We originally started getting interested down at the $1 area. I recognised this was a near record low price and this had the potential for massive gains provided conditions such as weather could cooperate. That it did in Brazil with the terrible frosts last year. This market was a real pleasure to analyse and trade – not to mention highly profitable!
Some random thoughts on the state of the markets
It seems the fear and panic stoked up by the scientists and politicians over the past two years have been overblown as the pandemic appears to be easing. It’s the old story – those in power use fear to create a sense they are ‘doing something’ about a new threat. And those in the fear business will exaggerate the need to employ them (at inflated prices) to provide the means to ‘combat’ the threat.
The latest threat over omicron is a classic. Seems hospitalisations and certainly mortality are no worse than in a normal flu season. Yet we have rigid lockdowns in many places with yet more damage to the ‘real’ economies.
Of course, politicians are in the business of getting noticed (and rewarded) and most therefore must be seen to be fighting some wrong or other. Imagine a politician who lays back and does nothing! Impossible. That’s in their nature – to tell others what to do (while avoiding doing it themselves. I’m looking at you, Boris).
When science has now become horribly politicised, who can you trust? That is why the anti-vax movement is so strong in certain countries. And why trust in the ‘experts’ has sunk so low. A new poll says that only 10% of Americans trust the media on Covid and only 30% trust Fauci. Hmm.
And that is why stock markets are so polarised. The bulls will tell you earnings are set to improve as the economies improve post-pandemic. The bears will refer you to the record high share valuations (see above).
Last week saw the latest U of Michigan Consumer Sentiment readings. One of the findings was the plunging Current Consumer Sentiment (lowest in ten years) with Inflation Expectations the highest since 2008.
So much for the Fed’s fingers-crossed ‘transitory’ view. With Crude surging again, that was always a vain hope.
Markets have started sinking slowly but once they go, they will go all at once.