It’s hit $1 Trillion! No, not Bitcoin – the US federal debt interest per year

Dear Trading Diary: Yes folks, the US federal debt is exploding and just the interest payments are now $1 Trillion a year – and climbing. Trump cannot change that direction – yet not soon That represents about 3% of GDP and greater than the military budget. So how much longer can shares ignore this ticking time bomb? Some maintain it doesn’t matter as the debt is owed to the public and institutions (domestic and foreign) anyway who spend the income and boost the economy and/or invest the proceeds.

Perhaps. But one area where it does matter is in the value of the dollar. We have seen the Trump Bump elevate the dollar (completely against its usual relationship with gold) as investors have fully bought in to the MAGA message. They believe the huge proposed tariffs will bring more manufacturing back home thus reversing the trade imbalances in favour of the US. Maybe but unlikely not in the short term.

And anyway, Trump is using the Tariff Terror as a negotiating ploy and applied rates will fall far short of the dramatic levels seen in the press – but even so, they will shake up the trade balances.

So has the Trump Bump just set up a massive dollar bull trap where the bond vigilantes are now striking to force the dollar back to earth with the looming twin deficits in their sights? I believe so – and my roadmap that I established ten days ago appears to have nailed it. Here is that roadmap from November 15

On that day I called for a small dip and then one more pop to a new high and then a strong move lower. This is the result

OK, so far so good with the pop to the new high and the down move. But the decline could be a three correction and I need to be alert to a possible renewed push to a new high. But so far. so good. I remain short the dollar especially against the yen where it is odds on the BOJ will keep raising interest rates to levels not seen in decades.

Bitcoin fell 9% last week: And the punters in MicroStrategy suffered a leveraged 45% dip. Ouch. Yes folks, this is a company that sells zero coupon bonds and invests the proceeds in BTC. They have issued a mammoth $3 Billion so far. There is an intense speculative focus on this share that hogs many a MSM headline. But along with the plethora of ETFs, is this yet another way for the extreme bullish sentiment to express itself – just before a crash?

Will the Nasdaq make a new ATH? I see that the previous punters’ sweetheart AI company Nvidia is off $20 (13%) from last Thursday’s $152.50 spike high. So has there been a switch out of Nvidia towards Bitcoin in a buy-the-dip strategy? Last time, I wondered if the AI surge has reached its zenith and further weakness in the semiconductor SOX index could be on the cards (see last week’s blog).

But have the US indexes taken notice of the change in the MAGA mood with the dollar in retreat? I have been favouring my wave 3 of 3 interpretation in the Nasdaq but latest action has not exactly confirmed a wave 3 look.

Third waves are long and strong along most of their length and latest action has been jerky with overlapping waves which is usually a give-away to a correction

The rally off my trendline on 15 November is very jerky and has only made it to the Fib 62% retrace. So that raises two clear options: Option 1 – a push above the Fib 62% resistance and then an assault on the 11 November ATH, or Option 2 – a break next week of my trendline to kick off a small scale wave 2 down.

Thus I have two main events to watch for -a binary choice! And with SOX showing signs of breaking down (see last week’s blog), I am watching very closely for signs of direction next week. I have a long position working and will give it the benefit of the doubt

Update on my Gold campaign: As a measure of how bullish is the underlying market, I see that Dubai has just issued a whopping 300 kg gold bar (see image at top)- valued at $2.5 million and a new world record. You won’t be seeing many of these in the Costco vending machines.

The urge to build bigger, taller and fatter is a sure sign of a bull market in sentiment. The skyscraper effect is a well known example. In fact, Dubai is also the home to the tallest structure in the world – the Burj Khalifa at 828 metres. It now has the biggest and fattest gold bar to add to its collection of world records.

Last week saw a severe pull-back in its developing wave 4 correction that I had anticipated. I had taken profits near the high and looking for a decent dip to go long again. The pull-back was a large $250 to 13 November low. I re-entered near the low and now the market is in recovery mode.

The dip took it to the precise Fib 62% retrace in either a ‘b’ or a 2 wave. The market is now advancing up in a 3 or ‘c’ wave. In the medium term, odds do not favour making new ATHs any time soon. That is because my large wave 3 top in late October took about six months to form and if wave 4 is to be a ‘normal-looking’ correction it should last at least two months or more.

But I am willing to hold positions because it is in a strong overall bull market that has not ended and I do not want to stay too long out of this market.

Why am I suddenly bullish the Hong Kong 50 index?: While it is true that the Trump Bump put a wide split between the surging US indexes and those in China – all due to the Trump Tariff Terror that put investors of Chinese stocks in panic mode, I have just taken a massively contrarian stance. And if I am correct in reading the charts, we could be looking at one of the most contrarian trades this year – with massive upside potential. One to match the gold bull contrarian trade I have been riding (it has been moving contrarily to gold).

The sharp decline off the October high has a three down look to the Fib 62% retrace and on a mom div. There is plenty to like for a technician? Bullish sentiment being on the floor adds to the bullish potential. And if, as is highly likely, massive stimulus is around the corner (to breathe some life into the depressed manufacturing and real estate sectors) shares will respond positively. I rest my case.

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Coffee is perking: Giving Bitcoin and Nvidia a run for their money, coffee futures have exploded skywards from fears of much reduced crops this coming season

From the low a month ago, it has rocketed by 40% alone. I had been following this market earlier this year while the market was trading inside its very choppy phase between my wedge trendlines. But that choppiness made me abandon any hope of making profits. But then the latest straight up phase appeared and I have just watched from the sidelines. What a great example of how choosing when to engage and when not to is a critical factor in your trading success.

Will US bond yields fall by much? Not so long ago the market was firmly convinced the Fed will gradually lower its Fed Funds short term rates with inflation falling sharply and little prospect of the economy over-heating.

But with short rates falling, Treasury bond yields have failed to get that message and yields have risen instead. How come? For one thing, investors have sensed inflation is back on the rise and demand higher yields. It seems the Trump Tariff Terror is frightening bond investors (the vigilantes) who see higher consumer import prices to come. I believe this will become a huge factor next year when the tariffs kick in – and may well destabilise the Treasury market. Here is my T-Bond yield roadmap again

Yields are coming off wave 1 off the Double Bottom at the start of wave 2 down that may run into the New Year. But then – after the Inauguration? – I expect a sharp move higher in wave 3. And that I expect to wreak market havoc. I am preparing for that event.

Some general thoughts on trading: There is no shame in missing out on a roaring bull or bear market and just watching from the sidelines. But it can certainly be frustrating! At least you will have a clear head when the inevitable corrections appear. Such is the case in coffee – and last week was the case in gold. Some traders/investors can sit on their hands during severe market corrections. They are usually supremely confident the main trend will re-assert itself. Sometimes they are correct.

The big problem with that approach is simply this: One day the ‘correction’ will turn out to be a lot more than that and will herald the start of a major reversal. In an extreme case the market can come back to your entry – and beyond. You will be in the sad position of those believers that saw their massive gains wiped out and became bust.

That is why I believe the swing trading approach has a much better chance of success for most traders – pro and amateur. And that involves using my Split Bet Strategy along with a trailing stop. It requires vigilance and work. It is not a ‘set and forget’ approach.

Of course, cash buyers of shares can take a much more relaxed view of market gyrations than can spread betting/CFD traders who operate with significant margin (borrowed funds) where margin calls are never too far away. That is why entry/exit timings are much more critical and why I spend much of my time analysing this aspect using my Tramline methods.

Also, ditching the usual ‘trade with the trend’ advice is good up to a point. But usually when you can safely identify a good trend, that is the time it swiftly reverses and your trade is in immediate deficit. Most of us have itchy fingers seeing a market stretch further and further away from us! But it is far safer to buy dips/short bounces. That requires patience. One of the best tools I use for this is to try to identify a clear three wave pattern to the dip/bounce for these are corrective. That is one of the most useful observations Mr Elliott made a hundred years ago or so!