How many times have I read that pathetic statement from the pundits. Of course, they mean they can’t do it, so it’s better to stay with stocks through a crash (!). That is lazy thinking. But I have made my pretty long-ish career and reputation by doing just that – getting the imminent change of direction and timing right. I am not saying that to brag (that’s not my style), but to refute the pundits. It is certainly possible to have a good batting average in this most difficult of tasks – judging when a market is about to make a major change of direction.
My style is true contrarian (unlike the vast majority who claim to be). Of course, I do not get every situation perfectly right. The ones I fail in I get out PDQ so as to minimise loss. But I get enough major turns really accurately to produce great profits overall. And all I use is my Tramline Method, as I fully outline in my book Tramline Trading.
Naturally, it really helps if I can set a target for the trade ahead of time, and for that, I usually employ Mr Fibonacci’s levels and wave relationships.
Last time, I gave a great example of how I went about hunting for a potential trade and work out a realistic target to take profits in USD/CAD.
I related how I positioned for a counter-trend rally with this chart
I had a long position working last week and my long-standing target was the 1.31 level which was the Fibonacci 62% retrace for the C wave high. I set that target way back in late February, so did it reach it this week?
Indeed it did – on Monday it reached a high of 1.3124 as it went through my target by just a few pips. I was waiting with limit sell orders. Bingo!
Here is the aftermath
Right after our exit, the market snapped down and is now in a downward correction. That’s what I call perfect timing! Yes, it can be done.
Not only in that trade, but I managed to find the top of the stock market bull run in January in the Dow. The top was put in at 26,705 on 29 January. I advised VIP Traders Club members to short at 26,600 – only 100 pips from the top. That is within 0.004% – and the market is down over 3,000 points (over 11%)on yesterday’s close. That’s what I call perfect timing!
So you see, it can be done – and when it works, the results are spectacular.
So don’t pay attention to the pathetic confessions of pundits who in reality don’t understand how markets operate.
That you, Mr Trump!
He is turning out to be a wonderful friend of the stock market bears, including us. He has fired off the first shot in the Tariff Wars that promises not to be over by Christmas. On Thursday, the Dow was off by around 1,000 points and fell hard yesterday.
But he is the first US President in a very long time who is actually following up on many of his campaign promises. How novel. So why was the stock market taken aback by this? It had been well flagged. Maybe the perma-bulls expected/hoped nothing would come of it. Fat chance.
And what an indictment on the career politicos in office who rarely do. No wonder the public no longer believe in them.
But these events last week, including the frozen-over relations with Russia is another nail in the coffin of the relentless bull market that has been building for many decades. Stock valuations are insanely high, bullish sentiment is still off the scale and complacency still reigns supreme.
The MSM’s reaction to the latest wave of selling is that everyone should calm down and stay with it. Stocks always recover, don’t they? Anyway, a mild correction is good for the health of the market and prepares the way for a move to new highs. That is the narrative. I have yet to read an article advising you panic and sell everything. I only expect to see those right at the bottom – many thousands of points lower.
As an example of the carnage, here is the FTSE on the weekly
The rally off the 2016 low is in a clear five up with a massive momentum divergence. The top was made on 17 January at the 7796 level (just shy of the round-number 7800 target!). We have made waves 1 and 2 of what will be a five down to the 6900 level – a drop of 900 points (11.5%) so far. Note that the market fell in nine weeks in the distance it took fifty-eight weeks to rise from.
So the decline so far has wiped off a year’s worth of gains. That must hurt the bulls – and sow seeds of doubt about the likelihood of reaching the highs again. Many will be asking is it worth hanging in there, as the pundits urge. This is where independence of thinking comes in! After all, the pundits will not take your losses if their advice is wrong, will they? They have no skin in the game. You do.
Social upheaval is coming as the bear market intensifies
Many have pointed out the huge wealth growth inequality between the low-paid and the asset-rich families in the USA that the Fed’s QE and ZIRP policies have engendered. Despite the zillions of funny money the Fed has printed, most of it ended up in Wall Street and into share buy-backs, boosting share values.
Here is a stunning chart that shows this dichitomy in stark detail
The bottom 80% of earners have suffered a loss of wealth, while the top 10% have gobbled up all of the spoils. But as the stock market works lower, I expect that to reverse somewhat, but the inequality will remain and as social mood darkens, we will see the re-appearance of the street protests we saw a few years back.
A large book in the face for Facebook!
I have been following the amazing run this share has been on for some time and to my mind, epitomised the bullish mania that was bound to end in tears when the bloom came off the rose. I was just waiting for a chart signal to give me a high probability/low risk short entry.
The first warning came last month with a sudden drop with the general market as investors worried about rising interest rates. But I figured that was not the right timing to get involved and expected a relief rally into March – hopefully in the form of an A-B-C three up to a Fibonacci retrace.
And I was not to be disappointed – that is precisely what transpired with a three up to a C wave high in mid-March. That little exercise in patience teed me up for a high prob/low risk short entry. And this is the result:
At yesterday’s close at the $160 area, PRO SHARES members are nicely in profit by $23 in just a few days. The shares are now back where they were in July!
We are now in a third wave down and heading for my lower tramline at $155 where we could see some support. But third waves down can be very brutal (to the bulls) and with the rapidly darkening of sentiment, I would not rule out a plunge right past it.
Incidentally, in the past few days, there have been acres of MSM coverage of the Facebook Saga. While this is all very entertaining, I only consider it a distraction from my chart reading analysis. But it has brought into sharp focus the rapidly developing negative sentiment surrounding the company. – piling pressure on the shares
I forecast that when we read opinions that question whether the company can actually survive, that should be a great time to cover some shorts. But that is some way off – and many tens of $s down.
I am still uber-bearish the banks
One of the biggest losers last week was the banking sector both in the UK and USA. With interest rates on the rise, the Trumpian tax cuts and unemployment levels low, this is surprising to those that follow the fundamentals. But one glance at the charts should explain all.
Here is Lloyds which has for a long time been heavily touted as a buy for its decent dividend yield.
The rally off the early 2016 low has been stopped right at the Fibonacci 62% level twice with the latest attempt inspired by the ‘bullish’ implications of rising rates. Note the lovely blue trendline that has held all of the lows during the rally.
But last week, the market moved below this line – a bearish signal. And if the market moves to test the next support at around 62, retail traders will surely get cold feet and wake up to the looming possibility that the dividends may not be all that safe. Remember, buying a share on the dividend makes sense if the company can keep them coming – and that is eminently uncertain even in the best of times.
PRO SHARES members are short Lloyds.
I expect a continuation of giant moves in many markets this year which will be one of the greatest opportunities to make giant profits in many yearsFTSE. To join us, get your Free Trial to my VIP Traders Club.