Major price targets in Dow, Dollar and Yen reached today!
I recently came across this quote from the infamous James Joyce novel Ulysses: “The movements which work revolutions in the world are born out of the dreams and visions from the peasants’ hearts. ” He was writing in the early 20th Century where there were plenty of peasants in the fields. Not too many left in the West.
This is at the heart of the populist uprising behind Brexit and Trump. Naturally, the powers-that-be are kicking back and I am also reminded of that catch-phrase from Dad’s Army: “They don’t like it up ’em!”
But this is not a political blog (there are plenty of those already) so I will follow up the copper story today because I believe it offers several very key principles for traders that can be transferred to other markets. In fact, it is an object-lesson how to use simple chart patterns and readily-available sentiment indicators to trade in a true contrarian way.
After all, who doesn’t enjoy the thrill of taking money from the privileged (20% of wins and 0% of losses – plus 2% pa management fee) hedge funds, many of whom can afford to employ the brightest people paying mega salaries and bonuses, not to mention the insider information they undoubtedly enjoy? It is my favourite indoor sport.
Last time, I detailed how I managed to find the copper bottom earlier this year and on Friday took major profits very close to top tick around the 27 cents mark.
Here is the weekly chart again
The explosive move just last week has all the hallmarks of a massive short squeeze and I wanted to confirm that prognosis by examining the COT data as soon as it was released – and that is always late on Friday after the market close. Remember, the data refers to the position as of the previous Tuesday close so it is a tad out of date.
The data is very revealing! On Tuesday close, when the market was not close to its Friday peak, hedgies had reduced their short bets (short squeeze) by almost 30% while the commercials increased their short bets by 20% (and reduce their longs by 8%).
Those are massive short term swings in sentiment – and indicated hedgies, who are primarily trend-followers – had jumped on the copper rally with eyes shut (and fingers crossed?) a few days before the huge blow-off. Note also the small specs did not believe the rally because they generally follow the fundamentals that here screamed: Sucker’s Rally!
So the hedgies were perfectly teed up to be max bullish right at Friday’s top – and have their heads handed to them. I like that.
My Split Bet Strategy is worth its weight
So how did VIP Traders Club members handle this situation? By using my Split Bet Strategy. It is very simple. We take a position in a market and if it works in our favour, all we do is exit part of the position when a significant target has been reached and keep hold of the remainder.
In our copper campaign, we went long at 20 cents and took partial profits at 27 cents for a huge seven cent profit. Now we are holding the other part which is still in profit. Meanwhile, we have raised our Protective Stop (PS) to break-even (or some may move it higher up the chart). Under a worst case scenario (unlikely), we take no loss on the remainder, leaving us with the original profit in the bank.
Imagine the psychological state of members who do this – they are feeling pretty good and unworried. But for traders who still held full positions into Friday’s swoon, the value of their positions has taken a big hit from what could have been. They would certainly feel less at peace – and may perhaps make some wrong decisions when under stress.
OK, if the market continues way past the 27 cent mark very soon, some may feel a little let down they do not hold full long positions and ‘got out too early’. But far better to be racking up the profits on part position with money safely in the bank than to be under stress if the market does turn back down.
I believe in making trading as stress-free as possible and this is one very good way to achieve that. Goodness knows, trading can be stressful enough without the worry that often comes from holding a large winning position when the market turns.
Gold takes a hit – just when pundits are aboard
Have you been receiving emails urging you to load up on gold lately because with Trump in charge, financial mayhem will result? I have – and this has set my Headline Indicator (HI) twitching. In a few days, gold has lost over $100 – here is the chart
Wave B is the Trump Spike and we are currently in wave C to the Fibonacci 50% support line (again), and on a large mom div. Will this support hold? If not, it will be the 62% level as target. Latest COT shows just before the Trump win, hedgies were still a very lop-sided 4:1 long. But with the violent action since then, there must have been major shifts in positions with many longs throwing in the towel.
But has this shake-out been enough to re-balance the market? We shall see. If this support does hold, I can see new highs above $1375 in due course.
Dow hits my 19,000 target zone today
I have had an upside target for the Dow at this level for some months and today it was hit (high so far 18,973). Nice call. But will the pattern I have been watching turn out to be a five-wave continuation (rally on) or an ending diagonal (major turn down)? I should get major clues in the next few days. And I already have one clue – with Treasury bond prices in free-fall, can stocks remain elevated? Hmm.
US Dollar Index hits my 100 target
Also this morning, another major target of mine has been hit. That is significant – and very unusual for two major targets to be reached on the same day. But of course, all major markets are inter-connected by the thread of sentiment.
USD/JPY hits my 108 target
That is the third major target hit today (see bulls eye at top).
I wish all days were like this!