Make Bitcoin Great Again!

Dear Trading Diary: There was a lot of sound and fury in US share indexes last week with large swings and that huge churning tells me that a lot of rotation out of the market by professionals and into the hands of the eager Mom ‘n Pop brigade took place. Latest data shows retail investors have become so enthusiastic about owning shares that they are pumping record amounts of funds into the market – usually right at a top (see below). But is time different? More below.

Yet another blockbuster Nvidia result did not result in another immediate melt-up and the high of $150 from a week ago still stands (except for a spike to £152.50 and a retreat).

the S&P advance/decline line is falling and creating negative divergences from the index and is now in negative territory. That means more stocks are closing lower on the day than are rising even as the index has been making new highs. It is the thinning ranks of the leaders that is keeping the balls in the air. This is potentially bearish unless the losers can catch a bid.

Also, Nvidia seems to be the main standout in the weaker semiconductor market. Here is the Philly Semiconductor Index SOX

The bounce off the August low has a clear three up corrective look and last week the index broke below support with all of the MAs rolling over. This is the third break of the 200-day MA and will it be the charm? Any further weakness will force large ‘death crosses’ in all MAs which technically-minded traders will be jumping all over. Watch this space!

Last week I had a clear H&S reversal pattern in the Dow when it touched my trendline that lauched in May – a reliable line of support/resistance. I dutifully shorted it as I had high confidence the top was in and looked forward to a declining market – albeit being bumpy.

It fell hard into Tuesday and because of my ‘bumpy’ call, I decided to take profits for Phoenix of 1,000 points. That was a good decision since the market engaged in a roaring rally and in just four days the index has pushed up to within 150 pts of the November 11 ATH. This is putting my bearish call in severe jeopardy.

To recap the action – on 11 November the index was moving higher and made a precise hit on my trendline of resistance dating back to May and then put in a clear Head and Shoulders reversal. That followed the multiple wave 5 terminations. It then fell hard into the Tuesday low in what looked like a clear five impulsive waves (but may be a three). Since then it has been rallying in what looks like a small scale five up.

I see two main options now. If the Dow can push up further this week into new ATHs, the target will be a kiss on my trendline around the 45,000 area. But if it reverses on Monday and moves loer into the week, the message of the H&S will be confirmed. Thus I have a clear set of criteria for my trading stance. And note that the bounce in the Nasdaq is much weaker. Hmm.

The bottom line: The indexes are at a highly critical juncture. On November 7 I had an alternate very bullish option for the Nasdaq (that would also apply to the Dow and S&P with differing wave labels);

That option called for a strong rally phase in a wave 3 of 5. So far, nothing has happened to nix this option, despite there being no net change to the index level since then and with last week’s plunge and recovery. Applying that option to the Dow and the Russell 2000 I can see that the MAGA Trump appointments are boosting confidence in the US economy making last week’s sharp Dow (and Russell 2000) rally a reflection of that.

With the promised MAGA tax breaks and import tariffs, it is the small caps that will benefit the greatest with the Russell 2000 the favoured index. It is knocking on the door of making new ATHs above the old October 2021 high. It has been the stark laggard of all the major US indexes and it may well be time for it to excel.

But always in the back of my mind is the message that when everyone believes something is obvious, it is obviously wrong.

The other major influence in investor sentiment is BTC that came within ticks of the $100k round number target yesterday following the sharp rallies of the past two weeks. We could see profit-taking here next week if it does not push strongly higher – and also impact the stock indexes. They are very closely linked.

Not only that but huge amounts of money are pouring into crypto-based ETFs as well as single-stock leveraged ETFs:

This sums up my dilemma: If this time is really different, we are off to the moon in a strong MAGA wave 3 of 5 and the Mom ‘n Pops are wholly justified in filling their boots. Hedge funds (and Buffett) have been sellers so will they start buying heavily again once they catch the MAGA mood?

But if history is a reliable guide, the extreme exuberance (see the banana man below) will ensure reversals sooner rather than later. Confusion still reigns.

I had a short term trade in the Dow last week and I am adhering to that very same policy for the foreseeable. But that may change in a flash, of course. Staying nimble is the order of the day.

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Update on my Gold campaign: The wave 4 correction ended on 14 November at $2,540. I had taken profits on my bull campaign near the highs and was waiting for a suitable re-entry. That plunge gave me one and I came in at $2,566 for the VIP Traders Club. And the recovery has been nothing short of explosive! In the six days since the low, the market has closed well up on every single day with Friday’s $40 advance the largest. No chance for any dip-buying there yet.

I am still looking for the wave 3 of 5 top and if new highs are put in soon, that top will be delayed. But the very sharp recover of last week is telling me there are big buyers buying the dips (central banks?) who will not be selling anytime soon. Get ready for more upside action.

Silver lagged gold’s advance last week as the strong dollar kept a lid on it (but that did not deter gold as the gold/silver ratio expanded even further). But I expect a dollar reversal soon which will boost silver making it an excellent candidate for my Buy Low Sell High list.

With gold’s sharp advance and also the dollar’s sharp advance last week, traditional pundits who were taught in their Investing 101 classes that gold moves contra the dollar, they have probably lost all their hair and have torn up all their textbooks and demanding a refund from their college. Of course, gold owners in other currencies are in very happy mood with the euro losing 7% against the dollar in the last two weeks and iIn euro terms gold has appreciated by almost 20%. Nice work!

This massive gold/dollar discrepancy is telling me one thing loud and clear: the old rules of economics and investing/speculating are being upturned. And have been for a while. The arrival of Trumponomics has just kicked that up a few gears.

Update on my dollar campaign: Or rather non-campaign as I have been sitting out on fx trades since mis-judging a euro low last time.

On Friday it sank to the 1.0335 low just below the Fib 50% off the September 2022 low of 0.96. Many pundits are calling for parity again but my wave labels say this is unlikely- at least in the short term. I am looking for signs of a reversal soon.

Update on my Crude Oil campaign: Since 1 September US Crude has been testing the major long term support area around $66 and with last week’s advance, I see that support as holding and that it will lead to a renewed bull phase.

This resilience is in the face of what most pundits see as very bearish demand outlook scenarios. Oil demand will decline as Net Zero ‘renewables’ take over, or so they say. And Trump will ensure the drillers will Pump, Baby, Pump. But what a perfect time to be a contrarian!

Some thoughts: I see that despite Trump not having on stage quite the same sex appeal as Taylor Swift, he now has just overtaken her followers on X at over 94 million. That’s show biz! Yes, politics has always had a strong entertainment element, but none more so than today. Don’t they say politics is show business for ugly people? And just in time for a heap more drama – and comedy.

Investor Mania Watch: Last week I posted the chart of DOGE the ‘joke’ crypto coin that showed the Trumpquake surge. So can investor/speculator enthusiasm get any wilder? Maybe it already has with the latest art market eye-opener. The art market has always been a playground for the rich with extremes of emotion on display. And major art auctions are pure theatre.

A Chinese crypto ‘entrepreneur’ has just paid $6.2 million (plus auction fees) for – not a Rembrandt or Picasso – but a banana! Yes, a banana – but it does come with special duct tape. He says he will eat it in the coming days for what must be the most expensive fruit snack in history. He claims it will be a ‘unique artistic experience’. I’ll say! He must be bananas. But in keeping with the Grand Canyon divide between the haves and the have-nots.

The larger point is that a very wealthy crypto guy has shelled out a few millions for something he is about to destroy. What does that tell us about the inherent value of today’s dollars (and all other fiat currencies)?

Here is a fun thing to do with your friends. Ask them to explain what is it you actually buy when you buy a crypto such as Bitcoin? And watch them splutter. Of course the real answer is you buy a few lines of computer code that theoretically cannot be hacked. So where are your lines of code stored? Under your mattress? In the bank? I doubt if anyone knows the location of the server storing your coins.

But does it matter? Not yet – but it will. The fact is your crypto coins are not under your control. One day that will become important. I believe the surging real money gold market is the age-old message it has always conveyed.

Of course, the current waves of accumulation of the best tangible hard asset there is – gold – should be telling us something important about what changes lie ahead in finance. Of course, a rising gold market usually heralds an inflation expectations surge, and/or a recession/depression, and/or war drums beating louder. Or even something out of left field so far under the radar.

We do live in interesting times.