Nanny has us all trapped in a thicket of regulations

Dear Trading Diary: I had a pretty decent week with a large part profit taken in Wheat (see below), full profits taken in FTSE, and huge ongoing gains in NatGas and Gold among others. I feel my swing trading mojo is back on track and the trading gods are on my side!

A picture really does speak a thousand words as my cartoon succinctly demonstrates. Nanny has us trapped inside a thick forest of laws and prohibitions dreamed up by our ‘leaders’. After all, that’s their only job – to create new ways to limit our freedoms in order to raise taxes and charges.

And nowhere is this more apparent than in the world of finance. The UK must be the most nannied and over-regulated state on the globe and is one reason why the instinct of managers to a new idea is first make sure their ass is well covered – and then to take no risk. Risk is most definitely not encouraged making compliance with the increasingly complex rules an industry in itself.

Now, our large organisations are devoted more to protecting themselves and their employees than serving their customers. The latest Royal Mail and NHS whistleblower scandals are cases in point. But still, criminals are still able to go about their work unhindered.

But I digress…

It is getting more obvious that we have a tale of two markets – and two societies. And the twain are far from meeting, The shares of the vast majority of the top companies (eg the S&P 500) are flying as their profits expand. But at the lower end, things are not so rosy, especially in consumer-facing sectors.

A prime consumer-facing sector is luxury and I have been following the fortunes (or lack of them) of Burberry, the top UK fashion retailer. It has a big presence in the USA and China as well as the UK and its shares have collapsed as sales have fallen off with weaker demand for its famous products.

I have been shorting it since last year (Pro Shares members have been following my campaign) but it has now dropped into the long term support zone going back to 2011 – on a very strong mom div.

This is just one of many consumer-facing companies facing major headwinds, while the Big Tech corporations go on from strength to strength for now. But how much longer can this dichotomy continue? It is another face of the decline in the middle classes that I am sure will create societal turmoil in the months/years ahead. But that is a story for later perhaps when we in the UK get a Labour government.

Unless price inflation suddenly reverses into price disinflation (highly unlikely just yet) and we get major tax cuts, consumers will continue to be squeezed. But the top 1% continue to enjoy their M7 gains for now. Very reminiscent of the 1920s…..

With sentiment on the floor together with price, is this share a screaming buy for long term investors? Much will depend on its China operations. As I have alerted VIP Traders Club members, the Chinese economy appears to be improving with upticks in share indexes with the government priming the pump with stimmies. So Burberry is definitely one to watch for very brave investors.

And this suggests an interesting spread – long consumer (esp fashion)/short US Tech. The one is wildly undervalued and the latter is – well – the exact opposite. I already have the long China/short USA spread on.

And just last week, Walmart – that most American of deep value big box stores that appeal mostly to the lower-waged consumer – reported a massive earnings beat. It appears the middle classes in America are going the same discount route as their UK counterparts are to the Aldi/Lidl ‘discounters’.

Was “Roaring Kitty” a Dead Cat bounce?

The re-appearance of Roaring Kitty – the infamous hedge fund Terminator day-trader who rallied his Reddit troops three years ago to shoot an obscure loss-making US computer games retailer Gamestop to the moon (actually from near zero to $120 in a flash) – on Monday issued his first post in three years.

Despite not mentioning the company by name in his Monday post, his army put two and two together (to make five) and promptly filled their boots boosting the price from $10 to $55 by Tuesday.

The first signs are that even if this latest rally can be sustained (doubtful), the price will not get close to the old $120 high. But what it does is to highlight the manic speculative animal spirits that are driving the general market to new highs of valuation. Yes, earnings of the top shares with mammoth caps are increasing but the P/E ratio of the S&P 500 is pushing the 30 mark – a historically high valuation, given the high yield that can be obtained from the ultra-safe US Treasuries.

Another measure of the current extreme stock valuation is shown in this chart of the ratio between the the 10-yr US Treasury bond yield and the S&P dividend yield

It trades currently very close to the previous ATH around 5 in August 2000. Note the extremes are recorded at around the same time as stocks are making their extreme bull/bear runs.

The wheels keep falling off the Net Zero bandwagon

Another week and another hit to the Net Zero fantasy. They are now coming in thick and fast. Now VW has abandoned its previous all-in electric car production plan and has admitted it will need a lot of hybrids instead. It is joining other manufacturers in cutting EV electric pledges. Recall Mr Toyota reached the same conclusion months ago. Latest sales figures show a clear drop-off in EV sales projections with only the fleet buyers – with their huge corporate tax advantage bribes – propping up sales of pure electric.

Of course, the politicians cannot abandon Net Zero (yet), despite all evidence it cannot be made to work – they have too much invested and are compelled to save face otherwise their whole world falls apart. They will likely introduce a juicy tax break for Joe Public (more Net Zero bribes) to prop up EV sales as we head into national elections.

But now Biden has slapped a 100% tariff on the only EVs most folks could afford – imported Chinese motors. So much for solving the affordability issue. And the old range anxiety issue remains with little moves to add more charging stations. My Net Zero litmus test – Chargepoint Holdings Plc – shares remain on the floor. at under $2 from a $46 ATH)

As for domestic producers, they face a massive fine for not hitting mandated EV sales targets. Because of this threat, Ford has threatened to stop producing conventional vehicles altogether if EV sales do not hit government targets (that are arbitrarily derived anyway). So much for our ‘free market’.

Yes, they are certainly tying themselves up in knots with this Net Zero thing. I see the day when either electricity prices will become so high as to bankrupt low income families, or we see blackouts and brownouts, taxes and ULEZ charges will shoot even higher from all the added infrastructure spend (new gigantic pylons next door, anyone?). Next winter looks to be a cold one for many.

All this to solve a non-problem of trying to eliminate our lovely CO2 plant food that alone greens the earth. Just remind me – what is the definition of a scam?

Update on my Wheat campaign The strong uptrend continued into the week and I raised trailing stops on both positions to protect my huge gains. Because there is no really compelling fundamental bull case behind the rally (yet), I believe that when a correction does appear, the pull-back could be severe. That makes my policy of raising stops a very prudent one.

There is a time to fill yer boots and there is a time to take yourself away from the fray.

And lo and behold, we did get a correction on Wednesday and my first trailing stop was taken out for a very tidy two-month profit of 128 cents. A very modest spread bet of say £50 per point produced a realised profit of £6,400. And I have one more position working that is currently in profit. That is a supreme example of a well-executed swing trade – my specialty.

And a terrific example of stalking a market that appeared ripe for a reversal based on my Tramline methods – and then pouncing at an opportune time. The market was in a severe bear trend when it made a new low in March but my analysis showed a likely sharp turnaround possible. That was when there was a reported huge supply of the grain around the world and who in their right mind would buy Wheat expecting the price to go up? And that is where a contrarian mindset can pay off by getting in early in a new trend. I was able to set targets early on. Hallelujah!

Update on my NatGas campaign – Has been making a solid base following the wipe-out off the August 2022 high at the 10 level to the 1.60 low set in February. In the time since, I have been accumulating positions mainly on dips near to the 1.60 low expecting a solid bull run this summer.

And now the market is edging quietly upwards with latest at 2.54. I sense that almost no-one is watching this market as it has attracted few headlines nor even any articles in the financial press, As you know, this is a scenario I just love – a battered down market with little trader interest that is edging upwards off a solid base. Smart money is moving in. So what of we have a really cold La Nina winter this year? It is due to be colder than the last which was in the mild El Nino. Hmm.

Update on my Gold campaign – The ATH at $2,430 was set on 12 April and for the last five weeks the market has been in a correction. The low of this corrections is $2,280 (a mild $140 range). Until Friday morning, I was very unsure whether the correction could extend deeper to below $2,280. After all, this $140 dip is shallow compared with the $400 surge off the February low and did not ‘look right’ as a complete correction.

But on Friday when it pushed above my line in the sand $2.380, odds swung heavily towards a resumption of the uptrend after all

And I pulled the trigger to add another long position Friday morning. If my wave labels are correct, the market is in wave 3 of 3 of 3 up and fireworks are likely approaching. And few investors/traders are buying! Most MSM commentators are doubting the rally as they see not only a ‘strong’ dollar but also a ‘booming’ economy with no sign of a financial crisis or rising inflation ahead – so where is the need to buy gold protection?

Just as in Wheat, we have a strong bull market with no apparent obvious ‘reason’ for it. That is a scenario I just love. Confusion in a market is fertile ground for swing traders such as yours truly.

I believe Silver will perform in much the same way and I regret not re-entering a while ago. However, I will enjoy trading my Gold campaign. It closed the week at $2,414 and verifies my early recognition of the wave 3 of 3 pattern.

Memo to traders: One of the huge benefits of using the Elliott wave theory (EWT) is that it allows certain recognisable wave patterns to be identified early on in development with a degree of confidence. The strongest and longest wave in the book is the 3 of 3. It produces one-way traffic with only few brief and mild pull-backs. I like to say it takes no prisoners! Trading them is pure joy – if you get in early. But timing a good exit is even tougher!

My new Copper and Aluminium campaigns – I have been tracking these as they have been in bullish form for a while and on Friday I pulled the trigger. I just couldn’t stand it any longer. These major base metals seem to be poised for short squeezes and I wish to test that theory out.

Update on my currency campaigns – I am long both EUR/USD and GBP/USD and here is the cable chart

The lower trendline is a very solid line of support and the triangle strongly suggests a lot more upside. I am looking for a break of the upper triangle line to confirm.

Update on my (non) Stock Index campaigns – Yes, I have been staying away from the indexes since taking a cheeky FTSE profit last week. Why? Because consumer spending is the root of the economy (about 80%) and consumers are increasingly feeling the pinch from high costs and high taxes. Corporate earnings are highly vulnerable. But mostly because bullish sentiment remains at fever pitch with even the bears turning bullish.

Thus, it is only a matter of time before the house of cards topples over. Investors are all-in on the hope that the Fed will cut rates this year. I say: So what? With stock valuations extreme, a few small cuts would make little difference and yields may even go up again later on if inflation remains sticky.

Investors are ignoring the worsening of consumers’ finances in recent data. That is a big fatal mistake.

This is my new roadmap for the Nasdaq that I posted for VIP Traders Club members on Wednesday:

And by Friday, the market did push up to a new ATH and thus wave 3 of 5 is poised to top out at any time and start wave 4 down and then likely stage one final push to a new ATH in wave 5 before completing wave 5 of 5 which I hope will accompany a mom div to signal the end of the rally to end all rallies.

But with the Nvidia report due out on Wednesday, I am prepared for anything – including a sharp spike up (as accompanied previous blockbuster Nvidia reports). Many are calling for a $1,000+ print.

Is there anyone forecasting a sharp decline? I cannot see one – and that is potentially very bearish. I shall be watching with more than the usual degree of interest!

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