You know how I just love the finance writers in the MSM. They see a noteworthy market move and scramble around for plausible ‘reasons’ for it. But Tuesday’s sharp collapse in FTSE – which was predicted by yours truly – drew this headline the same day: “Pound soars to six-month high after Teresa May calls a General Election but £46 billion wiped off FTSE 100 shares in worst day since Brexit vote“.
Worst day? Not for VIP Traders Club members! OK, if you were loaded down with share holdings after an historic eight year bull run into massive chart resistance with interest rates at 300 year lows, and believing the tripe the professionals in the industry tell you about ‘investing in shares for the future since money in the bank pays nothing’, then you would have suffered a bad day. but we didn’t – far from it.
Here is the FTSE chart I sent to members on Thursday 13 April
I identified the FTSE Wedge which contained the correct five waves and with the overshoot in wave 5 of 5, I reckoned the high had been made and a reversal was on. The market obligingly broke below the lower wedge line, then rallied in a classic kiss before starting to peel off down in a scalded cat bounce.
That was all the information I needed to recognise this as a textbook setup for the reversal I suspected. In my Trade Alert of 13 April, I advised members to short the FTSE around the 7310 area (we were already short from a little higher).
This was my advice last Thursday: ACTION If without a position, I advise shorting (currently 7310) using a 60 pip PS.
And with the huge £46 billion wiped off the FTSE on Tuesday’s ‘worse day’, this is how it ended up – hitting my first major target at the 7100 area
which is where a short term profit of around 200 pips could be taken. At just a modest £5 per pip, that was a tidy £1,000 profit.
But there could be more downside to come. Usually, when a rising wedge (or ending diagonal) is reversed, the market dips at least to the start of the wedge – in this case the 6800 – 6900 area.
Also, Tuesday’s decline does look very impulsive (in the same direction as the main trend), so I can apply these Elliott wave labels with a little confidence and this is my best guess
Also, the decline off the wave 2 high kiss on wedge looks like a 1,2,3 of one smaller scale. If correct, I expect a wave 4 bounce and then a downward break of the 7100 level in purple wave 3 towards the 6900 region.
But so far, the alternative A-B-C interpretation of the decline off the 5 of 5 high is in three waves. This allows the alternate view that the market will stage a rally from around here to new highs. I cannot rule that out just yet, but it has lower odds than my bearish forecast.
From a practical trading point of view, it really doesn’t matter which one turns out to be accurate. We have taken some profits on the decline to 7100 and have moved protective stops to break even on the remainder. The worst case scenario is that we walk away with the profit on the closed trade and zero loss on the remainder. That is a nice position to be in, believe me.
It allows for a non-anxious state of mind because we have planned for the worst case – and that guarantees a profit. If we simply let the trade run without taking anything off the table, any decent rally from here would induce anxiety that all those lovely profits were being taken away. And if you are an anxious type, it could cause havoc with your peace of mind – and you are then likely to make some bad decisions.
You see, trading is not so much about guessing which way the markets are going to go (although that is a very handy skill that is denied to many), it is more about using strict discipline in all of your decisions in the management of your account. The one Golden Rule is that if you have a losing trade, lose as little money as possible. That is why I recommend my 3% Rule.
To become a member of my VIP TRADERS CLUB, click here.
Barclays heads south
It is the banking and financial sector that usually leads the stock market down at the start of a recession/depression – and this time, Barclays has been trending down off the recent relief rally highs.
I was able to recommend a short position for members of my VIP PRO SHARES service last month and this is the current position:
The rally phase is nicely contained between my blue tramlines and a sell signal was generated when the market broke below the lower tramline and also broke chart support (yellow bar). Just as in the FTSE, we have three waves down so far but odds favour a similar interpretation with market currently in a third wave down. My first major target is in the 180 – 190 region.
But first, there is a gap magnet that needs to be filled around the 195 area.