Nvidia surprises – going up but Dow down. Huh?

Dear Trading Diary: Last week I was stopped out of some positions at Break Even on major pullbacks and my long currency trades gained. And my uranium shares have advanced by over 875% from the 2020 lows, putting Nvidia in the shade. Guess who is getting all the headlines? .Together, my week was decent but not excellent. I prefer excellent. And this was a week where I was most grateful for using my BE Rule where I avoided big losses.

My first trading rule is very simple and matches Buffet’s: First, suffer no loss but if you have to, make it small (by using my 3% Rule). Second, ride the moves in your favour and exit when hitting a major target or exit on a trailing stop when in a correction. No emotion involved. Just rack up the gains over time.

Sounds easy, doesn’t it? All you have to do is monitor the charts and use a good system such as my Tramline methods. But most of us will be lured into reading MSM articles that seem so learned there is a constant temptation to be swayed by the arguments therein (or that reinforce your own bias). For instance, we learn that ‘the market’ is constantly adjusting the number of rate cuts expected by the Fed in light of the stream of Fed speakers on the subject interjecting between the monthly FOMC meets.

Most will be guided by these arguments. But as we all know, when everyone thinks a certain way, something else happens.

What happens when rational expectations go wrong

The sudden ‘unexpected’ two-day 1,000 pt Dow pullback right after another blockbuster set of Nvidia results had the MSM pundits all in a tizz. To meet deadlines, they had to come up with an ‘explanation’ – and of course, it was pathetic. That pullback had them totally flummoxed purely because they are stuck with the incorrect ‘pull this lever and that is the inevitable result’ paradigm of the incorrect cause-and-effect model that everyone uses (except Elliott wave adherents). Here is one that I believe is instructive – and why they get it so wrong at turning points.

“As Nvidia goes, so goes the market. That’s what we opined earlier this week, showing the reliable trend for good Nvidia earnings to raise the entire market. Yesterday, we further opined that the company’s latest great results, released after the market, would “likely have a positive knock-on effect for other risk assets.”

“So much for that. Nvidia rose 9.3% Thursday; the S&P 500 fell 0.74%. An “S&P 500 excluding Nvidia” index would have dropped 1.2%. Traders’ tendency to treat the company as the steering wheel for the entire market suddenly halted. “Quite frankly, if you told me that Nvidia would be up over 10% by midday while the S&P 500 is up only slightly, I would have thought that impossible,” said Steve Sosnick, chief strategist of Interactive Brokers, earlier in the day. “Like the mythical Titan, Nvidia is the Atlas holding up the broader market.”

“What was the problem? Ultimately, it was the bond market”

It was the bond market! Really?? Hey – the Treasury bond market had been pretty stable all week with no volatility at all. Talk about scraping the bottom of the barrel! No, it was the inevitable cyclical turn down in a fourth Elliott wave from a long and strong third wave up that I had flagged for my VIP Traders Club members who were well prepared for that little ‘surprise’, Nvidia or no Nvidia.

Note that wave 3 topped on Monday well before the Nvidia results and on a good mom div. It was already correcting in wave 4 when the Thursday results hit the market.

I now see two main options: either a reversal in wave 5 up to new ATHs or a bounce off the current Fib 38% and then a hard down. If the latter, I will need to re-label the waves.

I took small bear positions in the indexes as a test of the market options. I am prepared for a loss to take it on t he chin but if I am right and the market declines from about here, I will have my answer.

In the background, data on the US economy indicates trouble ahead with the all-important consumer flagging under the weight of huge debt with rates staying “higher for longer”. Company bankruptcies are rising, credit card and car loan delinquencies are also rising. And commercial real estate remains depressed with some notable fire sale deals in high-profile Manhattan properties.

My question is this: will a few small rate cuts that the market is expecting make any difference? Will underwater home owners (there are a lot) and CRE operators suddenly find themselves saved from looming re-possessions? After all, US home mortgage rates are still around 7% so will a drop to say 6% suddenly ignite the housing and CRE market?

There may be a saving grace for CRE though – many US employers are now ordering their WFH staff to return to the office. That may be putting a floor under some of the depressed office space values. I see that some brave investors are dipping their toes.

But many tech companies are still shedding staff as AI takes over many tasks. Hmm.

Update on my Gold campaign: I was more than half expecting a decent pullback from the very lofty heights reached on Monday at $2,450 in a long and strong wave 3. That is why I raised the PS on my long to BE and suffered zero loss on the exit. I had taken large profits on the previous leg up. Note the high in Gold occurred on the same day as the Dow high.

From the October wave 4 low, we have likely completed major wave 3 of 3 up on Monday and my question is how low will wave 4 take us? It has progressed by $100 so far but to me that looks insufficient. But for a tailwind, the dollar is declining (euro advancing). Hmm.

I took another long position near the low but will be quick to move PS on further weakness. Note the DSI bullish percentage is around the 90% level which is close to as high as it gets and a further extension of the wave 4 decline is hardly impossible. But the main trend remains solidly up.

Update on my currency campaigns: I have been long EUR/USD and GBP/USD for a few weeks both of which made new highs last week. I have a 1.10 near term target for the former and perhaps higher to follow my rather complicated roadmap. Has remained in wide trading range for over a year and when it breaks clear (in wave C up) the move should be spectacular (dollar crashing). But that is for later

Update on my NatGas campaign – See last week’s blog. Moved up to the 3 cent zone on Thursday and staged an expected pullback on Friday, That represents a 100% move up from the February 1.50 low. Excellent. I may be looking to take some profit off the table this week so stand by,

Update on my Crude Oil campaign: This was another market where the sharp pullback took me out of my long at BE for zero loss. But the decline off the 12 April 88 high reached the Fib 50% – 62% support zone by Thursday on a mom div and I re-entered Friday morning. My May 20 roadmap remains in force

Update on my Soybean campaign: Nice upside progress last week – with very little in the way of news. Stocks remain very high so does someone know something about the coming crop seasons? I remain long.

Update on my Marks and Spencer campaign: Great results has boosted the shares to new recovery highs. It is their food and even clothing offerings that are meeting favour with consumers. So is St Michael blessing the company from his retirement?

I took long positions earlier based on my chart readings at 244 with latest 297. I have an upper target around the 350 region.

Update on my Cameco campaign: Move over Nvidia – how about this 875% gain for a major player in the uranium sector??

It has been obvious for some time that nuclear was going to be an increasingly important source of ‘clean’ energy in the years ahead. Cameco is one of the granddadies of uranium and I recall the first uranium boom in the 1960s with surging shares of even minnow explorers. Sound familiar with today’s AI gold rush?

Nuclear has been in a long bear market (Fukushima accident in 2011, Chernobyl in 1986 and Three Mile Island in 1079) as scared governments shied away from it for years. Germany even closed down perfectly good reactors in their risk-averse zeal and are now paying a heavy price for that short-sited action with the highest electricity prices in Europe.

That Big Bear set up the mother of all Buy Low, Sell High setups with the shares making a low in March 2020 and now is up 875% in the strong recovery.

In the uranium sector I am holding a smaller company Denison Mines that made its low at the same time as Cameco at the $0.22 mark (a true penny share) and is now trading at $2.32 an even bigger 964% gain.

Of course, with governments re-converting to the nuclear theme, fuel prices are going through the roof and that makes the electricity prices from the new plants much higher than they would have been. The miners are scrambling to meet demand.

A few thoughts: So a national election in the UK on July 4 looms. I very much doubt if it will be an independence of any sort. It is a dead cert that taxes will rise even higher whoever ‘wins’. I am wondering if the long-standing favourable tax regime for spread betting will be eliminated with Labour. But the coming US national elections in November will have a much greater impact on the global economy and share values.

But I am seeing more politicians calling for the mad Net Zero targets to be scrapped as they see it as a vote winner now that the brick walls are rapidly approaching. If politicians do introduce tax breaks to bribe Joe Public into EVs (see last week’s blog), that will have a very negative impact on public spending figures. Rising national debt ahoy!

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