Have you noticed anything strangely regular about the Fed’s pronouncements in recent months? On Friday at the annual Jackson Hole (virtual) conference, Mr Powell the Chairman gave yet another ‘dovish’ assessment of the state of the economy that was a cut and past job of his previous assessments with the added kicker that they may look at ‘tapering’ their bond purchases in December (or may not). Treasuries hardly moved. Yawn.
Naturally, the stock market took that as a green light to keep their fingers on the Buy buttons. But more interestingly, Treasuries did not sell off with the possible retreat of the buyer of first resort looming. And even more interesting was the pretty violent reaction of Gold (and Silver) – up. So is the market buying the Fed’s line that inflation is ‘temporary’? Seems not if we believe the story that Gold always goes up as inflation expectations ramp up.
And the dollar took a big hit on the back of those comments. But the stand-out performer last week was Natural Gas as Hurricane Ida threatened to do major damage to the rigs in the Gulf of Mexico. Crude oil also gained on the news.
So all in all, VIP Traders Club members, who are well positioned to take advantage of these moves, had a pretty good day (and week). Last year, I was able to identify a curious cyclic phenomenon in Natural Gas. For the past sixteen years, there have been major tops after spike surges in December every four years (except in 2014 when it arrived two months later). Just check out this amazing chart:
Of course today cycle theory is a highly neglected branch of technical analysis, but that is precisely why I believe cycles are more relevant than ever. It is when everyone is following the same ‘method’ that is when it tends to go awry. Also, the last three major lows have also occurred on four-year intervals. The last one was in April last year and shortly after, that is when I started getting interested in trading it.
So, if this four-year cycle for the tops is still working (not a given), I am expecting the next major high roughly in December next year. That is 15 months away. Already, the market has rallied strongly and is testing the previous high at the 45 – 48 region.
Some time ago, I gave VIP Traders Club members this chart as my roadmap.
For the past ten years, the fuel has been in near over-supply and prices have stayed on or near the floor. In the US it has been considered almost a buy-product of crude production. But glance over in the 2000 – 2008 period and you can see prices were substantially higher then reaching 135 and 160 on two of the major rallies. Is it possible events will conspire now to force prices back to these levels in this cycle?
Whatever damage Ida will cause, it surely will be a problem that will likely be fixed in time. But the political machinations around Russian gas pipeline Nord Stream do not seem to be in a kiss and make up mode. The uncertainty over immediate supplies has ballooned with Ida on the scene. No doubt we shall learn more this week.
But crude oil may not immediately match the upward progress of Nat Gas because the latter contract is solidly tied to US production while the Crude oil contract is heavily influenced by global producers who have not been hit by hurricanes and can step in to make up the US losses.
Yes, anyone can trade Natural Gas – it is just another market on your spread bet platform. I like the fact that is has become one of the ‘evil’ fossil fuels and that fact alone has very likely assured its price will continue to rise. But you need expert chart reading skills to avoid the many traps that lurk in all markets. So why not take a two-week Free Trial to my VIP Traders Club here and see for yourself how our members negotiate the dangerous rapids on my advice.
We also trade Gold and many other commodities which are currently running very hot. And I recently changed my stance on the US Dollar – see for yourself how that has impacted our trading gains.
With a generally strong stock market, we are trading selected shares for my Pro Shares service. Take a generous three-week Free Trial here,
A few days ago, I changed my stance on the dollar – from bullish to bearish. Most of us trade the euro cross when we trade the dollar and here is the very interesting long term chart
The decline off the 2008 wave 1 high at 1.60 is a series of down-sloping highly overlapping waves until it reached the wave 2 low at 1.03 in 2017. Since then, the euro has been in a rally phase and especially since the small wave 2 low at 1.07 made in March 2020. The key features is the lower tramline that has a lovely PPP and three highly accurate touch points. That makes it a highly reliable line of support.
The parallel line above it taken from the big wave 1 high passes through the recent highs. This line is in a serious resistance zone. Thus, any push past it would likely be hugely bullish the euro (and bearish the dollar).
If this is correct, a weakening dollar would be hugely inflationary for US consumer prices – and get the Fed to think again (or not). Of course, the Fed is not really independent and is part of the political apparatus of government. The concept of GDP is likewise subject to political influence. But what is a constant is the state of the market. That does represent the ‘true’ value at any time of a market, especially the currencies.
Yes, there is considerable political pressure on them but it is the individual traders and institutions that trade off their own assessment of conditions. Occasionally, governments do enter the market especially when they judge the value of their currency to be ‘overvalued’. If the euro does follow my roadmap, we shall likely see the ECB do just that.
But for me, the key fact is that the price charts follow the general rules of my Tramline method with good tramlines (see above), good EW labels (see above) and great Fibs esp in the short and medium term. Other than that, everything else is peripheral.
And that goes to show that it really doesn’t matter too much what the chart is called so long as it trades more or less freely (unlike Eurobonds!). Cover your chart’s name and show it to a fellow trader and ask him/her to guess the market. Unless they are familiar with it, it is an impossible task. That is why many traders could improve their performance by trading more markets away from the familiar.