So, are we really there yet? It sure looks that way!

Dear Trading Diary – I asked that question as the heading of last week’s blog. Today, I am much more confident I had nailed The Tops. Of course, I could not have huge confidence I had located the top of the greatest bull market in history last week. Who could? But the initial signs were there even when Bitcoin was leading the charge in risk-on optimism to new ATHs above $100k. I knew most risk markets were in the late stages of their terminal fifth waves of all degrees of scale, so all I had to do was keep raising the trailing stop on my long Nasdaq trade and let the market decide when it wanted to reverse. That is the professional way. The amateur way was to make a random guess. or even add more longs to ‘trade with the trend’.

To everything there is a season – a season to trade with the trend and a season to fade it.

And on Wednesday with the Fed announcing its ‘bullish’ 25 bps rate cut, US shares tanked with the Dow adding another 1,000 points to its record nine-day losing streak making the loss off its 8 December ATH a stunning 3,500 points. Phew! As I pointed out last time, all the while the Dow was sliding the frenzied AI-lead Nasdaq was making new highs but on weaker internals such as the advance/decline ratio.

Of course, this discrepancy couldn’t continue for ever and at some point they would have to align – and align they did with the Nasdaq finally capitulating post-Fed. In fact, my late-stage long Nasdaq trade for VIP Traders Club garnered a cool 1,410 points and for spread betters at £10 per point that is a Christmas present of £14,100.

It is true that the quickest swing trading profits are usually made at the end of a manic move. But you have to exit at the right time and take the money and run!

In my Thursday morning Trade Alert for VIP Traders Club, I went out on (another) limb and called The Top with increasing confidence. All of the fifth waves up from the 1932 low and subsequent lows have completed. And just when bullish frenzy appears to be topping. Markets are now set for multi-year bear declines.

What bullish frenzy, I hear you cry? We all know our economies and societies are deeply fragmented and in a holy mess (as the MSM keeps reminding us anecdotally ). But I have a theory: when immediate impressions appear chaotic and things are heading for the dumps, investors/gamblers/speculators who have missed out on the Nvidia/Tesla/Bitcoin ‘easy-money’ bubbles finally take courage and pile in to these vehicles hoping they will double/treble/quintuple next year. It is always the least sophisticated and desperate who buy at tops/sell at bottoms.

This chart is one of the sentiment measures I posted in October:

Since then both red and black lines have moved even higher – until this week. Note that the Euphoriameter has even broken above that at the Dotcom frenzy in the late 1990s! And that was crazy enough.

The bullish frenzy aspect is also reflected in some of the internal market measures and one of these is the record low level of cash held in money managers’ accounts. They are all-in – and margined to the hilt. This group above all herd around one viewpoint for to do otherwise is to jeopardise their careers. They move en masse and the AI phenomenon is today’s prime focus.

Their bullish forecasts are merely justifications for their actions. Talking their book.

Money managers need to beat a certain yardstick – usually the S&P 500 – to ensure they have a job next year. And sitting on cash will not cut it especially when shares such a Nvidia have been beating the S&P for months on end. No matter what they believe the shares are worth or whether they believe it is heading for a sharp decline, they have to hold it (and sometimes hold their noses at the same time).

That is how bubbles are blown – and how they burst. There is always maximum optimism for further gains at tops and the opposite at bottoms.

Bitcoin has been one of my main litmus tests for the degree of bullish euphoria and I believe it is at or very near a major reversal. Here is the chart I posted to VIP Traders Club members Friday:

The impulse off the January 2023 low at around $18k is in a clear five impulsive waves with all the right ‘looks’. At the recent $106k it has gained an astonishing 500% in two years – and all for a few lines of code and promises that Trump will open a Bitcoin account for the Federal government. Odds are now high BTC and shares have both reversed in synch and both will fall very hard next year.

One other measure of frenzied optimism has been the High Yield (Junk Bonds) spread with Treasuries. Remember, junk bonds are issued by companies too weak to be able to borrow at prime or even sub-prime rates. They must go directly to the market and by-pass banks and take their chances with investors. They are called ‘junk’ for a reason. Treasuries are considered the very safest of all the bonds.

At periods of high investor optimism, junk bond yields command only a small premium to Treasuries as they are considered at low risk of default. That has been the condition in recent months.

When risk-off sentiment starts rising as now, the yield spread starts widening – and that is starting to happen now.

Again, I have a clear five wave impulse that looks complete. Also the market has just broken below the 50-day MA for the first time since April – another bearish sign.

And now we have a clear small five down off ATHs in the US indexes – here is the Nasdaq

Friday’s action was interesting – and extremely volatile from a down opening (to wave 5 of 1 low) to a stunning rally (all or part of wave 2 correction). This move was likely inspired by the December mega options expiration that was the biggest ever involving trillions of dollars. Next week I expect wave 2 to complete and a powerful wave 3 down to kick off where I want to be maximum short. Only a push into new ATHs would send me back to the drawing board.

But with the number of new 12-month lows in the Nasdaq sharply rising off a very low base, any further increase would put even more pressure on the index.

Odds are now high the major trend in US stock indexes has changed to down.

This is the time of the year for reversals! Many historic reversals have occurred at around year-end. It is as if the trading gods have just received their new calendar for Christmas! I have been tracking the dollar’s stunning rise and my Elliott wave pattern tells me the almighty dollar will very likely reverse around now leading to a massive collapse into next year. I am preparing VIP Traders Club members for this since I expect to begin a lengthy campaign into 2025.

This is my chart of EUR/USD I posted in November

I had been waiting for wave 5 of ‘c’ to complete and then I could begin operations with confidence by buying the euro. Since then the market has pushed lower to Wednesday’s low of 1.0340 and has drifted up a tad to Friday’s close. That may be the turning point but I need to see a little more action before entering.

If an investor/trader trades options on the dollar this is excellent time to enter.

So why am I defying the Trump MAGA siren call that calls for a stronger dollar into 2025? For one thing, DSI dollar bulls number over 90% and is near an extreme. For another, every pundit I read is bullish giving their plausible reasons such as a reduction in Fed borrowing from the Trump Tariff Terror. Many are calling for euro parity with the dollar.

But market Treasury yields are surging at the same time as short term T-Bill rates are in steep decline. That’s odd! But why? Surging long term rates usually signal higher inflation expectations. The fact is, we have seen an historic yield inversions (short term rates higher than long term) for many months and now the inversion is in rapid de-inversion – and this is a very reliable indicator of a recession down the road. That is what I expect for 2025 with the UK not too far behind.

I view this a major opportunity to ride a dollar collapse in 2025.

A Canary in the Bond Mine: Worries over commercial real estate (CRE) have died down of late but I believe they will re-surface next year with a vengeance. US interest rates just will not lie down will they? The Fed is once again caught between a rock and a hard place. For many CRE projects, a crunch time approaches as their rental income will be insufficient to cover the bond payments with rates advancing (see last week’s blog showing my T-Bond yield outlook). And many huge bonds must be rolled over next year – at much higher rates than prevailed in the pandemic.

I am avoiding REI and all investments in real estate.

I see this danger as one of the major powder-kegs that has the potential to blow up the US (and global) economy.

Of course, when CRE loan distress becomes front page news, the Fed will be forced to act to re-introduce QE to rescue the (smaller) banks heavy with CRE loans on their books. And that will simply reinforce dollar weakness. I am taking my seat early to this coming extravaganza with fireworks galore.

My outlook for 2025: I will honour the custom of making predictions for the year ahead that most pundits follow. I do not believe there is any value in stating a target number for any market as some do. Here are my projections:

Stocks – hard down

Bonds – hard down (yields up)

Dollar – hard down

Gold – wishy-washy then hard up

Bitcoin and other cryptos – down

Crude – no opinion (yet). NatGas – trending up

But as ever, I will trade the markets as a swing trader and if any swing turns out to be lengthy, I will become a position man! If I can capture just a few of the latter, that will make 2025 a landmark year. I wish you good luck in your trading!