On balance, I believe there is one more new high for the Dow for the current move. One reason is the increase in alarmist articles on zerohedge.com. Yes, I know they are in the business of scaring the daylights out of their readers – as is the age-old mission of the MSM and the BBC. It is a well-known fact that the Accident on the Motorway Syndrome attracts a lot more attention than do ‘good news’ stories
Here is just one I spotted yesterday – Paul Singer Warns a 40% market Crash Is Coming. Singer is a Goldman Sachs ‘strategist’, whatever that means.
We all know why stocks could crash – from the ending of the business cycle to the ‘dangerous’ debt levels everywhere to the US/China trade disputes to increasing global tensions – blah, blah, blah. But if traders/investors were really scared of any of these and acted accordingly, stocks would be a lot lower. But they are not.
So I must ask: Why not?
Loyal readers know the answer to this dilemma: Outside events, such as wars, the economy, debt levels, interest rates and so on DO NOT IMPACT STOCK PRICES (except sometimes very briefly). Newer readers of mine will be shocked at that statement. After all, every article you read in the financial press and every learned book assumes they have an over-riding bearing on markets.
But a cursory glance at long term Dow charts will show the truth of my statement. I challenge anyone to point to where major events have occurred. So what does make markets move they way they do (often contrary to logic)?
I believe there is plenty of evidence to show that INTERNAL FORCES in each market is the driving force and these forces are patterned according to the Elliott Wave model that says the major waves consist of three waves up and two waves down in a five-wave move. At the highs, bullish sentiment is high and at the lows, bearish sentiment is high. External forces have little or no effect.
This means that everything we have learned from standard economic theories is wrong. Financial markets do not behave as do economic markets. In the latter, higher prices for a good (such as bread) leads to less demand (Econ 101 chart). In the former, higher prices often lead to higher demand as investors chase momentum.
So, if stocks are not crashing today, despite’ logic’ saying they should, it is because the current wave pattern has not yet completed. That’s it.
But we may be close! In December, I pointed to the Solstice Effect whereby the Dow tended to make trend changes at or near the Summer and Winter Soltices. Sometimes, the accuracy is stunning (as it was last December). Here is an S&P chart of the previous ten or so Solstices I sent to VIP Traders Club members
We are just coming off the latest Solstice and if the market is making a turn soon, it will obviously be a turn down, not up. The Christmas hit was highly accurate as the turn was made during the week of the Winter Solstice.
And if it does turn down soon, it will have completed a nice five up from the 3 June low (and a large three up from the Christmas low) – just what Dr Elliott ordered! And that would lay the ground for a massive swoon down.
There is little doubt that the speculative juices are still running white hot. IPOs are still fetching mad valuations – and over 80% of them are loss-making. Bond yields are plunging deeper into negative territory and recession signals abound with yield inversions re-emerging.
Last week I spotted a new Austria bond with a 100-year duration paying a paltry 1.2% coupon. Previously, a 100-year bond would have been unthinkable, but durations have been ramping up recently. I am wondering if we will ever see a 500-year issued. Of course, over the next 100 years, you can bet your boots inflation will crash, then rocket and then crash again in multiple cycles. That’s what it has done in the last 100 years.
And when inflation does advance, as it will, these bonds will trade closer to 50 cents on the euro. Ouch!
There is much talk about Western economies becoming ‘Japanified’ with low or negative inflation (and mostly deflation) and little or no GDP growth. Interest rate trends are certainly pointing this way. The Japan central bank has bent every sinew trying to lure consumers into buying more stuff, but with their population rapidly ageing, they are pushing on a string.
Crucially, the central bank has been buying not just bonds but Japanese equities such that they hold about 80% of all ETFs! With this example, will the Fed, the ECB or even the BoE become major equity buyers soon?
If so, expect share indexes to continue their push up (but with one scare first). More on this later.
Bitcoin is not a ‘Widows and Orphans’ market!
After the stunning advance during most of this month, Bitcoin hit a major target of mine and fell back down to earth with a thump on Thursday. But the chart displays a stunning textbook example of how markets trade around price gaps. This is the chart I sent to VIP Traders Club members yesterday morning
The high was made at 6 pm Wednesday at the $14k area, which is the Fibonacci 62% retrace of the entire bull run. That was a place I flagged was a likely spot for a pause – and so it transpired. The Fib 62% resistance level was doing its thing.
But note the three wave decline (in wave 4) right to the edge of the gap, which is a typical target for such a correction! It appears the market could not close the gap and so it remains a ‘Breakaway Gap‘ , which was the designation I gave it last weekend when it opened up.
And yesterday morning, it started to bounce away from that level. And if my Elliott wave labels are correct, we are starting wave 5 up that should reach new highs eventually.
Recapping the violent action on Thursday, the daily range was a stupendous $3,000 (or 22% in one day). Not one for traders of a nervous disposition. However, members are holding from under $4,000 and are prepared for such events.
There is much hubbub surrounding last week’s news that Facebook is moving ahead with its own crypto currency, Libra. Some are saying it will help Bitcoin because it widens the scope for all cryptos. And others are saying it will destroy all other cryptos to make them redundant. You pays yer money and you takes yer chances! Personally, I will stay with what the charts are telling me.
Bank shares in strong bear market
I have been bearish on traditional bank shares for a long time – to the benefit of PRO SHARES members (we have been short Lloyds and Barclays for months). In a world of low and negative interest rates, it’s tough for them to make decent profits on loans and bonds – and they do not have their propriety trading desks now to boost profits as they did pre-Credit Crunch. . So the only way they can keep solvent is to reduce costs – and that is what many are doing.
One of the most bloated is Deutsche Bank and yesterday it was reported it would be shedding 20,000 positions in addition to previous reductions in the workforce.
I have been following the price pattern of DB shares for some time as it has declined from the January 2017 high of 20 euros to the recent low at 5.80. Ouch! But a few days ago, I spotted a likely opportunity – to trade long against the trend and sentiment.
Of course, it takes skill and nerve to do this successfully. Most pundits advise to never ‘guess’ to pick tops and bottoms. I agree! Unless you have a solid trading method, that is (and nerves of steel).
This is the long term chart I sent to PRO SHARES members about a week ago:
Off the 2010 high, the waves have traced out a textbook wedge/ending diagonal. The constraining blue lines possess highly accurate touch points making the wedge a genuine predictive pattern. And the lines converge very rapidly indicating a very sharp reversal ahead when the market breaks clear.
To add the icing on the cake, there are five clear waves within with the final fifth wave sporting a massive momentum divergence. And there is a hefty short interest. My ducks are lining up beautifully!
To get my timing right, I went to the hourly chart
I have drawn the minor pink trendlines giving a mini wedge at the low. But crucially, a few hours earlier, the market had pushed up above the upper pink trendline, and then came back for a traditional kiss. It was then that I expected a Scalded Cat Bounce (see my text pp 83 – 84, 143)up with high confidence.
I then pounced and advised PRO SHARES members to buy at 6.08 with a close stop. The closeness of the stop enabled a larger than normal trade to be placed, which is one of the many advantages of my precise timing approach.
And last week, the Scalded Cat Bounce appeared with the shares closing sharply higher yesterday at 6.80.
With the many shorts wondering if they should take profits, I expect dips to be well contained.
If this is the kind of precision trading that appeals, take a generous three week FREE TRIAL to my PRO SHARES service.
Natural Gas is poised for big move
This market has treated us at the VIP TRADERS CLUB very well – especially last year when it rocketed to the 4.86 high (we were long). But since then, oversupply has forced the price down to a recent low at 2.15 and the mood is very bearish.
But as is well said, the cure for low prices is low prices. This is when producers have little incentive to extract more gas than is necessary for themselves. And make no mistake, the current fashion to ‘de-carbonise’ economies is pure fantasy, especially when gas prices are so low that energy costs from this source remains super-competitive.
Virtue-signalling governments such as the UK and Germany may be stuck with high-priced ‘alternative’ energy costs, but other nations will not be so virtuous, such as China. They will continue to be super-competitive with their low energy costs – and force the virtuous nations to cut back on their carbon targets.
In any case, here is the chart I used to pinpoint a great trade entry
The market hit my lower blue tramline and started a good bounce after the five down. I have drawn in a rather speculative pink tramline pair that may or may not work, but if we see a rapid move up to the upper blue tramline, the trend will have changed.