Stocks are now falling over the cliff
Please don’t say I didn’t warn you! The dominos are starting to fall with Nvidia – the AI darling du jour – down 20% off its August ATH already. And because bullish sentiment remains at a very high level, the declines are starting to enlarge. The prime motive of investors is still “What share can I buy?” (as illustrated by the huge demand for the latest AI wonder IPO ARM Holdings last week), As the market moves lower, the prime motive will morph into “What share can I sell?”. Later, that will turn into a panic.
And now the last holdout Alphabet/Google turning over.
The rally off the October Elliott wave 1 low was interminable! It certainly tested my patience. And it managed to make it to the Fib 76% at $139 on Monday, carved out a lovely Head & Shoulders reversal and on Friday closed at $130 at the start of a powerful Elliott wave 3.
And now the Dow has dropped to my lower tramline
So now we are set on course to ride the Elliott wave 3 of 3 down after the lower tramline has been broken. We may have a small counter-trend bounce into next week but if not, then the irresistible power of third waves will assert themselves.
Of course, some individual sectors will resist the downward pull of the major indexes. Leading the charge lower will be Big Tech and US small caps such as the Russell 2000.
But one of the few sectors I favour is uranium. It is slowly dawning on policy makers that the ‘renewables’ of wind and solar that they have backed the farm on are not as reliable or as cheap as they wished. I have recently pointed out the disaster investments that are Orsted (largest wind farm company) and Siemens Energy (largest turbine blade maker) and the fiasco of the latest UK offshore license auction.
That places nuclear back in the spotlight as the last chance saloon for reliable baseload generation for policy makers. Here is one of my favourites Yellow Cake plc
This UK company is in the business of buying the yellow uranium oxide from the mines and storing it hoping to sell it on to the new power stations that will likely start springing up. They will then turn the powder into fuel rods for the reactors.
Note the lovely large wedge pattern that took a year to form and now the explosive thrust out of that pattern towards my upper tramline. If I am right about the upside potential for the uranium price, we shall see much higher prices not just for this share but for the whole sector. The current uranium price is just above the $20/lb mark (and climbing). I can see a thrust up to the $60 – $80 area in due course.
Believe it or not, Coal remains King (but only in the East)
The British Industrial Revolution was powered by coal and it become known as King Coal for that very reason. It was only when petroleum was extracted on a global scale in the early 20th century that it displaced much of coal’s former dominance.
But the process was very gradual – in my estimation, at least 50 years which was when steam railway locomotives were finally put out to seed.
So today’s mad rush to ‘de-carbonise’ must be put into that context. It was the coal-powered steam engine that gradually took over from the horse (and water power) with obvious advantages. Coal was the prime mover (and then oil) of the tremendous advances in living standards we are now all enjoying.
But what is today’s obvious advantage for the switch from fossil to ‘renewables’? To save the planet? Are there obvious practical and economic advantages of wind and solar over fossil that makes the switch a no-brainer, as was the switch from horse and water to coal in days of yore? Of course not! It is all based on the false premise of a ‘global climate crisis’ caused by the ‘evil’ CO2.
As George Orwell almost wrote in his seminal work “1984”: War is Peace, Freedom is Slavery, Ignorance is Strength, and CO2 is Evil.
With society’s almost total capitulation to the Net Zero fantasy -much engineered by the constant barrage of climate hysteria propaganda primarily from the BBC and most other MSM outlets – last week we saw our first glimmer of light from a politician that is pushing back at the immense and unbearable costs of the transition from fossil to ‘renewables’ as they come into the spotlight.
And for another dose of real world reality, here is a sobering chart showing the growth of global coal consumption and the yawning gap between the West and China and India:
The combined coal use by China and India is over 5 billion tons/year – and growing. Use by USA and the EU is 0.7 Billion tons/year – and falling. Even if the USA and EU drop to zero – as is the fervent wish of our eco -warrior lords and masters – China and India use will keep growing towards 6 Billion tons/year and go even higher. And keep pumping out CO2.
That is the elephant in the room that few politicians dare mention – but that will change.
Why? Because simple economics dictate. Electricity production from coal plants is the very cheapest for China and India. Period.
And Germany, as the EU’s largest economy, keeps shooting itself in the foot with record high electricity prices (which deters industry) as they have shut down all nuclear and coal plants and rely on dodgy ‘renewables’ – and buy in imported gas. Germany is an object lesson in how not to secure energy security at low cost. They have energy insecurity at very high cost.
Not only that, but the price of coal has been shooting up as mandated Western prohibitions have hampered demand from the West. It seems to be a perfect storm for not just coal, but for crude oil (prices making new highs).
If coal had a futures market, I would be very long.
So how are US coal companies faring with the vilification of this fossil fuel at every level? Have the mines been shut down because of lack of demand and the companies forced into bankruptcy? You decide – here is the chart of Arch Resources the second largest US producer:
Mines shut down? Apparently not.
What a great investment off the 2020 low as you would have taken a highly contrarian view of the coal sector (from $22 to the current $157). Back then when the war on fossil was climaxing, you would have been well advised not to talk to your friends about your coal investment for fear of being picked up by the thought police.
One other straw in the wind (pun!) for the ‘renewables’ sector is the closing of an increasing number of ESG funds. ESG is the virtue-signalling Environmental, Social and Governance sector that swept the world. It’s basically the woke sector and they shun any investment to do with fossil fuels.
And those investments have been another disaster area. Here is a recent headline: Green Bubble Burst: US ESG Fund Closures In 2023 Surpass Total Of Previous Three Years.
The common slogan that taunts the virtuous: Go Woke, Go Broke is there for all to see.
Treasuries continue to follow my roadmap – down
The US dollar and US interest rates are the two most important markets globally. And despite the fervent wishes of investors and most MSM pundits that rates will start falling soon, both rates and bond yields are still advancing. Most hope for a ‘soft landing’ but will that wish be fulfilled – and importantly, if so, will that lead to a renewed bull market in shares?
The most commonly-accepted pathway is for rates to start falling as inflation numbers recede and thus boost shares. That is the logical path. But as we know from experience. logic holds little sway in financial markets. The vast majority of pundits believe it is the news/data that drives the markets. But in the strange weird world of financial markets, when everyone believes something is obvious it is obviously wrong.
Relationships of cause-and-effect that exist in the physical world do not necessarily apply in finance. The Fed lowers interest rates and sometimes stocks rally and sometimes they fall. Pundits always have a rationalisation of why stocks did this or did that – afterwards, of course. It can make for entertaining reading, but of little use when deciding how to invest/trade (unless you are a true contrarian).
Treasuries remain firmly in a large fifth wave down that should take the T-Bonds much lower to at least more six handles below today.
And now that stocks and bonds are 100% correlated – as they were in 2022 – much to the distress of the 60/40 crowd – I forecast a very large move lower in both ahead and much more distress to bond bulls.
And one measure of the extreme bullish sentiment today lies in the Junk Bond sector where these bonds have been pushed higher to where the spread in yields with no-risk Treasuries have narrowed to record levels. Now rates are advancing, many of these high risk bonds are vulnerable to the same forces as stocks
This chart follows the path of the US stock indexes and just as in the S&P, the recent Elliott wave 2 has now topped at the Fib 62% on a very strong mom div and is now poised for a mammoth collapse as corporate bankruptcies balloon (as they are).