The roadmap I sent to all VIP Traders Club members earlier this month is playing out with high accuracy with stocks surging. Last time, I related how I came to make a 180 degree about-face in my view from bear to bull of the US stock indexes. That was when the Dow was trading around the 25,400 region.
And now with the Dow yesterday pushing into new highs for the move to the 26,700 area, we have a tidy gain of 1,300 points. Of course, this adds to the over 700 point profit we took on the downside in May. Trading just £10 per pip translates into a gain of £20k on a spread bet since early May – a matter of less than two months. Nice.
But is there more on the upside here? Great question! Here is one possibility:
This is the updated version of the chart I showed last week. We have a slight new high put in yesterday but if my wave 3 label is correct, there is more upside. But the alternate view is that we have a complete three up where wave 1 is wave A, wave 2 is wave B and we are now at or near the end of wave C. If so, then shares are poised for a massive decline.
And this is a great example of how Elliott wave ideas are so very useful. I have offered two alternate scenarios – both of which call for rapid movements in opposite directions. I believe no other theory can offer this clear-cut choice for the road ahead.
Of course, the market will tell us pretty quickly which option it favours! If you decide to take a trade here (latest 26,720), you can enter a pretty close stop to limit any loss. If you are right, your stop will likely not be hit. And if your stop is hit, you were likely wrong. It’s ‘suck it and see’ time, as is all trading decisions.
And that brings up another important point about trading the financial markets. The tendency of relative trading novices is to believe whole-heartedly in a ‘story’ contained in an article usually found in the MSM. The author/guru may convince you that stocks are too high and must soon crash.
So you jump in to the market with your shorts (!) and naturally you get stopped out perhaps with a major loss. Two mistakes were made. The first was to be emotionally influenced by a ‘guru’ who offers strong arguments for his/her case. The second was to act with no system for judging the best timing for your trade and not to assess your maximum risk on the trade.
Your natural feeling is that the trade must work – my guru is so convincing. And he/she is probably not alone (gurus herd) in his/her view. But as the late great trader Joe Granville said: ‘When it’s obvious to most, it’s obviously wrong’.
I had a friend many years ago who believed the sugar market was too high and so he shorted on rallies (the preferred method). But when the market did not decline fast enough, he opted to exit his trade for a small gain, rather than take a loss. He did this on many occasions. In fact, the market was in a bull trend, which he fought all the way up – but still made a profit! That takes genius. But it’s not a style I recommend.
As forecast, Bitcoin is surging
I have been very bullish on cryptos – and in particular Bitcoin – since February when I took a hard look at the chart and the state of sentiment, which was pretty bearish. My first advised entry for VIP Traders Club members was at $3,575. This morning (Saturday) is is trading well over the round-number $10,000 at $10,800.
Early bird VIP Traders Club members now have a gain of over $7,000, or 200%. Just a £5 spread bet is producing a gain of £35k. And if also trading the Dow (see above), the combined profit is running at £55k.
This is the chart I sent to all VIP Traders Club members last week. I have highlighted the similarity between the first lift-off in 2017 that went vertical to the spike high at $20k and the current action.
And this morning, a huge gap has opened up and if not closed soon, I will label it a ‘runaway’ gap, which carries extremely bullish implications. Last week, my main near term target was the $11,500 area – and that is within sight as I write.
Do you recall the army of Jeremiahs in 2017 who called the first rocket a massive swindle and bubble of Biblical proportions? Of course, it was a bubble as it was driven by retail ‘investors/speculators’ with the institutions very much on the sidelines. But now they are in the game and on the field. I am not seeing the same level of skepticism in the MSM this time around.
Just last week, Facebook announced its plans for its own digital currency – Libra – and is a telling measure of how serious the big players are now taking the crypto concept. Incidentally, I approve the chosen name because it is the Ancient Roman name for a pound weight – the very same origin of our own pound sterling (a pound (16 ounces) of silver).
So why are trade and retail investors suddenly piling into cryptos now? I view Bitcoin as a store of value. not a freely-traded currency such as the dollar, as was claimed in 2017. It is digital gold (except that gold does have some industrial use). There is a strong move into ‘safe havens’. as the gold price is likewise surging – and Bitcoin has now joined the group of traditional safe havens (gold and Japanese yen). When shares really turn lower with a vengeance, these safe havens will likely flourish.
The dollar has turned
I have been patiently waiting for a major turn down in the dollar for some time and I believe I have nailed it. This is the updated chart I have shown previously
I have already labeled the Elliott waves off the January 2017 high at 104 as a move down to the February 2018 low at 88 as a five. The counter-trend rally has been extremely complex but the basic shape is a three to the textbook Fibonacci 62% retrace. Ad yesterday, the lower trendline that described the wedge/triangle was broken. That is highly significant – and portends a sharp move lower from the current 95.
And with short term US rates in sharp decline, funds are moving away from the dollar (and into the safe havens?). Here is the updated 3-mo T-Bill rate chart I showed last time:
Rates are still plunging! In fact, since the Fed meeting in March, rates have declined by 0.36% and if they keep going, they may reach a dip of 0.5% by the time of the July Fed meeting. And that would be very interesting! It would set up the likelihood of a July Fed cut of 0.5% so as to keep up with the market -a very much larger cut than the market currently expects, which is for no cut this year.
And that would be extremely bearish the dollar. Hmm.
Incidentally, is this a Golden Cross forming on the chart with the two MAs crossing over? I am quite sure technicians will be all over it next week to pronounce their bearish views. But we got in early!
Apple is bobbing!
Apple bobbing is/was a popular pastime at County Fairs in the USA/Canada. It involves placing apples in a barrel of water and trying to catch one with your teeth. Naturally, the apples always bob up to the surface – and is a suitable metaphor for the shares today!
Recall I advised PRO SHARES members to go long around the $180 area earlier this month and have bobbed up to the current $200 level
But we are now at the Fibonacci 62% retrace level and in pause mode. The gap above is acting as a magnet to the $205 – $210 area. If it makes it, I will be looking to take some action.
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