Stocks rally – against MSM consensus (again)

As long term readers will know, I use MSM articles and especially headlines not to glean some pearls of wisdom, but to run the thermometer over their general tone. If a large majority are bullish, I take note – and vice versa. Experience and history tell me in these circumstances, markets very often run counter to the implied direction – at least at first – as if to mock these ‘experts’.

And they have been having a field day with the unusual yield curve inversion (see previous post) that has occurred. Yes, a yield curve inversion has preceded all of the previous handful of recessions, but what about stock prices as the curve inverts?

Many pundits have jumped on this event to proclaim a severe bear market is in the immediate offing. Here is what I sent to VIP Traders Club members last Wednesday:

I use seekingalpha.com to gauge market sentiment, not for the insights.  I have spotted only one author on there that does not subscribe to the erroneous ‘news makes the market’ paradigm.
And if yesterday’s selection of article titles is anything to go by, they are all max bearish.  Here is a selection:

Examining the long-term bear case for stocks
The next bear market will be the last one
Stock market outlook: Buckle up!
Make a plan for a bear market

Not a single bullish one, which is highly unusual. :In addition, the Telegraph is now launching a finance ‘newsletter’ and the first issue was very heavy on the gloom and doom, as to be expected from AEP.  And they are now carrying a ‘global recession watch’.  Appears the MSM have a recession fixation – and that is not bearish for stocks in the near term.

My advice to members was to expect an immediate contrary rally phase – and that is exactly what we got. The Dow rallied from Wednesday’s low at 25,400 to Friday’s close at 25,950 – an advance of 550 pips in two days.

So just from a simple scan of headlines on seekingalpha.com, I was able to accurately forecast a decent rally by fading (trading against) the consensus. And that is contrarian swing trading in a nutshell.

Is Sterling really dancing to the Brexit piper?

If you follow the MSM on the financial impact of the various permutations of Brexit on the pound, you will likely conclude that all currency traders are scanning the 24-hour news feed on British politics. Every time a politician utters something about Brexit, they react with their algos primed for ‘bullish’ or ‘bearish’ news.

Of course, that is probably partly true. I am quite sure that machine-learning computers can parse news items and send buy or sell orders to the market in fractions of a second. But not all will act in the same way! Some will be fading (acting against) the consensus and effectively scalping (taking a small profit). There are many kinds of actors in the currency markets.

So if Brexit is the overriding concern of the market, you might expect huge swings up and down in rapid succession as the ‘will they/won’t they’ scenarios play out. Let’s see if that occurred – here is the daily chart

Yes, we have seen some volatility in recent weeks, but not at an unusual level. Daily ranges have not been extreme. So the evidence suggests Brexit has played a much smaller role than the MSM paints.

Also, contrary to consensus since the Christmas lows, sterling has been advancing (we took full advantage of that move). In fact, it reached a precise Fibonacci 50% retrace on 13 March on a strong momentum divergence. Naturally, that was my signal to take profits.

Also note the pretty decent tramlines on the three-month rally where the three recent peaks accurately touched the upper tramline, thus proving it to be a major line of resistance. And last week, sterling dipped back to the lower tramline. We shall see if it holds.

Believe it or not, Bitcoin is advancing

Yes, I have been a skeptic on the cryptos in the past – but not now! If my Elliott wave analysis is correct, it has the potential to exceed its old $20k high, That may sound preposterous to some, but with sentiment on the floor, that is what my work is telling me. I have been advising VIP Traders Club members to position long for some weeks.

I mentioned before that gold is a ‘sentiment market’ in that with little rational value attached to it, its price reflects the overall mood of traders.

But the cryptos are even greater purely sentiment markets. They have no intrinsic value. Their price depends entirely on what the buyers and sellers determine them to be. And that is what makes them great markets to analyse using my Tramline techniques.

There are no supply/demand data to confuse traders (as it does in other markets) – in fact, no stats at all. And that is what drives the perma-bears. They see it as a fad. That may be, but in the meantime, they are being proven wrong – and we are taking full advantage.

Here is the 4-hr chart showing recent action from last November when BTC was in free-fall:

In February, I sensed a Head & Shoulders reversal pattern was possibly being traced out and I drew in my first attempt at drawing a ‘neckline’. Of course, only as strong push above that blue line (when extended) would help confirm my thesis. Note the Head was set on a very strong momentum divergence and that suggested any reversal from there would be swift.

And on that thrust on 19 February, I advised VIP Traders Club members to go long at $3575). It pushed above the round-number $4,000 mark last week..

After that push up, the market came back for a final kiss (that is entirely normal) – and that was the kiss goodbye and I have a first target as marked.

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