You know you are in a third wave in the Dow when ‘unexpected’ bad economic news heralds an upward surge. That’s what happened yesterday with the non-farm payrolls coming in way under expectations. Of course, traders took that as sealing the deal with the Fed now certain to slash interest rates this year – and boost shares!
The incentive is getting better for company buy-backs and that is what the market is banking on.
Once again in this crazy market, bad news is good. But interestingly, most Wall Street types came nowhere near forecasting this low a jobs number – and that means they were solidly bearish the index beforehand. And that is why it rallied on short covering following the release.
And that confirms my recent change of near-term stance to bullish stocks – which I relayed to VIP Traders Club members earlier this week.
If you wish to have my surprising price forecasts for the Dow over the next two years, take my two-week Free Trial to the VIP Traders Club). I have been extremely accurate since the January 2018 high in anticipating the huge gyrations up and down.
Last time, I covered the great things Mt Trump (aka Tariff Man) was doing for my VIP Traders Club members who were holding short stock index positions. May was a terrific month for us. But with the sharp reversal starting right on June 1, the market has recovered a Fibonacci 76% of May’s decline.
The swing in May was over 2,000 Dow points and so far the first week of June has seen a recovery of 1,600 points. And that is why I focus on swing trading, rather than long-term position holding.
And Tariff Man seems to be producing the goods with an agreement overnight with Mexico to limit illegal immigration and the threat of tariffs is now removed. As I said last time, he is a businessman, not a politician. And he is forcing his trade adversaries to become more like business-like. He gets things done.
And because of the the widespread dislike of him by the MSM and other so-called ‘liberals’ (a classic misnomer), he stands a good chance of being seen by history as one of the greatest US Presidents. How’s that for a contrary view? You won’t see that in the Guardian or NY Times!
STOP PRESS Apple stops falling!
One of the highlights of the week for VIP Pro Shares members was my perfectly-timed call for the low in Apple – and the rally off it. Last week, I had a downside target at the $170 level and forecast a good bounce up from there.
This is a video I produced last weekend that called for that low and a rally to the $190 – $195 area. And yesterday, Apple shares made it to $192. Bulls-eye!
This is how I saw it last weekend in the chart I posted then:
The key was the hit on the Fibonacci 62% retrace on a strong momentum divergence and when I get such a strong divergence, it usually signifies a sharp reversal – and that is exactly what occurred last week. My initial target zone has been reached in just a week! Nice going.
And last week’s bull move was totally against the ‘news’ which has been uniformly bearish. Not only is sentiment weak against the new Apple products, but now the US regulators are taking on the FAANG Gang with the idea of breaking them up. Add in the US/China tariff spat and you have what seems like the perfect storm against Apple.
And that is the perfect backdrop to the current surge – and is a textbook example in how to trade as a true contrarian using precision timing.
So when someone asks me why I am so contrary, I tell them that’s where the money is. Of course, I am channeling the prolific 1920s/1930s bank robber Willie Sutton who when asked why he robbed banks, uttered that famous reply.
His attitude has spawned a famous law – Sutton’s Law – that states when diagnosing a medical condition, you should first consider the obvious. That applies to analysing financial markets, too.
Will US Treasury rates eventually match the EZ and go negative?
So with the above discussion of the Fed (who follows the market, not lead it), what is the market saying?
The 3-mo T-Bill rate is certainly falling and we could get a rate cut as early as July. So with rates on their way down, talk is emerging that they may go negative at some point. And if so, how will asset prices react?
Last time, I pointed to the deflationary signal that lower rates are sending. Yet stocks are surging! Just as it takes time for markets to face a new reality, I believe they will top out when a certain low point in rates is reached as a kind of delayed reaction. But for now, the music is still playing.
With the freakish negative yields available in the EZ, banks are actually paying borrowers to get loans off their hands. Yes, a Danish bank is paying mortgage borrowers 0.12% to take one of their mortgages! That is because it costs them 0.5% to park their funds with the ECB, so they avoid most of that charge by getting rid of the funds as quickly as possible. Crazy, isn’t it?
And recently, the Swiss authorities asked taxpayers to delay paying their taxes until the last moment so as to avoid paying the central bank to stash their funds!
So in Denmark, the incentive is to buy the most expensive house you can find (and pay way over asking), load it up with a mortgage and live off the 0.12% payment of a very large number. What a wheeze!
Of course, the monthly payments will still be large, albeit reduced by the 0.12% so no free lunch there.
Of course, T-Bonds are still in rally mode with this backdrop – and in stark contradiction to the received wisdom that when stocks go up, bonds go down. Sometimes they do and sometimes they don’t. Here, they don’t..
Last week the ECB went full dovish and hinted rates will stay negative for longer – and may go even lower. Deflation is setting in to the EZ and the German economy is on the verge of a full recession with their auto industry in big trouble.
So has the German DAX plummeted? Of course not! It’s following the US indexes higher although nowhere near as strongly. But it may do so soon
The moment of truth has arrived – the market is kissing the major tramline resistance again. If it can push strongly above it next week, it will confirm the bullish potential, but if not, it will decline in a sharp reversal.
The dollar is set to plunge
I have been tracking the dollar’s progress in my blogs for some time and now its wave patterns point to an imminent sharp decline, as I have suspected all along. The weekly chart tells a very bearish story
First, I have a clear five down off the January 2017 high to the February 2018 low. Second, I have a complex three up to the Fibonacci 62% retrace on a strong momentum divergence and a sharp pull-back. Third, I have a pretty wedge pattern with the market now testing the lower line.
This is about as textbook a reversal scenario as I have seen, especially so since bullish sentiment had reached a near-record extreme at the recent high. If I am correct, we shall see a hard down phase in a big third wave.
And even the poorly-regarded Brexit-hindered sterling will advance – much against consensus. Latest COT data shows hedge funds increasing their short bets last week and now hold over 2:1 short/long, giving plenty of room for another short squeeze. Even retail traders are heavily net short. The scene is being set for another big leg up in GBP/USD.
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