Stocks zoom up even higher

Stocks continue screaming higher with 200 pip daily Dow gains almost commonplace.  Even momentary small dips of 50 – 100 pips are rarities.  My question: How much longer can this last?  I confess the rallies have carried far further than I expected a year ago, but in fact the Dow has advanced by an incredible 30% in that time.

Of course, traditional analysts are still scratching their heads over this as US growth has been tepid since the 2009 crash lows, interest rates are now starting to rise with a real prospect of rates moving up faster this year.

But the key driver – as always – is social mood/sentiment. And that has been pushing nearly off the bullish scale.  Just last week, the US has agreed to leave the Iran nuclear deal/sanctions alone following a major scare that Trump wanted it nixed.  And even belligerent North Korea is being allowed to compete in the Winter Olympics in South Korea – surely a sign of a major thawing in tensions.

Yes, the world is a relatively calm place and the public are mostly bullish on the year ahead.  Consumers are positive as are businesses.  So what possibly could go wrong?

Lurking under the surface are some fault lines developing.  Last week, the King of Social Media Zuckerberg was forced to make major changes in the Facebook (current P/E 35) platform to accommodate angry users – and this will inevitably lead to a loss of advertising business.  In fact, the other Tech Titans of Silicon Valley are being also attacked by politicians who would dearly love to knock them down a notch or two.

Why? Simply because the losing candidates perceive the campaigns of ‘fake news’ and “Russian” interference on social media as being largely to blame for their lack of votes.  They must be holding immense grudges against Twitter and especially Facebook.  And if they rise to power in the half-terms, who knows what backlash would result?

And what do you think would be the result of a judgment in law that social media platforms are really publishers, not simply billboards. and must obey the same laws as do publishers of newspapers.  The lawsuits against them would turn into an avalanche – and the share prices would inevitably collapse.  But so far, with sentiment very bullish, Facebook is being allowed the benefit of the doubt – so far.

But that change in law would only occur when social mood turns down.  So is that point of turning just around the corner?

Because the stock market is the most accurate and instant barometer of social mood, we shall see soon enough when that time has arrived.  Yesterday, Facebook was hit hard

and has met the crossing of the two pink trendlines.  Note the large momentum divergence that shows the  momentum weakening into the 190 high.  So now we are at the moment of truth.  If it bounces next week, the bull trend will stay alive, but if shares break down to the critical 170 level, all bets will be off.

While FB was slumping on Friday, the other FAANG members were going in the opposite direction leading to a new Nasdaq high.  So maybe the general market momentum will be enough to fire FB back up next week.  But watch this space.

Gold surges in accordance with my roadmap

When I last covered gold on 30 December, I showed this chart of my forecasts

I expected it to move u to challenge the blue trendline and Fibonacci level in the $1380 area.  This is the updated daily chart

I have slightly amended my blue trendline and thus amended my target zone to the $1350 area.  And with yesterday’s surge to $1337, we are just about there.  But I’m not getting too excited – I believe we shall see a pull-back soon.  The shape of the rally off the B wave low appears to be a five up – and that spells correction ahoy.  It may take out the W ave high first at $1358, but at this stage, I am inclined to be looking to take some profits off the table.

With the slump in the US dollar last week that gave rise to yesterday’s gold surge, any dollar recovery would be the headwind for gold that would put in a temporary top.  But the overall trend remains up and that is still the way to play it.

Also, latest COT shows hedge funds filled their boots with longs and now they hold an almost four-to-one bullish position.  Latest DSI also shows a bullish bias, and together, upside progress will likely be hard won.

Crude oil pushes into new highs

Long time readers will know that I have been bullish crude oil for some time – even when the majority were bearish (or should I say especially when the others were bearish?).  And my faith in my forecasts is being well rewarded by a very strong push into new highs

Last week, the market broke up very strongly out of the upper line of resistance.  That line is about the strongest line of support/resistance as you will find.  It has a terrific PPP (see my text) and at least five very accurate touch points.  With the market trading well above it, it has become a line of strong support (that may be broken in the future!).

The Elliott waves are quite clear – we are in wave 3 of 5.  My ideal target remains the $70 area..

But we must keep a beady eye on the horrendous COT picture

Hedge funds have filled their boots with longs and now hold an eight-to-one bullish position, having  added a further 38k contracts last week.  That was as of Tuesday and so I am sure today, the picture is even more extreme.

I am keeping one eye on the door marked Exit.  As hedge funds become manic bullish, I start to want to let them have my long positions.