I really am unable to understand the mindset of conventional pundits/analysts who proclaim that ‘good’ news results in a positive mood towards stocks and when a torrent of bad news erupts, as it did last week, that should produce a negative mood which pushes shares lower. But shares surged last week in defiance of that theory. Surely, you cannot have it both ways. Either the news drives the markets or it doesn’t.
How can they live with themselves? But I know the real reason they cling to their fantasy – they are giving the punters exactly what they want – a good story. Too bad the stories are in reality myths.
Yes, I know the narrative has it that the about-face dovish Fed and the ‘certainty’ that rates will be lowered this year trumps all news, good or bad, but that is a ‘hope’ that may or may not come to pass. In any case, there is little or no correlation between stock prices and interest rates in the historical record! Not a lot of people know that (or want to know)
And if interest rates are being forced lower by the Fed, as is the common belief, how come the yields on longer-dated Treasuries are now rising quite sharply – and are set to explode?
The other major factor doing the rounds is the US/China trade ‘talks’ where the consensus is that they will conclude with ‘good’ deal. They have been dragging on for about as long as the Brexit saga and I recently saw an ironic headline: China-US talks expected to wrap up by 2025.
How bad has the news been? Here are a few headlines from last week:
Markets unnerved by fears of Italy downgrade
German Institute cuts GDP growth in half to 0.8%
US auto sales wrap up terrible Q1 quarter
ADP shows weakest jobs growth since Sept 2017
Global recession watch: Crunch for Germany as manufacturing enters freefall
and so on. You get the idea. Yet the Dow gained 500 pips on the week. Confused? You shouldn’t be if you follow the Elliott waves (see below).
And not only is the UK’s very own Brexit in a state of utter confusion, things are not much better across the pond. On Thursday, the WSJ reported that Trump will announce a summit date with Xi for trade talks, Then, Reuters immediately denied it. Stocks barreled higher on that denial anyway!! The algos just loved it.
Not only is bad (and good) news good, but so is confusion in politics. You really couldn’t make this stuff up! Of course, what is happening is that stocks are climbing the famous Wall of Worry. And the momentum-chasing funds are in charge – for now.
Eventually, the Wall will rise so high that not even great news can push it any higher. Bullish sentiment remains over 90% on DSI and although this measure is not a great timing tool, it is a fact that all major highs occur when bullish sentient is off the scale, as it is today. That occurs when the news is stupendous.
So where are we on the charts? Here is the big picture on the S&P
from the Christmas low. The counter-trend rally off this low has traveled along my excellent tramlines with multiple touch points on the upper line, while the lower tramline sports the three major lows. And the pattern is a clear five waves. We are now in the final wave 5 of 5 up. And momentum is diverging – a sure sign that the buying pressure is waning and we should expect a reversal at any time.
With DSI bulls now staying above 90%, I continue to believe the reversal, when it comes, will be violent. Any break below my lower tramline will confirm. But can I glean clues as to the timing of the reversal? Here is the short term chart of the final purple wave 5:
And in fact, I have textbook sub-waves working even to the breakdown of the red wave 3 which itself is a micro-five up! This is a superb example showing the fractal nature of markets. Waves of sentiment tick-by-tick are tracing out these patterns. I am sure you have watched this action in real time on your screen..
So now I have at least three fifth waves in the process of completing. Hmm.
My Platinum trade is storming ahead
Platinum is not a market that many UK traders get involved with. But I certainly did for my VIP Traders members. After stalking it for a few weeks, I managed to catch the low in February at the 800 area. Remember, I do not pore over industry data such as mine production, use stats, stocks held, and so on. I use my Tramline Trading technical methods to determine likely market direction especially if I believe it is near a major turn.
But the setup was pure contrarian! The most important industrial use for the metal is in catalytic converters for road vehicles, especially diesel-powered vehicles. As we are all aware, diesel engines have become pariah status because of the pollutants that have suddenly become of major concern. Sales of new diesel cars have fallen off a cliff.
The scandal was so severe that a term was coined: “Dieselgate” in reference to the Nixon Watergate scandal of the early 1970s.
German car makers have long dominated the market for diesel cars and production has been slumping in recent months. That means the prospects for demand for platinum is likely way down. All things being equal, a data-makes-the-market analyst would likely conclude that Platinum prices would be in a severe bear trend. So is it?
Yes, at first the price was hit by the “Dieselgate” affair last summer with prices down to the $750 area by August. My analysis showed that at that low, the bear trend had completed a five wave impulse pattern — and was due a rebound. And that rebound took the price back up to the underside of the huge head of supply range – and then resumed its decline as it was repulsed by the strong resistance there.
And that was when I really started to get interested. I expected a test of the $750 low and was prepared for a strong reversal as it approached the Fibonacci 76% retrace at $780 in December and then in February.
With signs of a bottom there, I advised VIP Traders Club members to go long with a tight stop for a low risk/high prob trade. Large specs had loaded up with shorts as they bought the ‘bearish’ Dieselgate story. This was an ideal setup for a huge contrarian trade. Remember, large specs (funds) are maximum short at major bottoms (and vice versa).
So with the market surging above $900 yesterday, are there more legs in this trade or is it about to flame out?
Has Micro Focus run out of gas?
This software company has received much media attention – and investor interest of late. It has been one of the tech darlings – until the spike high at $27 a share back in November 2017. Since then, it has been in a steep downhill trend with a massive gap opening in March last year and since then, it has been in a laboured counter-trend rally phase for the past year.
That has enabled more bulls to jump on board as they join the tech melt-up currently in force. But has their enthusiasm run away from reality?
The MSM is generally bullish and here is one analysis based on the fundamentals with a $30 target. I disagree – and with the Nasdaq tech-heavy index about to turn sharply lower, this is my reading. Here is the weekly:
The huge run-up from the 50 cents low to the $27 high is in a clear five Elliott waves with a very long and strong third wave. But that rocket fell back to earth and note the massive gap in a selling climax. That is either wave 1 of a five down or wave A of a three down.
The year-long counter-trend rally is either wave 2 or B. Either way, the next major move should be down. Here is the daily:
The recent rally has closed the gap (they act as magnets!) and has made it to the Fibonacci 62% retrace – a typical turning point especially given the momentum divergence.
The bottom line: I expect the shares ot turn down from around here. We are trading this share for PRO SHARES members.