During a lengthy bull market, bullish sentiment becomes so extreme that outright belief that shares cannot drop is so strong that in spite of there being solid evidence of financial ‘irregularities’ in a company’s accounts out in the open, shares remain elevated.
Such was the case with that German fintech darling Wirecard – now dubbed the German Enron. Despite allegations that its accounts were bogus as long as five years ago, the share price continued to levitate. Such is the power of positive thinking – and denial! For the story of the fraud from a short selling insider, go here. The author first raised the alarm five years ago and yet punishment only arrived after the bull market had ended. That is a crucial observation.
But when the rumours turned into fact, the share price plummeted as general market sentiment is now turning down. The key point is the market had to wait until sentiment retreated before investors saw the light and acted. That is one more clue that markets have now turned. In a new bear trend, more ‘irregularities’ will be uncovered – and will be punished now that fraud can no longer be tolerated and swept under the rug.
And I spotted another MSM howler yesterday: Europe climbs as investors shrug off record US virus cases. They can’t lose! If shares rise and they cannot find an ‘obvious’ bullish reason, they resort to the reliable ‘shrug off’ or ‘despite’ excuse. Of course, if shares had fallen, we all know the headline would read: Europe sinks as investors react to the record US virus cases. In fact, stocks did sink later yesterday and the headlines read precisely that.
Of course, the headlines are published after the event, so they can always find a suitable headline for all cases. Is anyone taken in by this kind of bogus analysis? If markets follow the news (as 99.9999% believe), why doesn’t ‘bearish’ news make prices fall?
At the risk of banging my drum too much, markets do not follow the news (in fact, it is the news that follows the markets). They cannot do so when conventional analysts are stumped to explain why prices move the contrary way they do. Ignoring the many times when markets move against the news is intellectual dishonesty.
But they don’t see how these anomalies totally destroy their argument about how the markets really work. But of course they are catering to armchair investors who do believe and thus are satisfying the market for fairy tales. Basically, it sells newspapers. Stories about sentiment are not sexy or dramatic enough for the masses.
And swing traders who understand that markets move on sentiment and not the news can use this information to our advantage. In fact, by the time you have read the latest news, it’s already in the price. Can you move faster than the High Speed Trading algos that cost zillions and are only affordable by the big ticket hedge and other funds? No, neither can I.
Yesterday was a make-or-break day for my bearish outlook. For my VIP Traders Club, I had this alternate short term option:
The wave labels certainly fit and I have good blue tramlines. So yesterday morning, I noted this as a moment of truth and stated: “The market must fall hard from here to verify my bearish wave 3 idea” And right on cue, the Dow declined by 700 points to close the session. Here is my roadmap
As shown, we have been shorting at the highs just before the onset of major declines. That is precision swing trading.
Incidentally, yesterday’s collapse was put down to the second wave in many US states. But as I noted above, the virus news can be used to justify both up and down share price movements at will (in the MSM)!
I have accurately followed most of the twists and turns of many markets this year. We are racking up major profits already in both services. Don’t delay – take a two week Free Trial to my VIP TRADERS CLUB where we trade stock indexes, currencies, gold and much more. Or take a generous three week Free Trial to my PRO SHARES service where we trade individual UK and US shares .
Bonfire of the FAANGS?
Early last week, I noted Facebook was likely primed for a strong decline based on my reading of the chart. It was making a likely ‘overshoot’ to a new ATH, which is a push above an established trendline and then a retreat back under it. It is usually a strong indication of a buying climax, leading to a pull-back. But only after a substantial rally phase.
And that prompted me to advise short positions for my PRO SHARES members on Wednesday.
And what a pull-back yesterday when over 100 brands announced boycotts over its policy over ‘hate speech’. But we took short positions right near the high in readiness for the sharp break
In fact, the setup earlier was telling me loud and clear that a savage decline appeared on the cards with the weakening momentum going into the $245 high and the five wave pattern. So, according to EWT we are starting a three wave correction that could last many months.
Also, I had a sell advice on another FAANG Gang member – Apple. This is the chart I showed PRO SHARES members yesterday:
At the time, it was forming a possible overshoot and right on cue, it broke sharply lower in the afternoon and closed down a chunky $11 on the day to confirm my roadmap.
With all FAANG members now suddenly turning tail, the heat is on the momentum players and as night follows day, more bad news will emerge as markets decline. Is this the Bonfire of the FAANGS? It is certainly overdue and they h ave become ridiculously over-loved.
Many call them the ‘never sell’ shares. We shall see how that pans out
It certainly is a curiosity that advertisers are now shunning Facebook with their stated reason their dislike of their ‘hate speech’ policy. Such an outbreak of morality! What has got into them? These are the likes of Coca Cola – a company never previously associated with taking a moral stand on anything especially on the world’s obesity epidemic.
Are certain dates good diary markers for the market?
Last time I noted that the equinoxes and solstices often mark important market turns to within a few days tolerance. This year’s Spring Equinox occurred on Friday March 20 – and this was the date of the Corona Crash low to within one day.
And the recent Summer Solstice occurred on June 20 with a major Dow high on the 16th. With that 100% record, what do your think will happen on these date-certain days of September 22 and December 21? Hmm.
Also, note that the Corona Crash low was put in on March 23 – precisely the date lockdowns were imposed. During March, I related here how the fear of the pandemic was spreading and this growing fear was being played out in plunging global stock indexes.
Recall my comments that when a government acts, it is after much deliberation among a whole host of committees, experts and advisors. It was pretty obvious in February we had a major pandemic on our hands, but it took a few weeks for action to be taken after all of the committees had reported.
And precisely at the height of the pandemic fear as markets made the low, that was when lockdown orders were issued. What a stunning confirmation of my contention that large bureaucracies always make major decisions at the end of the previous trend just as the trend is turning.
Since March 23, fear over pandemic has subsided as lockdowns official and unofficial have eased. And yesterday, the spectacle of throngs of people crowding Bournemouth beaches hit the headlines. Based on this, the fear factor has likely reached a low and is poised to regain strength. I rest my case.