The dawn of a new age starts now
I have received a gratifying number of discerning traders taking up my Free Trial Offer to my VIP TRADERS CLUB that officially closed yesterday. The good news is that I am extending the deadline to next Friday 27 January to allow late-comers the chance to see how a professional trader makes profits in these very tricky financial markets.
Mine is not a political blog, but as with the Brexit revolution back in June, I just have to make a few comments on yesterday’s Inauguration as it affects the markets.
Many are calling the new-born Trump Presidency the dawn of a new age when the tides of centralisation of power accreted to Washington will now be swept back (as they are most vividly in the EU with Britain as the first of many to secede). As Abraham Lincoln reminded us 150 years ago, America was conceived as a ‘government of the people, by the people, and for the people’.
In recent decades, the last thought – for the people – has been lost in the silent mission creep of the political class who have assumed even greater control for themselves using the now-entrenched pork barrel voter bribery paradigm. So now the individual is now far less self-reliant and much more dependent on the state that ever. This applies all over Europe, too.
With such a state-controlled public where almost everyone expects the government to cure all ills and solve every social problem, and where all semblance of personal responsibility has been quashed, it was indeed a miracle that Trump could overcome these obstacles of the liberal left and win.
So this is indeed a new era, and if he can make some headway into draining the Washington swamp, he should uncover some of the denizens of that swamp that will be shaking in their boots.
I lived in Washington in the 1970s and I can confirm that in wintertime, the cold and damp weather really do confirm the city was originally built on swamps chosen as it was as the geographical centre of the United States of the 1780s.
Incidentally, many in the MSM have called the Trump ascendancy an exercise in populism, which they casually apply in a highly derogatory way. But if they took the trouble to read the Lincoln quote above, they would learn that that is precisely the principles on which the nation was established in the first place.
There has been a highly emotional response by some Trump opponents not just with the street demonstrations. I have seen shots of grown women in floods of tears on my TV yesterday. I half expected one to pull out a sword and fall on it.
Many MSM people are describing Trump as a ‘highly divisive’ leader with the lowest popularity rating for an incoming President. In fact, the population is already in a polarised state and all he did was come along and give voice to the un-heard.
Given we are entering a new era, as traders we need to understand the opportunities ahead.
With the remarkable about-turn in stocks in early November, investors/traders were quick to jump on what a Trump Presidency means for US companies – exceedingly bullish.
Because it is social mood that drives stocks, the rampant stock indexes performance is a direct reflection of a very positive mood. But how does that square with the ‘divisive’ nation that many see? The numerous Trump opponents are feeling pretty down and that reflects their obvious negative mood. Are these people buying stocks? Not likely.
This is my reading of mood versus chart action: As the Trump victory on 8 November slowly sank in to the minds of the populace, canny hedge funds had already placed their highly bullish bets and that produced the stunning rally to around mid-December.
By then, opposition to Trump had morphed from denial to acceptance and a realisation of the enormity of what has happened. That was when the negative mood crystallised into dampening the extreme bullishness – and the market stopped climbing so hard.
This is shown in the Russell 2000 (an index of low cap US companies):
The vertical rally to the 11 December high (my wave 3) was the result of extreme bullishness of social mood. By then, the negative forces had coalesced and dampened the extremes and the market since then has been in a series of wide swings as mood has likewise swung back and forth.
The form of the consolidation is classic – a series of threes up and down with an overall three a-b-c down contained in the trading channel between my excellent blue tramlines. This is a zig-zag in Elliott terminology. The pink line is the long-term tramline which the market has been testing for months.
With Mr Trump now most definitely residing in the White House, I expect the street demonstrations to peter out and his opponents will come around to the realisation that the sky will not fall in after all and nothing much will happen to their lives near term (longer term is another matter). Social mood will rise for at least the next few weeks.
That means the stock markets will advance again near-term, barring a Black Swan event of some sort.
The medium to long term outlook is not so rosy, however. With the imminent ascendancy of the nation-state again, societies are closing together in smaller groups. The popular desire to limit immigration is one aspect. This is an established trait of bear markets. As the urge to split the EU gathers pace this year with German and French elections due, stocks will start to enter a severe bear market in the next few months. Watch this space!