The dominos are starting to fall
Last week saw several ‘never sell’ US tech shares start to fall off their perch. Of course, I use the term ‘never sell’ sarcastically as this was a common term applied when the Magnificent Seven were carving out strong bull trends. One of them was the amazing Apple which seemed to do no wrong as it advanced to conquer the smart phone world since the millennium.
We will now see how strongly married investors are to their ‘never sell’ shares as the new bear trend develops. I have a feeling that term is being quietly dropped from the MSM lexicon.
But as seasoned traders/investors know, when a share is widely considered a ‘never sell’, that is precisely the time to become wary of the hype and to tighten up stops. When everyone is on board, even a small degree of selling into a diminishing supply of fresh new buyers can (and often does) produce an outsized sell-off.
And that is what occurred last week – here is the Apple chart showing the textbook five down/three up off the July ATH at $198. Note this high was a tad short of the widely-expected target at the round number $200. That miss may be significant.
The first decline is a clear impulsive five waves down – and that is the normal pattern when a major trend has changed. Then the Dip Buyers came in to snap up the ‘cheap’ shares as a last hurrah for the bull, but in a clear three up to the Fib 2/3 retrace.
And on Thursday, news emerged that China’s government is banning the use of iPhones in favour of domestic (Huawei) products. That set the shares plunging by 9% in a day in a new wave 3 down.
With Biden’s ban on selling US tech to China, it seems we have re-entered a likely strong protectionist era that is a hallmark of a recession/depression to come. Of course, the EU has always been a strongly protectionist zone,
I pointed out before that the AI revolution darling – NVIDIA – has already performed a very similar trend reversal pattern. Here is the updated chart
This pattern is an almost tick-by-tick replica of that of Apple! It has the same five down, three up to a Fib 2/3 retrace. If anything it is more advanced in its new bear trend as it is close to breaking below its wave 1 low.
And all of this is happening just as large and small investors had thrown caution to the wind and ramped up their exposure to tech shares. They saw the Fed pausing rate hikes based on their view of latest economic data. Talk of a ‘soft landing’ is rife and the term ‘Goldilocks Economy’ is freely used.
But financial markets do not operate in a mechanistic cause-and-effect way. Quite the opposite, in fact. The Fed pushes a lever here and this is what to expect. That is wrong. They have their own rules and they are based on sentiment. Extreme bullish or bearish sentiment always leads to market reversals, as I have shown many times here.
And today, there are fewer bears than even at the 2011 ATH even though the market trades below the ATH
Investors Intelligence is one of the oldest technical analysis operations and is a survey of the opinions of newsletter writers (now usually blogs and market reports). It has been accurately reporting the state of the sentiment of financial advisors for decades. The chart shows that the percentage of bears increases in bear trends and vice versa, as predicted by my sentiment-driven model of markets.
Today, there is a record shortage of bears which backs up my assertion that investors are throwing caution to the wind in their enthusiasm for shares, particularly Big Tech.
A historic reversal lies directly ahead.
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Are the rotor blades falling off the fiasco that is the ‘renewables’ energy sector?
What is usually clear to non-Arts university graduates – the reality of the physical and economic impossibility of phasing out fossil fuels in favour of wind and solar – eventually is forced on them by brick wall reality.
And that moment is closer to arriving in spades last week when the latest UK auction of off-shore wind farm licenses resulted in zero bids. Yes, zero bids. Wind companies cannot make it work even at the elevated power prices being offered.
But we were all warned this might happen by noting what was happening in related markets. For one thing, shares of the biggest rotor blades manufacturers Siemens have been plunging in recent weeks.
Oops. If the makers of the equipment cannot make wind power work, then it dies. Unless of course even more gargantuan ‘investments’ (aka taxpayer subsidies) are thrown at it. And that is what Biden’s so-called ‘Inflation Reduction Act’ was set up to do with billions of dollars investment.
But with private investment in ‘renewables’ leaving the sector, the outlook is now grim.
But there’s more – copper prices are also under pressure. Remember, when all the talk was of upgrading the grid to accommodate all of the spanking new on-shore and off-shore wind farms, additional demand for copper would be immense. In addition, the 100% switch to EVs would translate into another boost in copper demand (EVs use a lot more copper than ICEs)
But today, future demand doesn’t look too rosy. The wave 5 high was made in March 2022 and has been in a decline ever since and is following my excellent tramlines with a terrific kiss in January that validated my lower tramline as significant resistance. It is now in a large wave 3 down (or perhaps a large C wave).
And now the largest offshore wind operator – the Danish firm Orsted – is about to abandon all future projects in the US. The shares have crashed 75% and heading lower.
It seems offshore wind is dead in the water. Remember, this is a key component of Western governments’ Net Zero plans (legally-binding for the UK, of course). Without a massive increase in wind power, there will have to be a miracle breakthrough for hydrogen (highly unlikely), more solar (ditto), nuclear fission (very ditto), or nuclear (the only viable option if enough reactors can be built in time).
The major constraint for wind is the its proven high cost even with the massive taxpayer subsidies (not to mention the ned to concrete over the UK with wind farms). So will politicians do the unthinkable by hiking consumer electricity prices to make offshore wind more commercially viable and reap wrath at the polls, or ditch Net Zero by 2050?
My guess is that they will take the usual coward’s way out and allow offshore back in (to save face), elevate consumer electricity prices and then subsidise consumer bills (as they did last winter) by hiking taxes to pay for it. But UK taxes are already shooting for the skies and are at their highest probably ever. That is not a recipe for economic growth.
But nuclear should keep gathering favour and I remain bullish on the uranium sector. We hold uranium for Pro Shares members.
Just for fun, I took a look at the UK generating output today by sector
What an interesting picture! NatGas is the largest contributor by far and since today is quite calm where I live, wind contributes only a smidgeon and even solar is double that of wind. Even imported North American trees biomass at Drax is larger than wind.
And Irony of ironies, a chuckle please for King Coal – it’s higher than wind!
That is why we call ‘renewables’ intermittent and thoroughly unsuitable for base load. When the public see their bills rocket again this winter, I expect a lot more push back against the whole Net Zero push to poverty.
As we head into the winter home heating season, consumers will be made aware again of their rocketing energy bills and the rebellion against the whole Net Zero fantasy will grow for the lie that ‘renewables’ are cheap, as has been falsely claimed by the virtue-signalling politicians. Fewer will be willing to pay through the nose for saving the planet when China and India keep building coal-fired plants.
And anyway, CO2 is good for food crops!
Public confidence in the our governance and the future will continue waning and this will adversely impact financial markets – especially stock markets. With inflationary pressures remaining high (wage growth rising), interest rates and bond yields will remain elevated and I expect company bankruptcies to increase. UK house prices will continue falling but not dramatically. Banks will continue under pressure.
Carbon Emissions market also points to a weaker economy
Last week I posted on my website and on YouTube my Elliott wave analysis of the European Carbon Emissions market (but should correctly be called ‘Carbon Dioxide Emissions’) and suggested the market was about to break a major neckline of the Head and Shoulders reversal pattern I identified earlier. It closed last week having just broken through that critical support. Note that the market has gone nowhere for almost two years, despite the more onerous emission regulations.
In the video I suggested this market will follow stocks lower as these ‘carbon credits’ will suffer lower demand as manufacturing activity will decline in this pre-recession/depression phase. Not only that but the supply will increase as EV production is ramping up as more capacity is switching from ICE to EV.
Because this H&S pattern spans a very lengthy 20 months, the bear trend should last somewhere on the same scale. My first major target lies in the 60 area and then 40 (currently 81).
Meanwhile, crude oil prices are surging
The great (and another irony) beneficiary of the ‘renewables’ fiasco is of course our old friend crude oil. I posted this weekly chart last week
It closed the week at another high and is close to testing major resistance around $92.
If my projections for $100 (and probably much higher) come to pass, imagine the panic that would ensue! Watch this space.