The Fed is now tied up in knots
That was certainly one of the most eventful weeks for a while. The Fed tied itself in knots hiking rates (and promising to do more of what it takes to cool the hot inflation) and at the same time expanding Q£ by trillions to save what investor confidence is left in the banks following the SVP bank fiasco.
That naturally produced massive volatile swings especially in stocks and bonds. But many of them were amenable to Elliott wave analysis (see below) as part of a professional trading strategy.
One of the great benefits of being a member of my VIP Traders Club (and Pro Shares) is that I often post clear roadmaps where I believe the market is heading and to clear targets. My analysis is based on my Tramline methods with a strong emphasis on Elliott Wave analysis and Fibs.
Here is a clear example of my roadmap in the Dow I posted at 7 am Friday morning (I post Trade Alerts to members around 7 am every day):
On Wednesday, the Dow made a new low but on a strong momentum divergence, so a bounce of some kind could be reasonably expected. And on Thursday, the market did just that and by Friday morning, had made a clear a-b-c three up bounce to the Fib 38% resistance at 32,340,
I noted that it could possibly edge up to the Fib 50% at 32,500 before turning but it was near a major turn to resume the third wave down. The three sub Elliott waves up was a clear clue a reversal down was close by. Remember, a three up pattern is always counter-trend to the main thrust.
But early on Friday it was clear the reversal was in place and I posted a Flash Alert advising shorting stock indexes and/or going long VIX (see last week’s blog). This is the position as I write:
Only an unexpected push above this morning’s high would amend this picture.
Here is just another example of a great roadmap I provided for members that foretold where the market is heading in the USD/JPY
The market had descended in a clear three down to a significant chart support area on a good momentum divergence. The odds were strong the market would reverse back up from around this 128 level and I even provided a clear target (pink) at the 138 area.
So on 17 January I advised members to go long at the 128 level (with a stop of course).
Taking that trade would net a cool £10,000 for a small £10 per pt bet if held to the target. All from posting a clear roadmap on a well-timed day. Here is the result
This is a textbook example of my swing trading style. The trade lasted about six weeks and was exited before the new down swing started. It has now resumed its near market.
And in fact, with the near-panic switch into perceived safe havens such as Gold, Treasuries and the Yen, I expect this market to be under severe pressure for some time. Here is my roadmap for the weeks/months ahead:
With this Elliott wave analysis, the profit we took above on the long side was the second Elliott Wave of what will turn out to become a large five waves down. Just as the succession of ‘overbought’ RSI readings on the way up will be more than equally matched by a succession of deeply ‘oversold’ readings on the way down.
During the bull run to the October 2022 ATH, the bulls believed the Japan central bank would keep their short term rates low while the US Fed started hiking. The carry trade was in full flight! Buy greenbacks and sell the yen was the order of the day. And it worked wonders – until it didn’t. That is why I swing trade. (Only occasionally does a long term position trade lasting months/years work.)
That was the date in October when stocks made their large wave 1 low and started the current rally phase in the belief the Fed would be forced to pivot as inflation was easing.
ECONOMIC RECESSION AND THEN DEPRESSION ON THE HORIZON
Are you prepared for the economic devastation to come? We are in major third Elliott Waves down in stocks indexes. These are the most destructive waves in the book. They take no prisoners. Already, major investors are fleeing the riskiest shares and seeking perceived safety in markets such as Gold, Treasuries, the Yen and even Bitcoin.
I am guiding VIP Traders Club members through the treacherous swings in markets today. Come join us!
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A new banking crisis suddenly appears
This one suddenly came out of left field like a thunder bolt and are forcing investors to de-risk in a hurry. And banks are leading the charge lower
In all recessions/depressions, it is the banking sector that first shows signs of stress. Last week, all eyes were on Credit Suisse – the huge ex-venerable Swiss bank that had been known for safety and prudence. You can still see films from the 1950s and even up to the 1980s where the mere mention of stashing the loot (from a robbery?) in a Swiss bank was the way to go. They asked few questions back then.
But over the years, regulators have forced them to be more discriminating over their customers. And a series of poor investments (notably buying T-Bonds at top tick) has produced the sorry state they now find themselves. Here is the sad tale in chart form
In six years, it has lost 98.4% and is a well -established member of the famous “90% Club”. It is heading/is already into bankruptcy. Note that even the offer by the Swiss central bank on Thursday of bailout support failed to halt the slide. That tells you most of what you need to assess sentiment in the banking sector. It’s not good. Contagion looms. And central banks are powerless to stop it.
And UK residents are starting to question if this could happen to any of our banks. Last week I showed the Deutsche Bank chart which has a similar shape. Here is one of my favourite trading vehicles, Lloyds
UK banks remain solvent but negative sentiment from SVP, Credit Suisse and others is spilling over. Will we see a test of the old 2009 low of 16p or at least to the 2020 low of 23p? Hmm.
Risk is gushing out of markets
Up until a little over a year ago, markets were ebullient and flying high on waves of positive sentiment. And nothing demonstrated this optimism more than the push into space by several prominent gurus. One was Musk with his dreams of settling on Mars. He even sent a Tesla car into earth orbit to claim the first step!
But that arch-self publicist Richard Branson was our own home-grown fantasist with his Virgin Orbiter company (for launching small internet satellites). It launched its IPO in 2021 as it merged into a SPAC. Here is another example of how to lose money in a SPAC fantasy:
That too is a fully (un-paid) up member of the “90%” Club.
So is Gold really a safe haven?
It certainly appears so as investors are buying the textbook theme that owning gold is a haven from high inflation – and they get a kicker from the banking crisis. That is why it surged by $130 last week, despite the weakness in the euro.
If my Elliott wave analysis is correct, gold is on its way to new highs above the old $2075 August 2020 ATH. And that could happen sooner than most believe.
I had been very cautious/negative on gold previously as one of the factors I took into account was the very high central bank purchases that normally spell major tops. But maybe this is one time they got it right – at least for now.
Longer-term, all asset prices will decline and after the wave 5 tops out, the fall will be spectacular. That is when central banks will have their vaults overflowing.
But silver is lagging, which makes sense as it is used primarily industrially and if the economy is getting weaker, silver demand will suffer. That will likely top out before gold.
Despite the volatile swings, these are great times to be in the markets. Historic moves are being made.