The Ides of March came – and crept away quietly

The Ides of March came – and crept away quietly

The media was all abuzz earlier in the week about the impending disaster that was supposed to happen yesterday.  It was the confluence of not only the anniversary of Julius Caesar’s murder in the Senate, but also Fed Interest Rate Day and the Dutch elections where the far Right was going to be supreme winners.

But a funny thing happened on the way to the forum (if I may continue my Roman theme).  In the event, the only disaster that happened was to all the shorts who were squeezed – just about everything that trades (except the US dollar) shot up sharply.

As I forecast (from my observation that market rates had already improved by 25 basis points a week ago), the Fed followed the market up by the same amount. So no surprise there, especially when you realise that the Fed always follows the market, not the reverse.

But what was ‘surprising’ was the reaction of the dollar.  Conventional analysis says that when US rates go up unilaterally, the dollar should follow.  But it didn’t.  That must have the financial press in a tizzy trying to explain that.

Of course, we know why the dollar did not rally – bullish sentiment is already off the scale –  see the latest COT data:

Hedgies are almost six-to one bullish, retail traders are over three-to-one bullish – and the smart money commercials are almost six-to-one bearish.  The potential for long liquidation was immense.  All it would take to set off a string of sell stops is a small sell order. I rest my case.

And a few moments ago, the Bank of England kept policy rate at the ridiculously low level of 0.25%.  Conventional analysis would say that is bearish the pound against the dollar.  As I write, GBP/USD is almost up another cent.  Explain that, pundits!

No, when GBP/USD tested the Fibonacci 78% pull-back a few days ago, I forecast a rally, despite what news would emerge.  This was the chart I posted on Monday’s Trade Alert for VIP Traders Club members:

The decline off the recent high appears as an A-B-C, which is corrective to the main trend.  And the market was forming a base around the Fib 78% support around the 1.12 level

And here is the chart updated

Remember, almost everyone in the media is bearish the pound – yet it is rallying hard.  Every time I hear a financial pundit on the radio, it is always assumed the pound will go lower.  I have yet to hear or read anyone forecasting a substantial rally for the pound.  That is why one is very much on the cards.

My advice is always to pay attention to what the ‘experts’ are saying, but plan to go the other way when the timing is right – as it was here.  But even if the market turns down again, I have a very low risk trade working because I am able to set my stop pretty close to entry.  That is the ideal trade setup.

Of course, contemplating getting in here when the market is almost two cents above the upside breakout is much riskier and you must set much wider stops.  That is not a situation I like to be in.

 

Follow the Cotton thread!

I must be a one-man-band here in the UK drawing attention to the tremendous profit potential in soft commodities (cocoa, coffee and cotton) this year.

These markets are virtually ignored by UK based traders, but they can offer some of the most rewarding moves (if often rollercoaster) on the board. Weather plays a large part in price trends, of course. But because much is grown in tropical countries where data gathering is less than ideal, rumours of crop failures or big yields can spread like wildfire – and prices can move very swiftly indeed.

I first drew attention to the cotton chart to VIP Traders Club members a few weeks ago and pointed out the textbook falling wedge on the weekly.  Then, prices had not broken above the upper line of resistance but I advised members to start accumulating long positions in anticipation

The market had rocketed to the 220 cent high in 2011 (the highest since the US Civil War!) on panic buying by mills seeing floods in Australia, Pakistan and China threaten production.  But as with most ag rockets, it fell back to earth with a thump and hit the sub-60 cent level a year ago on huge stockpiles.  Since then, the market has made steady upside progress.

China is said to be cutting production this year as their stockpiles shrink.  Any weather problems this year is sure to send prices northwards.

In a wedge, I like to see the textbook five waves – and it is the fifth that is crucial here.  Normally, this wave terminates on a blue wedge line (as do waves 1 and 3) but here, it fell way short.  To me that indicated extremely good buying support and should herald a substantial relief recovery.

If the rally only reaches the first Fibonacci 23% level that lies at the 95 cent area – a good 15 cents above current – that would still be a decent profit, but even more will be made if it reaches the 38% level at the 120 cent area.  I am sure you see the potential.

 

VIP TRADERS CLUB NEWS

Just ahead of the Ides of March, we took final profits on our short EUR/USD trades and positioned long ahead of the Fed announcement and this trade is also in good profit.

We also went long gold and silver ahead of the Fed and they are also in good profit.

If you would like to join us, click here for details.

 

VIP PRO SHARES

One of our top performers is KION GROUP bought at 52 on 17 January.  Latest quote is 60.

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