Now we know – the party’s not quite yet over. The Fed lowered by 0.25%, the stock market fell and then recovered yesterday to post new ATHs in the S&P and Nasdaq – but crucially, not in the Dow. This critical divergence remains. And so long as it stands, I maintain that we are near the top.
Many of the signs of a flagging bull are still there, from low put/call ratios, weakening advance/decline ratios on the NYSE, declining new highs/new lows and very weak trading volumes into the rally. These are all classic signs of an ageing bull.
But the raging bull just won’t lie down – yet. It has been a very rare exercise in frustration for me since the Christmas low as my Tramline analytical methods have pointed to a lower probability of further Dow advances. But it has been the low odds options that have prevailed. Sometimes they do. Market forecasting is an exercise in assessing the odds of various options. And sometimes, I get it wrong.
Incidentally, my lower odds option has been for the Dow to move up to the 28,000 region – and that is definitely back on the table but still at lower odds.
The vast majority of my other campaigns this year have been roaring successes (see two of them below) and that has taken the edge off the disappointment over our poor Dow campaigns. This has boosted my confidence that my Tramline methods are still working.
But just as the normal human response to this Dow disappointment is to abandon the effort and switch attention to other markets, I am deciding to go against the normal response. In fact, I will re-double my vigilance!
Most of us have been there. Give up on that market – and a little later, check back on it and lo and behold find it has moved in your direction by hundreds of pips! And you are not on board. You have missed the best low risk entry! Now that’s what I call real frustration.
I have a sneaking feeling this latest surge is taking the indexes up to their major highs very soon and one reason is the action in the Japanese Yen. Historically, the yen has moved more or less in opposite directions to that of the Dow. Both are fueled largely by dollar liquidity and flights to risk on/risk off. Here is a comparison of the two since the Christmas low
They both plunged to their Christmas lows in unison but since April, there has been a widening divergence with the Dow rising with the yen (USD/JPY falling). The Dow is signalling risk on while the yen is being favoured in risk off. And since currency traders usually are smarter than the equity guys, my guess is that the Dow will do the catching up at some stage soon.
Is General Electric finally creating some sparks?
This is one of America’s oldest and largest manufacturing companies that has fallen on hard times as the wave of globalisation has moved much manufacturing overseas – particularly to China. But that process is wearing out as that country is not longer quite so low cost any more.
For PRO SHARES and for my weekly Chart of the Week for Interactive Investor, I have lately been rooting out some depressed shares on both sides of the Atlantic that I believe are poised for major upward corrections. Not all shares are taking part in the ATHs of the major indexes!
In fact, I believe these shares will be terrific bulwarks against the upcoming economic contraction that lies ahead. The high flyers will be flying high no longer.
Take a three week Free Trial to my PRO SHARES service to find out more!
GE shares have been in a tailspin since the July 2018 high at $33 as investors have steadily abandoned hope for a turnaround. They made a recent low at $6.70 a year ago – a loss of 80%. Ouch!
But that has set up the vision of a Double Bottom with the 2009 Credit Crunch low. And that is when I started to get interested. Also, the decline has traversed the blue tramlines down to a large momentum divergence at the low – a sure sign the bear was running out of puff.
Not only that, but the recent action appears to be making a Head & Shoulders reversal
Note the lovely kiss on the upper blue tramline – a sure test of a valid tramline. And last week, the Q2 results were published and the shares shot up from $9 to over $10 rapidly to test the neckline.
So now, all is in place for a further advance to my first major target.
This example is a vivid demonstration that markets make major lows just when most are not expecting it and when the news is mostly gloomy. As markets come off their lows, the news gets progressively more encouraging – just as we saw last week.
Natural Gas market heats up
This is a major market for us in VIP TRADERS CLUB. The market had been in severe decline earlier this year on the perception of an over-supply from the fracking fields. But a few weeks ago, I noted the potential for a sharp reversal, particularly if there was an early cold snap in the Northern hemisphere.
In fact, the technical picture was certainly pointing that way in the summer.
This daily chart shows the last stages of the mighty decline off the 50 spike high a year ago when gas prices surged – from last year’s early cold snap. I asked if history could repeat back in August as the market was putting the finishing touches to my wave 5 back on my lower tramline support on a momentum divergence.
That is when I started my bull campaign. And since then, we have been trading long, and especially off the lovely kiss low for another low risk entry.
So far, it has made one of my major targets at the previous high at 27. And with this year’s early cold snap in the Mid-West USA, history does seem to be repeating.