The Tech Bubble is bursting – third pin found!

Last week we saw one of the largest losses in Big Tech shares for a very long time capped by Friday’s plunge. I have been forewarning of this and should come as little surprise to Tramline Traders! Last week I pointed out the annualised gain in the Dow since the major October low at 80% is ten times ‘normal’ and is unsustainable. The question was: How much farther could the wave of buying FOMO mania carry? I believe we got our answer last week.

Prior to last week, bullish sentiment remained rampant with Fed rate cuts pretty much guaranteed – some expecting six cuts. By Friday, many pundits had performed the mother of all pivots with some now expecting rate increases (to combat ‘sticky’ inflation). This quote is typical:  “Geopolitical and political uncertainty join inflation, rates and the Fed in pressuring markets,” said Mark Hackett, chief of investment research at Nationwide. The combination is “driving a rapid and dramatic shift in the complexion of markets and the attitude of investors.” 

I am afraid Mr Hackett is correct but got one thing wrong (as so many do) – the rapid change in sentiment last week was a result of the unconscious mood swing of the investing herd, not from any external ‘news’ events. Remember, the news follows the markets, it does not lead. The ATH in the Dow occurred on the Spring Equinox March 21 and a good four weeks before last week’s plunge. The Spring Equinox was the start of the decline and heralded all of the ‘bad’ news that came after the reversal.

And in the four weeks since the top, the Nasdaq is off by 1,600 pts (a chunky 8.5%). This is the Nasdaq roadmap I posted to VIP Traders Club members last Tuesday: 

The break out of the trading channel between my excellent tramlines on the strong mom div strongly pointed to a third wave ‘Scalded Cat Bounce’ as it was ‘Poised for collapse’. My first major target was the 17,200 area, And Bingo! This target was reached on Friday near the close.

So what was my third pin to produce this? It was the wave pattern and my Scalded Cat Bounce following the kisses on the underside of the lower tramline. No, it wasn’t a particular news event. It was much more direct than that. A news event is usually of minor impact and even then, even if you knew it in advance, its impact on the chart would be highly uncertain.

In a bull market, ‘bad’ news is mostly ignored while ‘good’ news is justification for further advances. In a bear market, it is the reverse. I fully expect further ‘bad’ news to be bad again. And I will find more pins than are in granny’s pincushion (picture above).

My second target below lies at the 16,200 area. Will the market make a dash for it right away? You need to join my VIP Traders Club to find out! Making a wrong move here could be problematic. Market swings are violent and protective stops are easily touched.

Last week, I pointed to the disparity between two major computer chip companies – Nvidia and Intel (see last week’s blog here). And lo and behold, on Friday another major chip company released very disappointing trading results that sent the whole chip sector into freefall.

And here is the Grand Old Duke of York (Nvidia) that has lead the AI mania charging up the hill

The $980 high was set around the time of the Spring Equinox and has now fallen back to $765 – a loss of 22%. My next major target is around the gap area at $685 in the current third wave. I have pointed out before that the AI FOMO mania has sucked in a whole herd of stars-in-their-eyes investors/gamblers that see Nvidia as going only one way. That semi-religious belief will be sorely tested in the weeks and months ahead. The odds are high the $980 high will stand for a very long time – perhaps for ever.

Odds are now very high the Grand Old Duke of York will lead them all down again. The company itself may well be an excellent one and will continue to attract investors looking for quality but they will be buying a falling knife. And all of the Magnificent Seven (four?) were sharply lower on Friday.

As with the canal companies in the 18th century, valuations became extreme with monstrous FOMO buying in the last few months – right at the top as amateur investors filled their boots in yet another vivid example of their preponderance to employ the Buy High/Sell Low strategy. The Sell Low part is mostly yet to come.

Canal companies, I hear you cry? Yes, these were the hot stocks of their day and the companies built excellent high-quality canals – that still stand today (see them in Birmingham) – that took over from the horse/donkey/pony to transport goods around the country. Just like Nvidia, they were no-brainer investments early on as the advantages of canal transport were clear to see. That is, until they weren’t as profits declined and then competition in the early 20th century from motorised vehicles appeared. Where are the canal companies today? An object lesson in why shares never go up forever.

I have commented on before on the cult of equity ownership where it is assumed the path to wealth is through owning company shares. This has been so since around WW2 when the public started entering the markets. Tales of huge trading profits spread around the US in particular and this American Dream has now spread widely across the globe as the money supply has ballooned. It has now reached its zenith and will start to decline as investors start to lose faith with falling markets.

I predict that when markets plumb the depths I envision, most investors will treat share ownership with a very long barge pole (something else left over from the canal mania).

It’s a Golden (and Silvery) future!

Another measure of the gradual equity disinvestment phase that started at the Spring Equinox, that ultimate safe haven measure of real money – gold – has been making new ATHs almost daily. Remember, this is occurring despite the concurrent advance in the dollar – sheer heresy to traditionalists. In other currencies including sterling, the gold price advance has been astonishing (as I happened to flag this up weeks ago for VIP Traders Club members).

Gold’s less valuable sister – silver – is finally tagging along this trend and two weeks ago I posted the silver chart headed Is Silver Headed for the Moon?. Here it is updated

Two weeks ago it traded around $25 and in my opinion was poised for an immediate wave 3 of 3 advance. That was duly verified with the surge to the $30 level on Friday for a 20% advance (of course, a spread bet margin trade makes that 20% into at least a 200% gain).

Of course, the strong rallies have not gone un-noticed! Far from it, and I am seeing a lot more very bullish price forecasts for both. That is a warning to expect a wave 4 pull-back soon.

Have the beaten-down Grains finally hit bottom?

I fully realise most UK traders/investors have less than a zero interest in the agricultural markets (that incidentally feed everyone of us), That may include you, but I will continue to beat the drum to change all of that. Yes, it is a lot more exciting to read all the screeds of analysis available of your favourite shares (and now even Gold/Silver). It makes you feel more ‘involved’ and part of the current changing scene.

But I have seen many huge price moves in the ags even recently. Serious traders should not ignore them. In fact, I participated in the huge bull runs from the pandemic panics from 2020. Wheat went from a very sleepy 500 to a 1350 high two years ago and has been in a bear trend since. But I believe the scene is now being set for another such rally phase..

The market reached a 4-year low at 528 on 10 March and has been recovering slowly since. The action off the December correction high has been contained between my excellent tramlines and on Friday, it gapped up to test my upper tramline. A good positive break of that resistance should set the rally phase off.

So what fundamental could send Wheat rallying? For one thing, with prices at 4-year lows, farmers are less inclined to plant their fields to Wheat in favour of better=yielding crops. Also, Europe yields are suffering from the persistent rains that have flooded fields and the upcoming USDA survey should show that. And who knows what this year’s weather will bring with the growing La Nina that promises cooler and wetter seasons for some parts?

My bottom line: No matter which way you slice it, we are being presented with major profit opportunities in many markets. Do you need guidance in navigating them?