The Trump Bump lives – but not for much longer

Finding major market turns in real time is definitely tricky, although not so much in hindsight which is where the MSM financial writers reside. Most analysts do not even attempt it and say it is a mug’s game. That is because they do not understand the Wave Principle and how the Elliott waves can be employed to make high confidence forecasts.

Even when you have such a forecast, there is never 100% certainty attached. As the great philosopher Yogi Berra famously said: “It’s tough to make predictions – especially about the future”.

Last time, I believed I had located the Dow top at 20,140 on 27 January. But with yesterday’s surge, odds for this are weakening and we may see one more new high before a decent decline gets under way.

We can all be wrong with our forecasts, especially if a proven methodology is not employed (such as ‘gut feel’) and there is no shame in that. Staying with discipline with your normal methods is a sign of strength, not failure.

Even legendary operators such as George Soros can get it wrong – he is reported to be losing $1 billion so far on his shorts.

I assume not many of my readers can afford to take that kind of hit – and that is why I strongly recommend strict use of my risk control rules – and I have an excellent example of this at work in real time.

Being wrong does not always mean losing money! And here is a great example of what I mean: This is the Dow chart I showed last time:

This was the high probability scenario last week where I had a clear five down on the hourly off the 20,140 top which indicated a change of trend. The normal correction to a five down is a three up in A-B-C form – and so far, this was playing out like clockwork.

My ideal target is the region of the Fibonacci 50% level and the wave 4 high at 19,960. Many three wave corrections terminate at the wave 4 extreme of the five down and that coincided beautifully with the Fib 50% level. This was an almost perfect setup for a reversal at the 19,960 level.

So that was my signal to enter limit sell orders at 19,960 using a 40 pip protective stop.

And on cue, the market rallied to the 19,964 high on Wednesday and then backed off sharpish. That was a direct hit with four pips to spare. That was about as perfect a prediction as can be expected given the ‘noise’ that is always present.

And as the market moved lower, I was able to move protective stop to my entry point at 19,960 using my Break Even Rule. This is a critical money management rule in my trading toolbox. It means that if the market suddenly moved back up, it would take me out with no loss of capital. I had in effect a risk-less trade.

And that is precisely what occurred yesterday but in the morning, the above chart captured the changing picture. Despite a decline of 160 pips (from wave A to the B wave low), it wasn’t looking very bearish any more with that morning’s recovery! I thus placed A and B wave labels in the morning and as the market was breaking up above the pink trendline, I then projected a C wave rally to the Fibonacci 62% level at 20,000 which was the next resistance level marked in yellow.

The market continued to rally in the afternoon and took me out of my short trade at 19,960 for zero loss. The point is that although I had a wrong forecast, I lost no money. For any trader, this must be the ideal result of a wrong bet.

Believe me, using my Break Even Rule has kept me out of trouble more times than I can count.

This is my Golden Trading Rule: Lose no money. If you do lose some, lose little. If you lose a lot, you are not disciplined.

That Fib 62% level at 20,000 was another good candidate to re-enter shorts. But this is how the day finished:

In other words, it blasted right past the Fib 62% and ended by testing the Fib 78% level around the 20,060 level. The Trump Bump was still very much alive.

But this is the Moment of Truth. I usually reckon the 78% level is the last chance for a reversal of a five wave move. If the market is to turn down, it will do so from Monday onwards and confirm the A-B-C labels. But if it continues higher, it will confirm the waves 1,2 and 3 labels and that means we are in a five up to new highs. The afternoon rally certainly looks impulsive and characteristic of a third wave (long and strong).

There is one more alternative scenanrio – that wave C will complete in new high ground before the sharp decline gets under way.

That is the insight the EWT gives – it offers clear options where near term market action determines which alternate is winning out. This is highly valuable information.

A major reason to expect a top soon is the sentiment position – it is extreme. Here is the Investors Intelligence survey of professional financial advisors platted against the Dow

chart courtesy www.elliottwave.com

The striking effect of herding is vividly shown in this chart. When stocks are down, they are shunned and vice versa – and we are in one of these vice versa periods today. But one warning – this is not a timing tool. See how the 62% bullish figure was made in 2014 yet the market still managed a further substantial rally before the A wave break in 2015.

But it is a warning that we must be closer to a major top than to a bottom. And that Barron’s 30,000 Dow cover Magazine Indicator must surely come into play soon.

Gold and silver are rallying with stocks??

For those who believe they should always move in the opposite direction, you need to re-think. I have covered gold recently, but silver could be the more interesting (and profitable) market this year. Remember, silver is partially an industrial metal and will be more or less influenced by state of the global economy and the stock market. But since the base metals have been in strong bullish mode for some months, silver has been dragged down by formerly weak gold and only bottomed in mid-December.

So there should be a lot of catching up to do – and the break of my upper tramline surely points the way

But near-term, I see resistance and could see a dip which would be a buying opportunity.

But my target for wave C later this year is above the A wave high at $21.

UPDATE ON PRO SHARES

I started my low cost subscription service for share traders/investors on 16 September and have notched up some impressive trades. Remember, I am trading mainly FTSE 100 companies and others traded on the LSE.

And on Thursday I issued a Trade Alert to go long PRUDENTIAL plc at 1550 (Warning level at 1520). Yesterday, the shares opened up sharply and made it to the 1600 level on a huge gap