This is crunch time for stocks

I have been following stock markets up since the Trump election win and I sense that with his inauguration tomorrow, the forces at play will become much more intense – and volatility will zoom up.

Naturally, I am anxious to see if he will hit the ground running and start draining the swamp he has promised. I think we all know that governments around the first world have become too fat and overbearing with waste, corruption and mis-allocation of resources common.

Here is the FTSE which I noted on Saturday has just completed an incredible run of 24 consecutive up days – with that record being truncated this week.  Here are my Elliott waves on the daily

We are in a fourth wave down after that very long and strong third wave.  A few moments ago, it hit the upper pink bar at the Fib 23% support at 7195 and on the 1-hr chart, I see a five down.

Remember, this action was entirely expected because a few days ago, the market had hit my long-standing 7300 target zone where some kind of consolidation would be the normal outcome – as we are seeing.

In addition, the upper blue tramline has provided additional resistance at that level.

So the 7300 area was where an entirely rational trader would be taking at least partial profits on their long positions.

But what is my outlook now we have a wave 4 in progress?

Following the Elliott wave principles, after the wave 4 has made a low, a rally to new highs in wave 5 will ensue.  That will take FTSE above the recent 7360 high at wave 3.

So here is my outlook:

Wave 4 will end at or above the pink support zone at 7100 and then embark on final wave 5 up to new highs.  When that wave ends, it will be hard down.  So the key is to position short (after taking all profits on longs) early in the new bear trend.

It will be tricky but I will try for it!

Has the gold rally run out of steam?

I was fortunate in catching the lows in December and then riding the recovery up to the recent $1220 high.  In fact, the setup was classic.  I had a five down in a C wave to a momentum divergence and into a long-term Fib support zone.  Not only that but bullish sentiment was microscopic and COT data confirmed the lop-sided positioning by the specs (and commercials on the other side).

So it didn’t take a genius to trade from the long side around mid-December.

But with a $100 rally off the lows, has the rally run its course (at least for now)?  I have some clues and they are from the chart (as usual)

My long-term forecast is that the rally that started in December will be a large A-B-C affair to take gold past the old $1375 high. And the month-long rally is wave 1 of what should be a five up in the A wave.  When this first wave ends, we will see a second wave down and then a vigorous rally in wave 3.

Of course, the first wave may end at a higher level than the Fib 38% at $1220.  And that is entirely possible because latest sentiment data show that specs are still heavily short.