BIG ANNOUNCEMENT

Next month I will be running my semi-annual Free Trial Offer to my VIP TRADERS CLUB.  This is your opportunity to road-test my service.  But I must warn you – it is not for everyone.  To achieve trading success with us, you will need to do some work  yourself and to examine your motivations. Really serious traders who are willing to learn – and not repeat the mistakes of the past – do really well as a member.  You must be willing to exercise total discipline in applying my simple Money Management Rules.  Then, you have given yourself a good chance to succeed in growing your account.  

I will issue further details shortly.

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As you know, I love scanning MSM finance articles for entertainment purposes and here is a doozy that I couldn’t resist sharing with you.  This is Matthew Lynn in the Telegraph rhapsodizing about the sunny uplands just ahead in the Chinese stock market with the Shanghai index on the verge of finally being admitted to the MSCI Index of  global stock markets.

When I came across this:

“(China) is where the fastest growth will come from. It is far easier to expand rapidly in a country growing at 5pc-plus a year than it is in one growing at 1pc or 2pc (and interrupted by occasional recessions). PetroChina has already been briefly the world’s biggest company measured by market value, and the current global Top 50 includes a number of Chinese companies, from the internet giant Tencent to the Industrial and Commercial Bank of China. 

“So far, the Chinese market has been marked by incredible volatility. A bull run in 2007 took the Shanghai index up to close on 5,000, and another one in 2015 took it up to 4,500, before falling back to the 3,000 level where it has been for most of the last year. Over a longer time frame, however, it is clearly powering ahead.

“Twenty years ago, the index was at just over 1,000, and it has tripled since then, and that is not true of any other major market. Even my nine-year-old daughter could probably work out that it will more than triple again in 20 years – and with more foreign capital may do a lot better than that.” 

Here is a writer who believes in the straight line theory of markets (despite all evidence to the contrary throughout history) – and the power of positive bias.  (Incidentally, he is wrong abut one thing – the Dow has more than tripled in the past 20 years to outpace China).

Has not the man looked at a monthly price chart?  Has he not seen that ups are always followed by downs?  He falls into the trap that because a market has tripled, it will do so again with no intervening crash to wipe him out.

Here is the monthly Dow in the 20 years from 1997

I don’t know about you, but if I was holding a portfolio of shares at the 2007 high and rode it down in the crash, would I be still holding at the 2009 low with the loss on the Dow of over 50% (and a lot more on individual shares)?  If I was the sort of character that would have battened down the hatches and clung on, would I do the same in the next big wipe-out?  More than likely – and that puts me in grave danger of being wiped out along with the others!

Luckily, I am too much of a coward to be the ‘set and forget’ investor type and would liquidate as close to the top as possible – and then position short.

No, the above writer is a victim of recency bias – what has just happened can be projected into the future.  As we know, a more realistic description of the real world is the Elliott wave model that can often anticipate market turns both up and down.  On the above chart I have my wave labels and we are now in the final fifth wave before the major turn.

There is a very clear message here – the 8 year bull market is near its end.  There should be one more down/up sequence to complete, but the end can be measured in weeks and  perhaps a few months.

And when the market makes its final top, the Elliott wave model says the decline will be historic – and what will Mr Lynn – and most others – be advising then?  “Batten down the hatches, perhaps?  Don’t panic, the fundamentals are still sound and the markets will right themselves.  Dividends are safe and buy the dips!”

But such confusion is common today when the vast majority are wrong-headed about how financial markets work. And such confusion is entirely typical when looked at in the times we live in – a period of monumental change everywhere you look from politics to technology.

In recent months, Brexit and Trump happened and these were sea changes in politics, as was the landslide for Macron, the leader of a party that only started a year ago thus kicking the long-entrenched French leftist establishment out on their ears.

And we are told that AI is transforming the world of work and set to disrupt it further.  Indeed, we are living in an Age of Disruption – and is it possible that the current ‘perverse’ stock market performance be part of this scenario?  One of the leaders of this is Uber, the ride-sharing company – real disruptor if ever there was one.

The global tech leaders of the FAANG Gang have been leading the indexes higher with outstanding gains compared with more traditional companies.  In fact, many issues are trading near their 50-week lows as the Dow makes new all-time highs daily.

Here is  a very interesting article on seekingalpha.com that puts the case that the tech economy is throwing the old rules of economics out on their head. Forget the basic rule that higher demand equates to higher prices – the modern economy is based on IP (Intellectual Property) and that is freely transferable and there is little or no cost to its replication.

I like this quote from it: “So, in other words, if the industrial revolution involved mechanization of labor, it is commonly said the new technology revolution is a mechanization of the mind. The flood of technology changes the whole politico-economic landscape. It causes, at least initially, endemic chaos, and it renders somewhat senseless many (if not all) of the antique economic ideas of the industrial revolution (left or right) – Keynes, Krugman, Friedman, Hayek, et al.”

Perhaps this explains why markets have been divorced from macro economic fundamentals for so long.  The FAANG Gang, having a virtual monopolies in their fields, have low overheads and growing global demand, low staff/earnings ratio and are mobile which takes advantage of low tax jurisdictions. Compare with a traditional manufacturing outfits and that is why tech shares are in such demand.

As someone who has had a series of small businesses, I can vouch that the best ones are those with a good USP (Unique Selling Point), minimal staff, and very low overheads. These will describe the big businesses of the future, as they do with today’s tech.

 

Market hits my target with big profits

Back in May, I had been tracking the well-traded EUR/GBP cross which had been in a lengthy consolidation zone since the spike high last October on the sterling Flash Crash.  This was the chart I had on May 12 as I was lining up a trade

I noted the beautiful wedge pattern in wave 4 with the required five waves.  The lower line was a very solid line of support with multiple accurate touch points.  I knew the market would need a very powerful  push to get it below this line but odds were high that the market would start a rally in wave 5 soon.

This is what I wrote for members of my VIP Traders Club on May 12:

 ACTION  I advise going long around here (currently 8420) with PS at 8390, looking for a move above 8530 and possibly higher (see GBP/USD above).

Our entry was at 8420 and a few days later this is what I wrote in my Trade Alert:

With this eight month pattern about to spring loose, I expect a sharp rally to at least the 88 area as first target but with higher potential.

So my main target was then at the 88 area (from our 8420 entry) which would give us a gain of 380 pips.

And here is the chart updated

My target has been hit but I believe there is more to come.  Appears we are in wave 3 of 5 that should push above the old high at 88.60.  That is what I am now gunning for.

 

Comment ( 1 )

  • TAJ

    Good stuff and a good read. Thanks.

Comments are closed.

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