Have stocks really topped?
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US stock indexes remain range-bound for now. Last time, I had two major options: Either the Dow would continue its rally up to the 28,000 area (currently 27,000) – or would start a major decline from around here. And today, the jury is still out.
Yes, there are plenty of reasons why stocks ‘should’ enter a bear phase – if you focus on the economic data. But that is not what I do. Reality is in the price. No amount of wishing the deteriorating data will force the market lower will produce results.
And the MSM is fully behind the impending recession/depression talk. While I agree that such an economic decline is inevitable, will stocks stage one last surge in the meantime? Here is one such article : Americans are completely unprepared for the next recession.
One of my ‘Golden Rules’: The more these gloomy stories appear, the less likely we will have a major sell-off. That will likely start when I see headlines proclaiming an end to the tariff wars, or some such.
Reports are rife that insiders are selling out as they see revenues flatlining. And just yesterday to add to the US woes, capital expenditures by US businesses saw a very large contraction.
I believe of all the major indexes, the DAX presents the best shorting opportunity and we remain short.
But here is the Nasdaq, which is the weakest of the major US indexes
The ATH at 8,000 occurred in late July and since then has traced out a 1-2 sequence. And if the ‘neckline’ can be broken, my wave 3 idea will come into focus. Hmm.
Herding is everywhere
But as for the growing apocalyptic visions we are seeing in the MSM of the economy, they are being greatly magnified among the young who are in thrall to the siren call of climate catastrophe. But this is nothing new. We have had many climate scares before. And with the advent of the web, we are seeing huge gatherings in highly emotional scenes. Naturally, there is a very large student contingent, as is normal.
Students, with their new-found intellectual powers, have always known they have the answers to the world’s ills – real or imagined. And they want to do something about it. And they are unhindered in this as they are too young to remember all the other failed climate scares we have seen in recent decades.
There was Global Cooling in the 1970s and the acid rain scare where all the trees in Europe would die. Also in the 1970s there was a serious scare that we would have a massive food shortage (Malthus reborn) and a complete depletion of oil and other natural resources (Peak Oil) in the 1980s. None of these happened, of course.
Yes, the Green Scare Machine is a reliable instrument to scare the wits out of the young! If I was a betting man, my money would go on either a global cooling or a flatlining for the rest of my life. And of course, the increasing CO2 will green up the world even more and increase crop yields to produce the food that the growing global population needs.
And the Brexit debate here in the UK has certainly stirred up the emotional juices to add the icing on the angry cake.
No, the climate scare is another vivid example of herding which is an irrational expression of inner drives. They are outward proxy expressions of self-generated anger that is sweeping humanity. And just as an angry person lashes out at anything nearby, so does a herd of angry citizens.
I believe this growing sentiment of fear is just a prelude to more dangerous times in the markets – especially in stocks. So whether there is one more decent push up in the Dow or not, the angry Great Bear is in its last stages of hibernation. And that anger will spread from the young to Wall Street.
Heck, everyone will be angry soon (except those who have seen it coming).
Gold/Silver work lower – as forecast
The MSM has gone a little quiet on their highly bullish headlines of late. And I know why – both gold and silver are under severe pressure. This wasn’t supposed to happen! But they had been given the hard sell treatment based on a ‘plausible-to-the-masses’ story that global economies were turning (the fear factor) and gold always does well in such circumstances, right? And what about those crazy negative interest rates! No carrying charges! Buy Gold – it’s going to the moon!!
Actually, no. Historically, gold does not advance when times are bad. In fact, it often moves lower in a bear market as the economy worsens.
But the historical facts did not stop the herd from piling into gold futures and options in recent months. In fact, hedge funds and other money managers have amassed the greatest net long positions in history. Here is the latest COT
Amazingly, the large specs now have a 9/1 long/short holding as they piled into long positions last week by ‘buying the dip’ following the 10 September low. And this extremely lop-sided move produced the inevitable – a sharp collapse to yesterday’s low. VIP Traders Club members took advantage of that bounce to position short.
Here is my reading of the daily chart
The rally off the May lows around $1275 was a classic Tramline scenario. I have a lovely tramline pair and a solid impulsive Elliott wave in five leading to the wave B high at $1555 (inside my target range) on a strong momentum divergence. Perfection indeed, as the market began to wend its way down the slippery Slope of Hope just as the whole world believed it would only go much higher.
DSI bulls had reached a record 96% and the COT data was already flashing danger signals. The first decline broke below the lower tramline – the first confirmation of a change in trend. Then a move up to plant a classic kiss on that line and is now in a hard down in a Scalded Cat Bounce.
My C wave to come (in a multi-week move) should be a five and when it ends, I expect to see the opposite sentiment towards the metal – ‘don’t touch it with a bargepole’ – and that will be time to buy. I expect the DSI bulls to plunge to around the 10% area and the COT to show the reverse of the current position.
Watch out for my Trade Alerts coming to your inbox next week!