Treasury bonds are in crisis
Is the dam finally bursting? On Thursday, stocks fell hard after the Fed Chairman tacitly admitted the Fed has no answer to the current Treasury bond crisis with yields exploding (see previous posts). Contrary to popular opinion, that is because the Treasury market is in a ‘third of a third’ wave down which I identified weeks ago for my clients.
One of the priceless benefits of using the Elliott wave model is that by using it correctly (not everyone does that!), you can set the odds for a successful forecast way ahead of the crowd. So that when the majority finally catch on, you are in a position to take substantial profits from them! That is the art of professional trading in a nutshell.
And another of the priceless benefits is that you can set sensible price targets especially when used in conjunction with my tramline and Fibonacci inputs. In our ongoing T-Bond campaign, we have been carrying short positions for many weeks and back then, I set an important target of 155 for a major low. Back then, the bonds were trading around 188.
So if the market did arrive at my target, the profits would be huge. And last week, my target came within touching distance. That was very satisfactory,
As forecast, the dollar has reversed.
The most important market for traders and investors is the value of the US dollar. It governs everything as the global reserve currency. At a close second comes the interest/bond yield markets (they are linked). For months now, bullish sentiment towards the dollar has been at rock bottom – or lower. And I had been searching for that elusive bottom for a while. I know it was there but identifying a major reversal in real time is not a stroll in the park trading-wise.
In fact, I had a few false starts last year – but all trades were protected by close stops. I will never trade without stops and I would much rather get stopped out on an early trade for a small loss than carry a whopping great open loss on my books. I believe most traders suffer emotional damage if carrying an open loss that is a goodly chunk of their capital. And being overly emotional is a severe handicap for making sensible decisions.
Here is the updated dollar chart
Last week, the index broke above my upper wedge line. Remember, a down-sloping 5-wave wedge on a strong momentum divergence coming after a bear trend usually heralds a strong counter-trend push with a major target at the start of the wedge as shown. I have identified many great contrarian set-ups in this way.
So with US bond yields rising, the dollar is following as expected. And that will be a headwind for further stock market advances.
I expect my Dollar Campaign to be one of our biggest winners this year. I believe it will develop over many months. As it rises, more and more bears will be converted and the news will be super-bullish at the top. That is where I shall be taking profits. Of course, the path will likely be rocky and many bulls will be shaken out of positions just before rallying again. Don’t let this happen to you.
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Will rising inflation finally pop the equity bubble?
Is Micro Focus rising from the dead?
Over in my Pro Shares service, we have recently resumed trading in this share where we took major profits two years ago. But it has fallen on very hard times since having slumped from the £27 ATH in 2017 to the recent low at £2 making it a fully paid-up member of my 90% Club.
Most of the time, members of this Club do not rise again to see the light of day, but I believe this one stands a good chance – and so I was on the hunt for the elusive low. And when it started a rally off the ATL last November I decided to monitor progress. And when it gapped up on 18 November, I pounced and bought in at 350p. I was able to set a close stop since all my trades are done with low risk/high reward potential.
I noted the huge mom div developing which was a clue to expect a strong reversal – and the gods were smiling as they provided it. I have an immediate target of 800p with higher potential.
Remember, I do not know much about what this company does or what its balance sheet looks like. I do not really want to know as it may distract me from my analysis. As the wise guru said: A little knowledge can be a dangerous thing!
This is the kind of set-up I like. It is a low price share having fallen from a great height and only a small move up – say from 350 to 500 (its latest print) is a very large percentage move – which translates into a large spread bet gain. We are carrying several such setups in Pro Shares.
My 32,000 Dow target has been hit – is it The Top?
I believe we are forming a multi-decade bull market major top in stock indexes. But since I am dealing with such a long time frame, I expect the Top to form not in days but in weeks or even months. That means we should expect huge volatility in this topping area. And that is what we are seeing in spades.
It is extremely frustrating for bears that wish to see more hard downs!
Friday’s action was entirely typical of this volatility with hard down in the morning and then hard up in the afternoon. It is a day-traders playground with large inter-day swings!
But these swings are following the Elliott pattern with accurate Fibonacci reversals. For example, Friday’s initial plunge took the Dow down to the precise hit on the Fib 62% retrace of the entire rally off the wave 4 low on the 31 January low. And as I suggested in Friday morning’s Trade Alert, this could be forming a three down with the afternoon’s bullish action seemingly confirming.
One very supportive feature is the booming crude oil market (has reached the incredible $66 level on Friday) to lead many commodities higher. How many saw that coming (we did!)?
If the three down (corrective) is valid, we could be seeing new Dow highs above 32,000. Hmm.