US stocks in final melt-up phase

The mania driving stocks is historic – the result of a QE-driven rush of funny money into the hands of money managers who saw the Fed offered them a free put option on share purchases.  The only way for shares was up (but only for the chosen few).

But with just about everyone on board the bull gravy train, we are near that historic top.  Share indexes are accelerating into this top – the classic sign of a buying climax ahead.

But the greatest beneficiary of this lethal combination of bullish enthusiasm with oodles of cheap money is surely Bitcoin, the King of the Cryptos.  The crypto mania is often compared with the Tulip Mania of the 16th century or even the South Seas Bubble (where the genius Isaac Newton himself dropped a bundle).  But today’s BTC performance far outstrips all of them.  Here is a very interesting chart

Already, BTC has increased in value by over four times the growth of Tulipomania at its height.  Of course, this is to be expected with today’s instant global communications and larger participation.  Manias today spread like wildfire – as will the inevitable bust phase.

I like to follow the S&P (but prefer to trade the Dow) and here is my analysis – first on the weekly

Last week’s holiday-shortened performance was stupendous by any measure.  In the last four days, the market advanced more in the week that in any week since the November 2016 Trump Bump.  And now we have a clear potential overshoot of the major trendline.  The entire rally off the 2016 low is in a clear five waves with the current fifth wave terminal to the bull trend.

Here is a close up of the fifth wave on the daily

The waves line up nicely in this Elliott pattern with last week’s thrust the terminal wave 5 of 5 of 5.  I also have a potential momentum divergence into yesterday;s high which, if it holds, will herald a sharp decline.  That should occur next week.

Last time, it appeared the heavy fall on the last trading day of the year might have signaled the start of the turn down, but when the market opened on Tuesday higher, that suggested a fourth wave low leading to the final wave 5 up, which in fact has occurred.

The sentiment picture is entirely conducive to a major top.  Daily Sentiment Index (DSI) shows bullish percentage around the 93% level – a three-year high. Major tops have occurred at this level before.  And with the Elliott picture showing fifth waves of several degrees of scale, the decline, when it comes, will be breath-taking.

And when the decline gets under way, my first target will be the small red wave 4 low (2667) and a close below that will cement my overshoot thesis – and herald much steeper declines.

But we are not quite there yet.  I remain long from much lower since I am still riding this incredible trend – one of the most generous in many years.  The amazing bull run has lulled many into believing this kind of exponential performance is normal.  It is not. It is highly unusual.  Investors will find out the hard way if they stay too long at the party.  The punch bowl is slowly being removed (money supply is already falling) and the penny – along with shares – will soon drop.

Ether has hit my $1,000 target

We have been trading Ethereum since November and here is my EW analysis

In one month, it has jumped three-fold.  As they say, that beats the Building Society!  We seem to be in wave 3 of 5 and this wave could stretch well above the $1,000 mark before turning down in wave 4.  We are staying with it for now but with a watchful eye for a top.

Meanwhile, over in Bitcoin, when the expected decline failed to materialise last week, I amended my outlook last week to this:

The market is currently hovering around the wave C high at 16,500 area.

The US dollar remains poised for mammoth reversal

I have been tracking the dollar as it languishes near its lows but if my Elliott wave labels are correct, we will see a wave 3 rally phase of several months start

The key to my bullish take is the wave 5 low must hold.  Bullish sentiment is on the floor.  Latest COT data for EUR/USD shows hedge funds added 15% to their longs last week (and reduced their shorts by about 10%).  Since hedge funds are trend followers, I believe they are walking into a massive bull trap.