Weekly Wrap

Bitcoins – the talk of the town currently – have rocketed from $12 a year ago to a recent high of $1200. Now that’s what I call a bull market!  Many are calling it a bubble, and who is to disagree? A Bitbubble perhaps?  Stories of early ‘investors’ suddenly finding they are rich proliferate the media.  This is s a sure sign that the Bitbubble is in trouble (!).

But from our point of view, the top valuation was made on B-Day the 29th November – the very same day that US stocks – the Dow and S&P – registered their highs.   Now why should that be – surely Bitcoins and equities have little in common?

What they have in common is that both are speculations propelled by social mood, and that mood has been swivel-eyed bullish. How else to explain the Bernanke put where all news – good and bad – is considered good, or an untested cryptocurrency with no ‘real’ backing with only a few months of history can rocket in value by one hundred-fold in a year?  It takes a great deal of bullish enthusiasm to be buying Bitcoins at current levels – an enthusiasm stoked by the sudden flow of media get-rich stories.

My general rule is this: when it appears in the media, it is too late.

Now, several governments are coming out against Bitcoins, and there are many upstart rivals now on the scene, so will Bitcoin maintain its first-mover advantage?

These actions – Bitcoins and stocks topping – gives me a very important sign. The US dollar is poised for another massive rally phase.  Sentiment is switching from owning assets and into safer vehicles, and the US dollar is the time-tested safe haven (as is gold, see later).  The other major safe-haven currency has been the yen, but with Abe’s massive QE operations in Japan, this is no longer the case.

Basically, the dollar is becoming the only game in town.

With stocks  well off their 29 November tops, what effect will next week’s critical Fed announcement have? This is one of the most important events of the year and on a par with the taper-talk event of 22 May when the Fed hinted at a taper and sent stocks into a nose dive.  With this recent history, the Fed must be walking on eggs and will be bending over backwards to avoid any direct suggestion of taper.

My best guess is that they will say they are maintaining the current $85 billion bond purchases, but will lower the interest paid on excess bank reserves from 0.5% to say 0.25% or even eliminate it altogether in an effort to prise the funds loose and into the economy.  Of course, they will be pushing on a string as load demand is weak.  And can the US economy stand another credit bubble and bust?

But that is only a guess because the Fed are between a rock and a hard place, and nothing would surprise me.  The key fact is that if the market rallies from here. it would take a miracle for the 29 November highs to be exceeded.  My stance is that rallies should be shorted – and next Wednesday, we may have a supreme opportunity.

NASDAQ

This has been the high flyer.  But the decline off the late November highs needs a little more work to tell me it has turned:

History tells us that the major indexes make their tops (and bottoms) at different times.  The Nas appears to be on the verge of breaking my centre tramline on that huge neg mom div.  But next week will be very volatile, and it could easily bounce off my line.  If the market gets a risk-on signal from the Fed, the rally will be on.

Here is the concern I have on the hourly:

From the mid-October low, I have an A-B-C with C in progress.  To be textbook, I need to see five waves up in the C wave.  I can only count to the current w4 so far.  There is a real potential for the final rally in w5 before the major break down.

My best guess is a rally in all US indexes early in the week, and a final push higher late on Wednesday before a big swoon into the weekend.  This should push the Dow and S&P higher, but not making new highs above the 29 November high.  The Nas should make a new high in w5, setting up major divergences.

GOLD

Is still trying to make a base for a major rally. It failed at last week’s attempt, but it appears is making another:

My hopes were high last week, but the rally. although decent, hit a brick wall at the Fib 38% level.  Then the market made another lunge for new lows, but was stopped at my lower tramline in an accurate hit:

That sets up an interesting picture.  If yesterday’s $1220 low is w2, then we are in w3 which should get the market up to my upper tramline smartish.

Note the identical 5 downs with very similar looks to the internal waves, and the small pos mom div at the low.

Maybe this time?  I am long again.

GBP/USD

Consistent with my theme for a rally in the dollar, is the GBP making a double top?

We all know that the UK economy is booming and is the poster child for the world’s recovery.  Hey, at this rate, soon we will overtake even China!  Remember when we were the sick man of Europe?  As Churchill once almost said: “Some sick man, some economy!”

But has this bullishness run its course?  Both the 1.68 in GBP and the 1.38 in the euro are formidable resistance levels.  Again, next week should be volatile and rallies should be shorted.

Have a great weekend!