Weekly Wrap
2014 is exciting, isn’t it? And it is only two days old! Already, major markets have turned and the complacency I have been noting in 2013 is being shaken. I was particularly impressed with the over-$3 drop in crude oil on Thursday. If ever there was a market that was in a mega- bubble, that was it. We all know that this market is heavily manipulated, not only by the major players, but by governments (the OPEC cartel being just one) who all have a vested interest in propping the price up.
I do not trade crude because it is far from a free market. Of course, you can say that to some extent of all other markets today, but at least my methods work on them! But perhaps we will see a freeing up of the crude market this year – and this initial $3 decline is a slap in the face to the bulls.
Crude oil down, stocks down
There is a myth concerning the crude oil price – that if we get cheaper oil, we will get a boost to the economy (more disposable income) and stocks will rally. That is the received wisdom you read about in the media. This is fallacious as long-term, crude prices follow stock prices. Why? Simply because when crude declines, demand is falling because the sentiment of the gas-buying public is negative. And when sentiment is bearish, stocks decline. QED. So watch the crude market for a tip-off for stocks.
Since Thursday, both stocks and crude fell heavily together. I rest my case.
US Dollar in melt-up
The other new development is the resurgence of the US dollar. This is one of my Trades for 2014. Not only will we see global tensions ratchet up (China-Japan being just one), but dollar liquidity will be drained (QE tapering being just one catalyst) and capital will fly to the dollar for safety. In addition, deflation will re-emerge with a scramble for dollars to cover debts. In fact, a double/triple whammy boost for the dollar. The move will be explosive.
The Fed will get into trouble this year
Oh, and one other prediction: the Fed will get into severe trouble with its assets, which have been accumulated with a leverage of around 80:1. Yes, that’s right – its capital is is less that 1.5% of assets because of its QE machinations. The pressure is building in the market for an increase in short-term interest rates. Already, the 10-yr Treasury yield has risen to over 3%, putting upward pressure on mortgage rates, which is already being felt in the US housing market. And with US economic data firming up (is good news becoming bad now? What a switch!), it is only a matter of time before the Fed will be forced to increase its discount rate and abandon ZIRP.
When the markets get a sniff of this, there will be mayhem; make no mistake. The economies of nations with massive debt/GDP ratios will sink and the euro will either be on the verge of break-up, or Germany will relent and allow the ECB to engage in QE. This will also sink the euro – and put a rocket under the dollar which will be the currency many will flee to for safety.
UK housing in a bubble
Here in the UK, house prices are already bubblicious to the extent that politicians are getting worried we will see a replay of the 2008 collapse. Things must be serious. Mortgages with only 5% deposit are back and the government is helpfully pumping up the bubble with Help to Buy schemes. We are seeing the very same symptoms of a bubble as last time with offers way over asking prices, sealed bids, gazumping, and over ten interested parties for each listing. What could possibly go wrong? Nothing, for people with very short memories.
We have a lot to look forward to in 2014!
NASDAQ
On the last trading day before the holiday, traders wanted stocks so badly, they bid them up in the final hours to new highs. But on Thursday, they didn’t want them any more (what was in that cranberry sauce?) and the market opened with a big gap down. The important point is that I now have a complete 5-wave pattern to Tuesday’s high. The bear market can now resume:
It is possible the dip so far is an A-B-C and we could see a new high, but with tramline targets having been met, this is a less likely scenario. To confirm my forecast, I need to see very sharp falls over the next few days/weeks in my w3. Latest COT shows still lopsided bullish holdings by the specs (last week we had an 11:1 bull/bear ratio!).
EUR/USD
A very similar dynamic as with stocks – up t just before the holidays, and sharp falls on the resumption.
My main central tramline has been breached and my next target is the third tramline. I shall be looking to short rallies and am positioned aggressively bearish. Ditrto GBP/USD.
GOLD
Has completed the 5 down and is now in rally mode:
And with the tramline break, we are heading higher but I expect a minor top between here and the Fibonacci 38% level, then a dip and then a new rally leg. This should be interesting.
I am long gold.
APPLE
This is/has been the darling of the tech mania and it has satisfied all my requirements for a complete bear market rally:
We have a wedge (nearly always a sign of an impending massive decline) with an A-B-C and the C wave has carried to the Fibonacci 62% level. Last week, the market has broken the lower wedge line and is testing the key support area. If this gives way (as I expect), then look out below. If holding Apple shares, this is a great chance to cash out.
Have a great weekend!
