Weekly Wrap
Really not too much to comment on today. US housing stats continued very weak with existing home sales in January came in 5% down. At some point, investors will notice this and that the US recovery isn’t going to keep company earnings zooming ever upwards. China is slowing down fast and the eurozone is in deflation.
The one-time saviors of the world economy, emerging markets, are also having their difficulties. That just about covers most of the global economies. So who is going to save the world – the Martian economy?
Although I jest, while working at NASA in the 1970s, I was on the Mars Manned Exploration Team and I hear work has re-started on a possible mission a few decades hence. I knew back then that I would not see this happen in my lifetime!
Where am I in relation to the Dow trades this year? I managed to take 1,000 pips out of the Dow wave 1 plunge in January, then another few hundred pips on the relief rally when I went long. But I exited that trade too early!
If you remember the famous quote from John D Rockefeller (the richest man in America) when asked how he became so rich, he said: “I sold too soon”. Suddenly, I don’t feel so bad.
Let’s get t the markets.
FTSE
The FTSE has been making excellent EWs and tramlines and I thought it would make a change of pace from my usual Dow analysis.
The Feb rally is in a clear five waves (a perfectly good alternative is an A-B-C where w3 is wA, w4 is wB and w5 is wC). Note that both waves 3 and 5 also have five sub-waves. Also working is a lovely wedge with great touch points. If the market can break the lower wedge line and get into the pink zone, that should be curtains for the rally.
If you go to the monthly chart, you will see the 6800 area is major long-term resistance.
A break next week would be my best guess, and eventual move down to the start of the wedge in the 6400 area.
GBP/USD
In my last post, I showed great tramlines working in cable – and now I have another short-term set:
I really like my centre tramline as it sports many accurate touch points. On Friday, the market rallied to the underside in a kiss and fell back sharply in a scalded cat bounce.
This is tell-tale action pointing to lower prices ahead. Sentiment has been very bullish and hedgies have been swarming to the long side like there’s no tomorrow:
Even the small specs have got the sterling bug. But look who is on the other side of these trades – the smart money boys in the shape of the commercials.
This is an ideal set-up for a big move down. And when you study the tramlines on the chart I showed last time (and above), we have a great opportunity here.
EUR/GBP
Has been in sharp decline but I believe is about to reverse trend. This is the daily:
Momentum has been building for months in a very large pos mom div. And the decline has the A-B-C feel to it. The recent low has been testing the Fibonacci 62% retrace as well.
If my analysis above on cable is correct, it should fall faster than the EUR/USD, thereby aiding a long EUR/USD trade.
All in all, a great candidate for a reversal. Watch for the break of the upper tramline!
GOLD
Has been testing the Fibonacci 23% level:
But with all that overhead resistance, I am not sure it will maintain its upward thrust right away. If the dollar does rally strongly (see above), that should put pressure on gold. My best guess is for a dip here and then a big move up, especially if stocks start their big move down very soon.
The other problem for we merry band of gold bulls is that we are not such a merry band any more – DSI readings last week came in at over 60% bullish – up from 4% bulls in December. Gulp! It is getting a much more crowded trade now, so some caution is warranted.
But big dips should be bought, nevertheless. Maybe at the top of this rally, bullish consensus will be reading 96% again, as it did in late 2011 at the $1920 top!
Have a great weekend!
