Weekly Wrap

Many have viewed the bail-outs of the banks by taxpayers (ie you and me) and the massive QE/ZIRP as a fraud to help save banks and insurance companies at the expense of savers.  But if you thought these institutions had a sweetheart deal from the authorities (too big to fail), then the notion of them being in bed together  got another bang on the head this week.

Not only have banks had to cough up billions for prior misdeeds, such as the mis-selling of PPI (which has been going on for several years), but this week, the UK authorities are investigating yet another faux  pas by insurers dating back to the 1970s.  The term ‘rip-off’ is being used for these policies. This is in addition to the budget news that pension annuities will not be mandatory on retirement – a shock to the industry.

The annuity sector will undoubtedly shrink with a corresponding bearish impact on UK stocks.

Suddenly, the insurance industry (among the biggest stock market investors) is on the back foot from the authorities.  Maybe they are not sweethearts any more and having a big falling out.

But why now?  The upcoming UK elections are not a factor, surely?

I want to mention this because these actions are consistent with my recent theme of bear market manifestations – a case of retribution for crimes perpetrated in the permissive bull market.  Social mood – which controls the stock market – is turning more negative and angry.

Also, despite the UK having some of the cheapest electricity and gas prices in Europe, the energy industry is being hounded by calls for a shake-up.  Another populist vote-winner?

In the markets, stocks headed lower, lead by the Nasdaq:

But the decline was stopped right at the meeting of the chart support level and the Fibonacci 62% retrace.  We should see an early week bounce before this support gives way in earnest.  However, yesterday’s bounce off this support was hit by heavy selling. so my forecast is by no means assured.

DOW

Held up better than the Nasdaq as the flight from risk gathered pace.  In yesterday’s MW Trader email, I showed one tramline set.  Here is another:

The upper line is superb with two very accurate PPPs and two accurate touch points.  But the lower one is messy and does not give me a clean reading.  But odds now favour only a modest rally early next week (if any) and then a fall into the latter part of the week.

You can see how tricky trading has been with this very choppy behaviour.  There have been at least eight swings of 100-200 pips since the 16 March low.  But once the third wave kicks in (see previous posts), we will get consistent down moves.

T-BONDS

Hit my target at 134 last week where I took some profits off the table.  And I have an excellent tramline pair here too:

A break of my excellent lower tramline would probably indicate yields were headed high near-term.  My major target (months away) is for yields to be in the 1% – 2% range eventually.

Meanwhile, I will take these swing trades as and when they come along.  But the trend is still up and the market made a nice bounce off the tramline yesterday.

ALCOA

Is making excellent progress in its trek upwards:

Remember, Alcoa was one of the dogs of the Dow last year before it was kicked out.  Recall I said at the time that being out of the Dow was likely to unleash it – and so it has proved.

Also, why is Alcoa in favour now?  Aluminum is still in massive over-supply and China is slowing down fast.  Energy prices are not coming down either, so what is going on?

I have no answers.  All I know is that if you use the ‘fundamentals‘ to invest in stocks, you would likely have rejected this one as a loser.  On the other hand, I noted a massive wedge forming (see previous posts) around the $8 area and after a long bear market – a decline from the $50 area – the technicals were telling me the bear move was probably over and a new bull market was likely.

Remember, I recommended this one last year as one to tuck away as an investment as well as a swing trade.

GOLD

Am I glad I took profits on my long trade near the $1388 top!  The overwhelming reason was the DSI 86% bullish reading.  The long side was just getting far too crowded for my taste.  That was a very tasty profit of $180 or so.

 Now with gold off $100 from there. are we near at least a short-term low?

The market has dropped down to support at the meeting of the Fibonacci 50% level with my trendline where we could see a kiss.  If so, a scalded cat bounce may result – and a jump of possibly $30 – $40.  After that, I am not so sure.

Latest COT data shows a big swing away from the bull camp by the hedgies, as I expected.  But they still hold a three-to-one long ratio.  My question is:  has the $100 decline blown away the froth?

Have a great weekend!