Weekly Wrap

Winston Churchill said after the Battle of El Alamein:  “This is not the end.  It is not even the beginning of the end, but it is, perhaps, the end of the beginning”.

After that first successful battle, Churchill also said; “Before El Alamein, we never had a victory.  After El Alamein, we never had a defeat”.

With yesterday’s huge stock market falls, the battles I have been having with the stock markets over the past five years have felt like my pre-Alamein phase.  After 2:30 pm yesterday, when the Dow peaked at a new high and then plunged, it is starting to feel like the end of the beginning of the bear market I have been not-so-patiently anticipating all these years.

Not that I haven’t been able to take money out of the sometimes large bull market corrections over the past few years.  That I have and have documented some of them here.

In fact, in my forthcoming book: Tramline Trading. I outline my Dow trading campaign from November 2013 to March and most of the time, I was trading against the bull trend and still managed to extract significant swing trade profits from the dips.

But all good things come to those that wait.  And it does feel that the bear market has finally heard the starting pistol and is off and running.

Remember the chart I posted last month showing my forecast for a top in the Dow in March?

March was the fifth anniversary of the 6 March 2009 low and I have a symmetry in the waves A, B and C.  That was why I believed March would see the top in the Dow.  It actually came yesterday on 4 April – I was out by four days.  Is that a hit?  I believe it is – and here is why:

This is the Nasdaq:

The Nasdaq made its top on 7 March (five years and one day after the 2009 low!), this fulfilling my forecast with accuracy.

But look at yesterday’s huge plunge – it was the biggest one day loss in years.  And the close yesterday fell under my tramline – a very bearish portent.

Yesterday’s COT data was revealing – it showed the specs had added to their already over-weight long positions in the Nas.  The hedgies (trend-followers) are now over three-to-one bullish, while the small specs are over two-to-one bullish.  I believe they will rue the day they added to longs at the top, and they will provide the fuel for the next major leg down

Here is the Dow:

Until about 2:30 pm, the Dow was edging higher into new all-time highs after the release of the US unemployment report (which was first judged supportive!), but then, waves of selling drove it down to create a massive daily key reversal.

This action meant that although there was a new all-time intra-day high, no new closing high was made.  Thus, my March top forecast is intact on a closing basis.

My first main target is the 16,000 area.

But what is noteworthy is that the selling occurred with no discernible news trigger event.  And nobody rung a bell at 2:30 either.

I believe any rallies should be shorted from here.

GOLD

Along with the stock market sell-off yesterday, gold rallied very nicely off the Fibonacci 62% retrace and followed my forecast for a bounce from around the $1285 area:

Also, wave C = wave A at $1285.  With the pos mom div at  last week’s low, a good bounce was very much on the cards.  Also, the market was just too bearish with DSI plummetting to around 18% bulls from an 85% reading at the $1388 high on 16 March.

In only three weeks, sentiment had turned 180 degrees – a huge switch around, which highlights the extreme volatility in the gold market.

Also, yesterday’s COT data reveal the expected move by the hedgies into the bear camp last week – just before the nice short squeeze yesterday!  You couldn’t make it up.

So now the market has hit the Fib 38% retrace of the move off the 16 March high – my first target.  Will it go on to the Fib 50% level at around $1335?

Here are my short-term tramlines with the market hitting my upper line yesterday.  Market is short-term overbought so could see a pull-back early next week.  Also, the form of the rally off last week’s low is only three waves so far.  But the latest leg up appears to me to be impulsive and so could be forming part of a larger third wave.  If so, then much higher prices beckon.

But if stocks open next week down, then gold should move swiftly above the 38% level.

I remain long. 

US DOLLAR

As I forecast, the dollar was rampant last week  and I remain short EUR/USD and GBP/USD.

Have a great weekend!