Weekly Wrap

I guess World War III has been postponed.  They are all hugging each other now that they all have decided to calm  down over Ukraine.  If ever there was a phony conflict, this was it.  Maybe it was just a war game played out to test each other’s resolve and to bump up the oil price.  Maybe Putin had gone long crude futures a few weeks ago?

But the market’s reaction next week should tell the story – especially the gold and crude oil markets. Will there be follow-up to the selling?

Last week saw the big bounce in shares I was expecting.  I pointed out that the Dow decline was in three waves only and that meant it could be an A-B-C.  Again, next week should give me some indications of intent.

But there is no doubt bullish sentiment towards stocks remains elevated, despite the big falls in tech.  The rotation out of risk continued with the Dow/Nasdaq spread gaining strength.  I do not believe faith in tech will return now that significant damage has been done.

The Dow and S&P will shortly turn down again in earnest.

GOLD

I took profit on the last part of my long trade last week on the big slump:

Last week’s decline has taken it to my lower tramline.  Now, I am not placing great faith in these lines as I have drawn them.  I have a PPP on the upper line, but only one touch point.  The lower line is better with four touch points (one of them is a pigtail cutoff).

Bullish sentiment (DSI) has fallen heavily since the sub-$1400 high, so the bullish froth is now off the market and it may be poised for one more decline in an A-B-C (green lines).  But I am now flat gold, having taken two excellent profits on my successive long trades.

With the main trend still down, I am glad I did not over-stay my welcome on the long side and will eventually be looking to position short for a fifth wave move below the $1180 lows.

Incidentally, in my forthcoming book Tramline Trading, I go into detail into how to trade around tramlines and reveal a few previously undisclosed tips.  Watch out for it!

EURO

Has been edging higher recently, but it has now run into a brick wall:

The gap is significant (remember the similar Dow gap down the first trading day in January?).  Gaps usually get filled in, but if it appears after a hefty run up and after several attempts does not get closed, than it is a breakaway gap.  This heralds the start of a significant move down.

That is why this gap is highly significant.

And last week’s rally is a clear A-B-C.  When the market breaks the 1.38 area, that will confirm the new downtrend and we will be in a long and strong third wave.

NASDAQ

This has been the big leader on the way down but has bounced off the Fibonacci 23% support level:

Isn’t it remarkable how often the Fibonacci levels provide support or resistance at the precise retracements?

This is another theme I touch on in my upcoming book.

I have a decent tramline pair on the daily with the upper one (a PPP and at least seven touch points) much better than the lower line.  This leads to my forecast for a kiss – and a further rally in stocks over the next few days.

When the kiss occurs, I will look to see if a short trade makes sense.  Meanwhile, I have taken partial profits on my short Dow trade at Monday’s low and exited the other half yesterday.

I am jumping the gun, but if a new high is not forthcoming and the kiss holds the rally, we could be setting up a large Head and Shoulders pattern to be confirmed on a break of the 23% support (the neckline).  Watch this space.

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Have a good Easter weekend!