Weekly Wrap
ANNOUNCEMENT
My book Tramline Trading is edging ever closer to publication day (next month). It contains my very practical ideas, methods and many tips on trading. It arrives in paper and ebook formats – and we are planning an additional exciting venture: an email alert service that highlights promising patterns in various markets. More details as and when.
You can pre-order the book from Amazon now.
Another week, another stock market high. This is getting monotonous, but is certainly not turning me into a roaring bull. In fact, it is strengthening my belief that when the market does turn – as it will – the declines will be all the more severe – and I want to be on board for that. Meanwhile, I am keeping my powder dry and not fighting the market.
Whenever I have found a high, the market has obliged by declining and offering a short-term profit, but then has come roaring back. One day, it will not do that.
The Fed ‘news’ last week did not surprise anyone and they are on course to continue tapering and then cease asset purchases altogether in the autumn. That will leave them with well over $4 trillion in assets. I don’t know about you, but that seems like a lot of assets, built up over the past few years since QE started. The big question is what will they do with them next year? It’s a big headache for the Fed and will loom large next year.
Meanwhile, complacency towards ballooning debt levels in the economy is off the scale. Companies are borrowing at low cost to buy other companies and especially to buy back their own shares. This will end in tears – it always has before. Companies have an awful track record of buying their own shares at major tops, and will this time be any different?
Virtually no-one I read expects a major decline. Most are expecting a 10% dip max and then a march on to new highs. That is their worst case scenario. As we all know, when the majority expects something to occur, it rarely happens – at least not before a major wipe-out.
S&P
The S&P is at the top end of my upper wedge line on the daily:
This is a lovely wedge! The upper line has the PPP in 2010 and many touch points along the way. My lower wedge line also sports several accurate touch points.
The wedge is one of my favourite trade setups and I explain why in my book Tramline Trading. When a wedge breaks down, the move is usually very dramatic.
But with many eyes expecting a turn here (of 10%), odds favour a rally continuation for now. A perfect scenario is for an overshoot of the upper wedge line and then a pull-back.
GOLD
I had a full analysis of gold in yesterday’s MoneyWeek Trader email. Thursday’s $40 rally was not a surprise to me, as it was to so many gold bears. A few months ago, Goldman Sachs’s bearish forecast was for gold to trade under $1000 (but did they say when?). I usually take pronouncements from manipulative hedge funds with a large bucket of salt.
They are usually meant to suck in naive traders to the short side, meanwhile amassing long positions against them. There is no doubt that the late May break was a classic bear trap (my wave C below).
Here is further analysis of the daily chart:
From the December low, there was a clear five-wave impulsive move, complete with a neg mom div at the w5 high. The correction is a clear A-B-C (with a very large pos mom div, which heralds a big rally) and now the market is in its main uptrend.
Near-term target is the resistance at the $1330 area, which is the Fibonacci 62% level and chart resistance at the April high. My next target is the March high at $1400. Recall it just missed this target of round-number $1400 back then (as I forecast), but will it make it this time? Odds are looking good.
EURO
Not much direction lately off the major 1.40 top:
We are still in wave 2 up, which is small so far. If it doesn’t catch a bid soon, wave 3 down will start with a vengeance.
T-BONDS
Also has been trading in a range for three weeks:
I believe they will break to the upside and my next target is the old high at the 138 area. Longer-term, I believe interest rates are headed higher, but this is a majority view in the market for the near term. So first, the market has to punish these traders taking the ‘obvious’ view that rates must increase (the media is full of such rate-increase stories) by drawing yields lower first.
ROLLS ROYCE
Last time, for a bit of off-piste fun, I had a cheeky chart of RR showing a possible long trade. And guess what? The trade I suggested has turned out very well:
The trendline break was the first trade, and last week, we had another opportunity. A break of the £11 high should send it up to at least close the gap – and the Fibonacci 62% level becomes my next target. That would create a possible A-B-C up, so be careful. There seems to be solid support at the £10 level.
I first took a look at the RR chart just over a week ago and came up with this analysis very quickly. I know nothing about the company’s balance sheet, order book, profit/loss statements and all the other minutiae that ‘fundamental’ investors pore over. All I need is a chart.
Have a great weekend! And I hope you enjoy my book.
