Weekly Wrap

I mentioned before that I was delighted that Robert Prechter has recommended my book:

You can buy it here direct from the publishers.

What a week! A rollercoaster in stocks with US dollar rampant. Gold dipped below $1200 and silver below $17 – a multi-year low. Crude oil traded under $90 and Dr Market (copper) traded under $3. I guess my forecast for asset price deflation is finally coming true in spades.

And when stocks get the message, they will collapse in a big heap. But for now, the Buy-the-Dippers were out in force yesterday and took the Dow from the Thursday low under 16,700 to yesterday’s near-17,000 high (see later). Other indexes were much weaker as you will see later.

As I have been writing, social mood is turning more negative. I mentioned the ebola epidemic a few weeks ago and it has now become front page news, sadly. The situation in Africa is becoming unmanageable and now cases are showing up in the USA. There is no question that it will spread to the UK and Europe in time. There is every chance it will become a pandemic especially in Africa.

The big US data point was the huge dip in consumer confidence in September from August 92.4 to 86, which has to be one of the biggest monthly reversals ever. This measure is just one of the signposts pointing towards that more negative social mood aspect I have been commenting on. Remember, the stock market is the most responsive thermometer of social mood.

And social mood is internally-generated (in the collective subconscious) and is the cause -not the effect- of the various human events we see. The MSM and general public have the cart before the horse, of course. That is why the media is worth reading only from a contrarian perspective – or for their entertainment value.

The massive demonstrations in Hong Kong was also a straw in the wind. The Hong Kong Chinese are not noted for their political fervour, so such an event is out of character. And the Islamic State is stirring up war juices in the West.

One of the major signals from a bear stock market is an increase in authoritarian tendencies by governments. I’m sure we can all point to some of these in our own regions.

DOW

It plunged most of the week (see last week’s WW) and then recovered on Friday. The bounce occurred at the Fibonacci 62% level – the most common turning point:

That turn was wave 1 down and Friday’s recovery is wave 2 up. It almost made it to my upper tramline and is entering strong resistance. Note the overbought momentum readings – previously when momentum was this high, the market topped. I expect the market to retreat next week in multiple third waves down (see last week’s WW).

This is a pretty hefty bounce (about 50%), but look at the pathetic FTSE bounce yesterday:

Of course, one of the reasons is that the FTSE is dominated by global resource companies, and the commodity sector is getting clobbered.

The pundits are all lauding the relative high growth in the UK economy, but the prospect of increased interest rates sooner rather then later is trumping this growth. Already, London house prices are coming off the boil (about time, do I hear?)and elsewhere, a buyers strike appears to be forming.

Meanwhile over in EZ land, here is the German DAX:

Again, a bounce off a Fib level – this time the 78%. In fact, Friday’s pathetic relief rally is surely a pointer to the ECB either not being able to do QE, or the market doesn’t believe the eurozone economy will benefit from it anyway. Last week, we saw EZ inflation falling even further towards outright deflation with a 0.3% print on CPI.

With the plunging euro, surely the large German export sector should benefit, but with depressed demand everywhere (China is rapidly slowing), the currency weakness is of no help at all. Draghi’s last gasp at stimulus by selected bond-buying is a classic example of the pushing on a string effect – and almost certainly the last chance saloon.

If I sound like a cracked record, then so be it. It is all about the mountain of debt everywhere. When debt deflation really gets going, there will be nowhere to hide – except in cash or US T-Bills. You definitely want to get liquid and into US dollars, which will be the only currency standing in a few years. That is a bold statement, I know. But I have had that view for many months as long-time readers of my work will know.

GOLD

Its’ getting perilously close to the critical $1180 level:

We are now in the final wave 5 down, but with bullish sentiment still in the basement, a rally is surely close. The questions is: will it take out all the sell stops below $1180 first in a huge blow-off? After all, according to the latest COT, hedgies have 170k longs and 106k shorts with small specs 35k/39k. There are more spec longs out there than shorts, so a big blow-off is possible.

Those figures are somewhat at odds with sentiment data.

But even so, my medium-term target under $1,000 remains, but with a likely intervening rally.

T-BONDS

Have rallied, but I believe a decline is approaching:

Nice bounce on Friday off the lower tramline. A break below this line would be my sell signal.

EURO

Extended losses farther than I anticipated:

But here is an interesting feature on the third wave. In third waves, there is often a mid-way point where the market suddenly realises the decline is for real and not a dip to be bought. If the large day bar marked is that mid-way point, the low for wave 3 is very close at less that 100 pips in the 1.24 region.

If that occurs, that may coincide with the plunge low in gold mentioned above. Interesting.

CANADIAN DOLLAR

Is moving nicely on towards my tramline target (see previous WWs):