Weekly Wrap

ANNOUNCEMENT

In conjunction with my book publishers, we have launched my Tramline Trading Alert service.  This service will highlight promising trade setups such as those I have featured in my Weekly Wraps – but before they happen.  The Alerts will not give specific trade orders, but will focus on the setups that may develop into great trades.

I will send the Alerts as and when I see a good setup forming and I expect to send on average about 6 – 10 per month.

The Alerts will contain references to the relevant chart setups in my book Tramline Trading and will be invaluable if you wish to delve more deeply into my trading methodology.  Most will reference my five top chart patterns that I outline in my book.

You can get full details here.

This means that the format of my Weekly Wraps will change.  I will keep focused on market commentary, but will have few trade setups – those will be reserved for the Alert service, which will become much more valuable since they will highlight potential great trades before they happen, not after.

Market Commentary

Oil prices are collapsing.  Dr Copper is weak and trades well under the critical $3 level. Even platinum (now largely an industrial metal) trades at five year plus lows.  Iron ore prices likewise have collapsed. And junk bonds issued by some US oil fracking companies are trading at 50% discounts or more.

Inflation rates around the world are sinking with many EZ nations already well into deflation territory.  The outlook is for further declines.  That’s not supposed to happen with all that central bank QE (and jawboning)!  The ECB members in particular will be having sleepless nights (let us hope).  Their 2% target is pie in the sky.  So much for central planning.

OK, that is the good news.  Where is the bad?

Oblivious to this rapidly deteriorating scenario in the real world, stocks keep marching up the hill in vivid demonstration that the hedge fund algos don’t get out much.  Provided they have liquidity at their disposal, they just keep on buying on auto-pilot like the Duracell bunny (until the battery runs out, of course).

HAL is in control of stock markets

Remember the out of control computer HAL in 2001 – A Space Odyssey?  Here is a slightly amended quote from that wonderful film:

Trader Dave:  “Stop this crazy buying, Hal!“

HAL:  “I’m sorry, Dave.  I’m afraid I cannot do that“.

Dave and colleagues end up unplugging the computer as the only way to stop him.

Many believe a low oil price is good for the economy – more disposable income for consumers to freely spend.  Don’t believe it.  Falling oil prices is a negative for economies.  For one thing, it will encourage dis-investment in exploration and development (job losses), and it reduces the tax take of greedy governments, thereby increasing the pressure to either borrow more (pushing up yields) or increasing taxes (bad for the public and bad for the economy) – or both.

The UK government in particular is in a bind.  As we know, the art of taxation is to extract the most feathers from a turkey with the least amount of hissing.  And attempts to raise taxes will surely encounter a decibel level issue.  Already, UK borrowings are judged too high and rising (deficit is growing), so that avenue will be a last resort, especially when interest rates start to increase.

There is no doubt that oil at $70 (and headed lower) was not on the radar of most a few weeks ago.  Much speculation in the energy sector has been made with borrowed funds.  These are now in great danger.

As I wrote in a MoneyWeek Trader email last week, many stock indexes are at crossroads on the charts.  And this is the ideal time for market to begin historic turns when deflation looms.  Already, the FTSE 100 has rallied to kiss my wedge line and is headed down:

With both consumer and producer prices under severe pressure, is a new investor here about to have their head handed to him/her?

US DOLLAR

I was a little premature in calling for a temporary high last week.  But remember, my long-standing forecast has been for much higher dollar from last year.  But for a trader, the big question is: how to get there?  After all, you can be right in your forecast and still lose big as we all know.  Timing is critical for success.

Will it be up in a straight line?  Or a big down and then a bigger up?  Or in the many permutations?

The flip side of last week’s advance is that my long USD/CAD trade from July at 107.50 continues to head northward as the oil price goes the other way.  Back in the summer, I anticipated a further decline in commodities which is Canada’s main export sector (to the US) – and a drop in the Loonie.

With the market now testing the 114.50 area, I continue to hold:

Market is heading for the Fibonacci 62% retrace at the confluence with my tramline in the 117 – 118 area.

As for the dollar index, my long-standing forecast is 100 (88 currently) with higher potential, depending on how the various financial bubbles burst.

If the dollar continues its rise, how can stocks overcome that obstacle?

GOLD

I took profits on my long trade yesterday as the market prepared for a negative Swiss referendum vote on Sunday.  Next week will be quite interesting, I believe.

Check out my TTAlert service here.

Have a great weekend!