I knew something was up when stocks did not collapse with the massive increase in bond yields last week or so. As I outlined last week, T-Bond yields had rocketed by a staggering 40% and there were the inevitable headlines in the MSM about the epic’ bond rout’. Yes, stocks sold off a tad, but ended the week pushing towards new highs in the Dow.
When markets do not react just as you would expect (as I did), then you have to conclude that something else is going on to trump rising bond yields. I wonder what?
A sane person would say that a sudden and unexpected rise in interest rates would set fingers poised over the stock sell buttons. Interest rates have been pinned ot the floor and they were expected to stay there for ever in the face of weak US data. But that button remains missing in action from the algos’ trading platforms. But I have a feeling that it will be re-discovered soon enough.
So I have to conclude that we are still in the St Vitus Dance market environment. But for how much longer can this charade be kept up?
Most of the sentiment measures I follow are still reading off the scale bullishness, as they have for some months. But one factor in support of rising stocks is the money supply, which keeps on growing at a clip. So long as sentiment does not change, then I have to say that the trend remains up. If traders are prepared to keep on buying with the extra funds at their disposal, then stocks will go to the moon, surely? That is, until they don’t.
Despite this, we had a terrific week in the VIP Traders Club (see later). So if one market does not co-operate, there are others that might!
The market has rallied very strongly in a textbook fashion. Remember, I was long and riding the wave 4 correction:
The wave 3 low was made in March at the 1.0360 level – just as many were calling for parity! – and that’s when I expected a fourth wave rally hopefully in an A-B-C.
I am getting my A-B-C, but it is not a classic shape. But when the B wave low mid-April held, I believed we aweer about to start the C wave which would be a five wave affair. And yesterday, the market made a new rally high and the C wave now has the classic five up. What is missing is a convincing momentum divergence at the high but sometimes, perfection is not always available.
That is why I decided to take all remaining profits for VIP Club members on my longs and now I am looking to go short.
This is a market I rode last year – it was one of my Trades for 2014 – but have largely stayed out until last week.
I identified the third wave termination in 2014 and expected a wave 4 down – but what I did not expect was that the wave 4 would last many months!
But just admire that wedge! market came back last week to test the lower support line – and found it. I expect market to test upper line soon and when it breaks, the upswing will be immense.
Here is the hourly:
Nice five down last week to the low and strong rally on the back of the large pos mom div. That is textbook.
VIP Club members are now long with a close stop.
I took major profits last week and yesterday, I have a bullish break of upper tramline:
I have a solid five down and that was enough to prompt me to take profits on shorts. That was one beaut of a trade, garnering over 1200 pips.
I am looking at a decent rally following the tramline break and with bullish sentiment only around 25%, I believe there is scope for a move up to the Fibonacci 50% level around 158 or so.
And that tramline break is a classic buy signal.
Here is my long term chart showing the tramlines I have been working:
And now market is about to thrust up out of the wedge and towards the upper tramline. There is a lot of space available and the size and length of the wedge tells me not to be surprised if the thrust is vigorous.
I know this is heresy, but I may be looking at taking short term long trades in the next few days/weeks (?).
But I still believe the final resolution will be a final thrust to a high and then a massive collapse.
See yesterday’s MoneyWeek Trader email for my latest exploits.
VIP TRADERS CLUB NEWS
See last week’s WW for some of the trades we made the previous week.
Here are the major trades made last week:
Long EUR/USD – profit 730 pips
Short June T-Bonds – profit of 1200 pips
Long GBP/USD – profit of 1,130 pips
Long Gold – running profit of $40
If you would like to receive my trades in real time as I make them, drop me an email at email@example.com and I will send you details of membership in my VIP Traders Club.
Have a great weekend!