Weekly Wrap – It’s our time now.

Weekly Wrap – It’s our time now.

Irony of ironies – they just keep piling up, don’t they?  In recent days, we have had a volley of great economic news out of the UK.  Car production is hitting all-time highs, the IMF has upgraded GDP growth forecast from 1.9% to 2.4% – a jump of a mind-blowing 26%, no less.  Unemployment is plummeting, and yesterday, Cameron is hailing the new UK recovery and because of wage growth in China, manufacturing jobs can return to the UK which is now suddenly very competitive, thus suppressing unemployment even more than last week’s low 7.1% figure.

So what could possibly go wrong with the FTSE bull market?  In answer to that question, let’s turn to Mr Market. And in reply,  Mr Market says the FTSE has dropped an impressive 250 pips (almost 4% in two days!).  Whoa – that wasn’t supposed to happen!  What an irony.  

Could it be that all of a sudden, good news is bad?  It seems that January 1st marked the about turn.  In all of 2013, good news was good and bad news was – also good.  You couldn’t lose betting on equities.  And that belief is being carried over to this year – and will be crushed to death in the coming onslaught.


Will Monday be a Black Monday?

As I write, the sharp sell-off Thursday and especially Friday has all the hallmarks of the start of a cascade next week.  We could very well see a Black Monday where the markets open in panic mode with very large down gaps. I was there watching the 1987 Crash with its own Black Monday. It was very ugly. The Sunday night session will reveal all – and for one, I shall be watching with some interest.


We are in a bear market since 2000

The Dow/gold topped around then and the real (inflation-adjusted Dow) definitely topped in 2000.  The rally off the 2009 low is really a bear market rally in an large A-B-C.

So what are the signs of this bear market from outside the markets in society at large?  Here are just a few:

 – In the UK, charges of decades-old sexual harassment against well-known celebrities has reached tidal proportions.  A bear market is when punishments for past wrong-doings are made and such crimes are brought out into the open.  During a bull market, perversion is excused and/or covered up.  The bear gives authorities extra power to do their job to bring retribution raining down.They become more ferocious in their job in a near market.

– In the UK and USA, the same process is being applied to financial institutions for a whole host of ‘crimes’ from the mis-selling of products,  to insider trading, and to LIBOR manipulation.  JP Morgan has just been successfully fined $2.6 Billion (yes, that’s Billion) for its part in the Madoff scam.  That’s not all – it has also been fined a world record $13 Billion for selling dodgyy mortgage-backed securities.  Pretty soon, we will be taking real money. And as a reward, Dimon is getting a huge pay raise – and this should be one of the last ‘rewards for failure’ in the world of finance.  In the bear market, there will be precious few rewards for failure – or for success!

– Have you noticed that the clothing colour of choice is black or grey?  It is rare for me to see anyone wearing any other colour – and this has been prevalent for some years.  This is not a colour of joy, of bright and positive feelings.  Black is the colour of stealth, of dark sentiment and of death – and reflects the unseen and non-conscious social mood that drives the stock market.

– Another intriguing sign of a bear market is gender obfuscation.  Have you seen the men catwalk models lately?  They are all androgynous and/or gay.  Being gay/lesbian is now perfectly normal and accepted even by governments (gay marriage now legal).  But in a bull market, men are men and women help them to be men.  Today, it is the women who have the cojones.  There are no real masculine men on TV today – they are either portrayed as juvenile adolescents, or dysfunctional neanderthals (apologies to my ancestors). 

– Just one more:  Bear markets are noted for societies wanting to split and form their own grouping.   Scotland will soon have a vote on splitting from the UK.  And even California (where I lived for seven years) has a resurgent north/south break-up movement.  And Russia is seeing its nations wanting more independence (see the Ukraine riots this week and the on-going terrorism outbreaks).  In the bull market ending in 2000, the very idea of Scotland breaking free was not on the radar.  Bear markets breed resentments as the social mood turns dark – and income inequality rears its ugly head.



Ouch!  Following the 200 pip loss on Thursday, yesterday saw another 333 pips knocked off the Dow in what I forecast was a huge third wave.

Markets climb the stairs slowly but fall out of the window quickly – sometimes very quickly! The waves off the 31 December all-time high is clearly a budding 1-2-3  and the question is: where will w3 end?  I have already suggested we could see a cascade down next week as the Fed will be making its statement re tapering on Wednesday.

I do not foresee any major changes to the $10 Billion a month reduction plan since I still maintain that they are most anxious to cap their balance sheet assets – they do not want any more bonds, especially in a rising rate environment. But volatility should ramp up in the early part of the week. VIX is already shooting up (see main chart)

On 31 December, the market stopped being Fed-lead and is now fear-driven and the fear is coming from the China slowdown and likely credit implosion, not to mention the worsening US sentiment data which has been quietly brewing under the radar last year.

But let us not get too carried away here – the market has given back only the gains  of the past four weeks – although that has been accomplished in only two days.  There is a five-year mass of gains to go for.  The March 2009 low was 6,500 and I expect that level to be reached again – and  in a fraction of the time.

Retail traders have been piling into equity ETFs, mutual funds and unit trusts in the past few months.  Two days ago, they thought they were geniuses for finally jumping on the bull.  Now with the 700-pip dip in the Dow over two days, many will be under water already.  How do you think they are feeling this weekend?  But will many be seeing the light and selling?  Some will, but most will not, as they believe this is just the ‘expected’ correction and vow to hold – until they receive the dreaded margin call (NYSE margin debt just hit an all-time high)..

This gradual chucking of the towel by the bulls will provide the fuel for the collapse.

The setup is perfect for margin calls to hedge funds from their short gold positions and their long equity trades.  A perfect double whammy!

One of my trades for 2014 (see my last post for December) is Long Gold/Short stocks, at least for the first few months.  This is working beautifully.



Gold reached my target at $1270 yesterday:

I first went long at $1202 and then £1220, so this is a good time to employ my Split Bet Strategy.  Of course, if stocks really do tank here, there will be likely be a huge flight to safety in gold and then my $1400 target comes into play.

But so far, the rally has been tiddly and silver has not really rallied very far.


Reached my 105 – 106 upside target where I took profits on long positions, but now market is turning lower:

But the big question is: are we in an A-B-C or a third wave down?  A move towards the 100 level would sort that one out.

Yesterday’s COT data shows hedge funds slightly more bullish the yen and the bear/bull ratio is now only ten-to-one, rather than the recent outrageous twelve-to-one.  But the ship is still listing heavily to the bear side and is in danger of capsizing.  I remain short USD/JY.


Buoyed by the terrific UK economic data (which will swiftly be reversed), GDP has rallied to the giddy 1.6650 heights, but that should be it:

Note the large wedge with the upper line having no less than seven touch points.  This is a solid line of resistance.  Breaking the lower line would spell curtains for the rally, which I expect as the rally has been getting weaker and weaker (momentum divergence).

A rising wedge almost always resolves in a sharp downside break.

My major target is the 1.50 area.

Have a great weekend!  Next week should be much fun.


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