What are we afraid of?
I have just come across an interesting take on the UK public’s response to the Covid pandemic that strongly concludes that FEAR was heavily and deliberately used by the authorities to manage a largely complaint public into shape. The recent publishing of STATE OF FEAR by Laura Dodsworth highlights the use of concepts from behavioral scientists to achieve compliance. To me, this is another facet of the extreme state of fear we are in from the so-called Climate Catastrophe/Emergency/Crisis to FOMO (junk cryptos and shares bid manically) to the pandemic response.
I believe this heightened widespread state of fear will resolve soon in an almighty crash in financial markets as the fear will spread there when traders/investors wake up to the realisation that they have taken levered risk as far as it can go. Interest rates will rise and the Fed will be forces to act.
One of the techniques employed is the well worn method of creating confusion. And just last week, we had a wonderful example when one minister gave the green light to take holidays in certain overseas destinations, and the PM giving the opposite ‘advice’. When you add in the substantial extra costs of taking a family holiday abroad (Covid tests within 72 hrs of flight and the higher air fares), not to mention the added hassle of potentially long lines at the airport), that sunny getaway holiday starts to lose its shine.
And the daily diet of death rates, infection rates and the scary unknown severity of all the new variants being discovered and you have a heightened state of fear created by the authorities. It is very much like the good cop/bad cop scenario. The suspect is given a going over by the bad cop, then when he is extremely vulnerable the good cop moves in and kindly offers some salvation and rewards if he would only just cooperate. Most do.
It’s the same setup with the pandemic. At first, the bad cop (SAGE science experts) gave it to us with both barrels with ominous predictions if the virus was allowed to run rampant. Then when we were all begging for mercy from our house arrest, the good cop (Boris) gives us some hope that we can maybe go to the pub one day – if we are good and obey orders.
In fact, behavioral scientists (BS) are much in demand in government these days and there are separate divisions of them advising on policy. It’s a bull market in BS ( in more ways than one).
Of course,these are fertile conditions for authoritarians of all stripes to flourish and try to control us.
Stock indexes are once again at a moment of truth
One notable feature of the stock market lately has been the divergence between the Dow and the Nasdaq (with the S&P caught in the middle). This is the chart I posted to VIP Traders Club members yesterday morning
My wave 1 off the high has a clear five-wave structure (indicating a high prob trend reversal). Then, I had two main options yesterday- an immediate decline off my wave 2 high or one more push up to complete wave 2. In fact during the day, the market did edge up to the 34,400 area as I suspected in my notes. So the big question is – are we poised for a major third wave down now?
While the Dow was edging up, the Nasdaq was in a decline as some investors decided to rotate out of tech with valuations stretched. Just as in the Dow, the Nasdaq is rising in a wave 2 prior to a steep decline in a third wave.
Note the lovely kiss on the lower wedge line to put in the ATH and the subsequent Scalded Cat Bounce lower to the wave 1 low.
If I have guessed correctly, the next few days will present the final chance to get on board the next collapse at an early stage. But of course, this opportunity carries a greater risk as wave 2 may not have completed. That is always the game we must play when looking for a major trend reversal.
As I have already noted, the general speculative mania is being tempered as evidenced by the mini-collapse in Bitcoin and the other cryptos and Tesla’s weak performance. I have used these two markets as a proxy for the general appetite for risk in other markets. Interestingly, BTC and Tesla are both heavily influenced by Elon Musk making him the ultimate Master of the Universe.
Bitcoin’s downtrend is being augmented by the new official China line that BTC mining is not exactly saving the planet with the electricity use larger than that consumed by Argentina. While that may be a smokescreen for the China authorities desire to clamp down on BTC speculation, it is adding downward pressure on prices.
So unless Musk can conjure up a few earth-shattering tweets, I do not see BTC or Tesla regaining former highs any time soon. And that is a bearish backdrop to the share indexes.
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Crude Oil corrects – is it the end of the road for fossil fuels?
I have been bullish on crude oil for many months with my latest campaign from last November. But with one of my targets at the $68 (basis WTI) hit and now in a correction, is this the end of the line for my bull case? I have noted a recent ramping up of the MSM war against fossil fuels (especially coal) with intense demands to ‘cut emissions’ ahead of the Glasgow climate pow-wow.
Incidentally, the near-universal worry is that the earth’s mean temperature will rise by 1.5C and cause catastrophic damage to us all within ten years (it has always been within ten years for ever!). Here in the UK as late as May 21, average temperatures are way below normal around 12C. Imagine I moved south to, say, Spain where the average temperature is higher, say around 15C on the coast (lower in the mountains). There – I have created a 3C mean temperature rise just my emigrating! Will my life be extinguished in a cauldron of heat, drought or hurricanes? Plenty of Brits have already moved there and I hear few complaints about the climate.
But I digress – here is the interesting juncture the market is in
The pink line is the 13-yr old trendline off the 2008 ATH at $146 and was recently broken (bullish). But last week, the market moved below my major black trendline to indicate a possible change of trend to down. But we must be aware that markets are prone to ‘false’ breakouts as weak stops are taken out and then the pros move in to mop them up.
As of yesterday’s close, the market is back on the trendline so next week should give major clues as to near term direction to prove if the breakout was genuine or false. I retain my bull stance.