Wild ride in Copper – it had the experts fooled (so what’s new?)

Wild ride in Copper – it had the experts fooled (so what’s new?)

Right after I posted yesterday’s coverage of copper (Copper is King), I spotted an article in Bloomberg:  Crazy, Nuts, Unsustainable: Analysts in Disbelief over Copper.

I had to laugh when I read this: “The copper market went haywire this week, leaving analysts voicing shock over a rally that seemed to have few fundamental reasons.”

Yes, for the market to move in a ‘perverted’ way, you have to believe it is the fundamentals and data and news that move markets.  For the copper move of a third off its lows to be understood in this scenario, you have to come up with plausible data that could ‘explain’ it.  And they couldn’t.  The best they could do is blame the ‘speculators’.  Pathetic.  Naturally, when markets rally strongly, do they blame the specs?  Of course not.

But we know better, don’t we? The news does not move markets.  You would think that after so many failed attempts to use data to explain market moves, these analysts would stop and question their belief system.  But no, they keep on spewing out screeds of copy that keeps them in a very well-paid job (because their bosses also have the same erroneous belief system).

However, I do not want them to change – it would kill our great profit opportunities.

I found the low in copper a few months ago based on the wave patterns and extreme bearish sentiment.  I completed my analysis when I first drew up the charts in a mater of minutes.  I did not need to know the mine output, the stockpiles or the likely demand.  I could safely ignore that data, except to draw the conclusion from it that a major price reversal was highly likely.

And yesterday, we have a blow-off with the market swinging by over two full cents.  But before the top was reached, I advised Club members to take their substantial profits, as I wrote in yesterday’s post.  With the blow-off that should herald further declines, maybe Copper has now been demoted to a Prince.

Thank you Mr Fibonacci – you pinpointed the perfect place to take profits.

And I had one other take-profit signal from my trusty Headline Indicator (HI).  On Friday morning, BBC Radio 4 carried a piece on the explosive move in base metals, which of course had the talking heads completely bamboozled.  What a beautiful signal – thanks, BBC!

 

Mark Twain was there before us as a contrarian

Yes, that great man left us with so many relevant pearls of wisdom – here is one that applies very much to trading:

“Whenever you find yourself on the side of the majority, it is time to pause and reflect

As a trader might add…and look to take profits (and possibly reverse)!”

I would guess that he made that statement just after taking a financial loss.

One of my Trades for 2016 was in the T-Bonds and in July, I noted that Twain’s majority had lined up 96% on the bull side.  Time to pause and reflect – but few of the herd did.  That is human nature – when your trade is going well, it is perfectly natural to believe you are invincible – and a financial genius.  The last thing you consider is the possibility of the market turning.  And if it does, you have been well trained to ‘buy the dips’.

Of course, my whole career as someone who attempts to teach budding traders how to successfully manage themselves in the financial markets. At such times it can be ruinous to follow your human nature.  That is the perversity of them.

You need to train yourself to recognize your supremely confident feelings – and trade against them at the correct time.  Naturally, this is not easy for most.  It is said that often your best trades are done when you are the most nervous and uncertain. 

But you need a reliable method to follow – most of us are unable to ‘wing it’ and trade from experience.  And that is why I published my Tramline Trading method.  It is about the simplest reliable method I know for spread betters.

Also, latest COT data shows that as of last Tuesday, hedgies covered a massive 30% of their shorts while the small specs added 30% to their shorts.  These are huge short term switches in sentiment. And that occurred before the Thurs/Fri spike rally (and pull-back).  An awful lot of money was lost last week by the big players.

 

Is Facebook dead?

Amusingly, Facebook posted  false death notices on the pages of many users – including the founder, Mark Zuckerberg.  He could well have quickly posted another Twain quote:

“The reports of my death have been greatly exaggerated.”

But was this curious episode telling us in not so subtle terms that the cult of Facebook has peaked?  The stock chart seems to suggest it:

The multi-year rise has been magnificent as the company has come to dominate the social media sector.  Remember MySpace and Bebo? Few do, especially millennials.

But all good things come to an end, so has FB reached its zenith?  After all, Q3 results were seen as pretty impressive, but since their release the shares have trended down.  Here is the daily

The shares have declined off the 134 high to the lower tramline at 115 – a drop of 14%, which is perverse in the face of great Q3 results, is it not?  I’ll bet the pundits and analysts have been having a frustrating time scratching their collective heads over this.

But look at the momentum – it has been rising to lower highs on the price peaks since the previous 134 high back in August.  That shows a weakening of the buying power over the past three months – and a distribution into weaker hands.

And now I have a beautiful five down off the top which is the first major signal I use for a trend reversal.  If the market can trace out a three up, I will have a textbook five down/three up to put the odds of a bear trend very much on my side.

Of course, a solid close below the lower tramline at the 115 area would clinch it.  And that would set up the Double Top at $134 – one high on 27 July and the other 25 October.

 

Are we there yet?

Yesterday, I suggested the five waves in the Dow could be an ending diagonal leading to a reversal down.  But there is another valid scenario – the five waves  could be a five wave continuation pattern (see text, pp 38 – 39; 144 – 145)

If this is the correct pattern, then I have a target in the 19,600 area. Remember, my main target has always been the 19,000 level and we are only 100 pips away.

We shall know which is correct pretty soon.  If we see a strong rally early next week and a move above 19,000 and the upper blue tramline breached, then it will be up and away.

 

Gold collapses

 

This is an exciting time in the markets.

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