I moved house last week (a process both frustrating and satisfying) and it took me a while to get back in tune with my markets. But when I did, I took one look at the stock index charts and bingo! Could they be on the edge of the cliff that most of us have been waiting so very long for?
For my VIP Traders Club members, I have been looking for a major high in the Dow/S&P/Nasdaq and this month, my search has been much more intensified. Bullish sentiment pushed up even more off the scale. And with the new Dow and S&P ATHs on 10 May, I have been more convinced that is the major top I have been looking for. Since then, the market has moved lower with the last few days of last week seeing major declines.
I also track the S&P and this is the chart I posted a few days ago. The decline off the May ATH appears impulsive to my wave 1 low on Wednesday 16 June and the bounce is my wave 2 still in progress then. I posted a ‘maximum upside’ in the Dow of around the 34,700 area.
And on 1 June, the Dow made a rally high at 34,850 (within my target area) and then promptly retreated and closed yesterday at 33,200 for a loss of 1,900 pts off the 35,100 ATH. My S&P roadmap above is on track with the current decline a wave 3. Remember, these are usually ‘long and strong’ so the test will be for further large declines next week and beyond. That is the litmus test I will use. If we see major upside reversals. my roadmap will be in severe doubt.
The big question is: is the Big Top in? We have several more clues. Here is the long term Dow picture I posted to members last Tuesday
Among the stand-out features are the up-sloping wedge-shape that normally indicates a sharp reversal when the market breaks down out of it. Also, on Tuesday the market was testing the lower wedge line and a break would satisfy the claim that the 10 May top was in. Then we have a sharp mom div into the May 10 high and also to last week’s relief rally. In addition, the May 10 high is a possible ‘overshoot’ of the wedge which indicated a significant buying climax. If genuine, a sharp reversal is on the cards.
And here is the FTSE showing very similar bearish features:
I have been posting this roadmap for weeks now and with the thrust to the 7220 high on Wednesday, that should complete the relief rally in wave 2. To test if we are in wave 3 down, I am looking for a ‘long and strong’ move lower into next week and beyond. It closed yesterday at 7000 – 220 pts off the recent high. That is a pretty good start to my wave 3 down.
Note that this index was weak on Thursday and Friday while GBP/USD also fell hard. Sometimes, a weaker sterling leads to support for UK shares, but not this time – and that may be a clue to expect more downside.
And now we hear case numbers in the UK are back on the rise. Already, the Boris easing has been put back so the big question is this – will it be pushed back ever further into the Autumn? That would be a step too far for many people and businesses and put paid to the general feeling the worst of the pandemic is over and blue economic skies lie directly ahead. Stocks will suffer badly as sentiment reverses.
I believe we will look back in a few months/years and be amazed at the unbelievably crazy antics in the markets today. And not just in the markets. From the ‘climate emergency’ to ‘critical race theory’ to the cancel culture, it seems the Covid pandemic has pulled a switch on humans’ critical faculties. It’s so crazy out there that a US Congressman seriously asked the US Forest Service if it is possible to change the moon’s orbit to combat climate change!
As I have been suggesting, the next great stock market collapse will likely coincide with the general realisation that all of the measures to combat climate change is a fool’s errand and that CO2 is a beneficial trace gas that primarily acts as an essential plant food that food crops use to boost yields to feed humanity. The costs of converting electricity generation from fossil fuels to renewables is not only measured in the tens of trillions of dollars but is completely unfeasible. Even the more sober ‘green’ advocates realise that fossil fuels will always be with us (the contribution of fossil fuels to total power generation has not changed for may years from the current 80%). That is why I believe crude oil remains in a strong bull market (see last post).
I AM PLANNING NEW MAJOR TRADING CAMPAIGNS
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With the new change in trends in many important markets, I believe major profits await for nimble traders who follow my work and Tramline methods.
If you are in this position, just drop me an email at firstname.lastname@example.org and I will get you back on track at this very exciting juncture in the markets.
The dollar bites back
Last week saw a terrific short squeeze in the universally-hated greenback.
The 13-year trednline was still major resistance despite its age. If my wave labels are correct, I expect a test of the 1.17 area soon. Currently, I see a possible five-wave pattern developing off the high that is in the wave 3 position to be followed by a wave 4 bounce and then a new low in wave 5.
Of course, the dollar short covering was prompted by last week’s Fed statements that they expect to raise rates in 2023 (or will it be 2022?). They are obviously concerned the economy is running red-hot with inflation well over their stated maximum 2% high water mark. I believe the key commodity to watch is crude oil (with others providing excellent side shows) – and that remains in a strong up trend.