Will 2017 be as much fun as 2016?
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That was quite a year, wasn’t it? Full of ‘surprises’ – unless you were following the markets with my Tramline Trading method. My Trades for 2016 turned out spectacularly with my top pick – Short T-Bonds – coming up trumps (to coin a phrase) with a gigantic decline off the 178 high in July to the recent 147 low – a gain of 31 full points in six months. Even I was taken aback by the strength of that decline. And it all started last summer when bullish sentiment was off the scale.
Most believed the Fed were days away from introducing negative rates in line with other central banks. But the ending diagonal pattern on the daily chart told me otherwise. That was one of the best contrary trades of the year. But now, sentiment has turned 180 degrees – everyone is convinced bond yields can only continue rising (bond prices falling). I’m not – and that is why I turned bullish recently.
What was interesting is that in the first half of the year, both stocks and bonds trended higher together – an unusual linking according to conventional analysis.
My second pick for 2016 was short EUR/USD and I managed to get short right near the 1.16 high in May and ride it down for many full points.
Naturally, we took some losses but they were contained by the use of my two Money Management Rules. All in all, we had a very satisfactory year.
So what can I say about 2017? Here are my Best Guesses:
T-BONDS The nascent recovery will strengthen for a few weeks or months but then a huge deflationary wave will overcome Treasuries perhaps at the same time as the US Budget Ceiling Shoot-Out in March. This will be a massive third wave and lead to tens of full points down.
DOW We will see a major downward correction of several hundred points in wave 4 but then a final wave 5 will take the market to new all-time highs. But after that, a huge c wave will strike and draw the Dow down many thousands of points.
EUR/USD After a decent counter-trend rally lasting perhaps a few weeks, I expect to see a new push down to below parity and even challenge the starting value on January 1, 1999 at around 0.9.
GOLD The budding counter-trend rally will push up to perhaps test the $1375 July high in an A-B-C form. Silver will follow gold up. But bullish sentiment will become extreme – again – as it was in the summer (sentiment is currently at a bearish extreme). When the C wave completes, gold will collapse to under $1,000 as deflation takes over the reins.
The current belief in inflation will subside and our old friend – deflation – will be back with a vengeance as the mother of all deflationary depressions will take centre stage.
This will provide spread betters and short sellers with one of the greatest opportunities for telephone number profits in history – and I do not make that claim lightly. The US dollar will be the only currency standing when the dust finally settles in 1-2 years.
Because I expect some banks to fail and the government compensation scheme to be swamped, having paper money (preferably dollars) would be wise. Buy mattress and safe and vault shares.
Why am I making these apocalyptic forecasts? Simply because the world is awash with debt and now rates are finally rising after 30 years of declines, debts will become increasingly more difficult to service at the end of this cycle. Italy is showing the way with their banks possessing huge amounts of unpayable debt. If trillions in QE funny money since 2008 did not solve the problem, surely nothing will.
The time bought by QE has not lead to a sharp increase in GDP growth, as was expected. That could have eased the pressure. The post-2008 ‘recovery’ has been one of the weakest in history. So now we are all saddled with these debt albatrosses round our collective necks, and with personal and household debt likewise growing into record levels, the debt balloons are getting closer to finding the pin.
Last time, I suggested the dollar – being massively over-loved – was poised for a correction. Here is latest chart giving me the first clue that indeed the correction has begun
I now have a credible horizontal wedge with the lower line having been broken yesterday. A pull-back for a kiss and then a scalded cat bounce down is in progress. I have highlighted the major support zone which is now acting as resistance. That zone must resist rallies to confirm the new mini downtrend. I expect the new trend to start the New Year.
Wishing all my readers a most Prosperous New Year!