Stocks continue their relentless climb off the March Corona Crash lows. Many stare in disbelief as the now worsening global pandemic is hitting real businesses hard (but not all, of course). But of course, markets do not follow ‘logic’ – they have a life and mind of their own that often defy simple ‘reason’..
Most analysts can fit a reasonable-seeming explanation of why markets do what they do – after the event, of course. Any fool can do that. But will that help you make money? Certainly not – you have to anticipate moves before they happen.
And I have got it mostly wrong since the March lows – except for a spectacular gain of 2,300 pts in the Dow last month by shorting at 29,000 and then covering at 26,700 for a major profit right on the late September low.
But today, after a strong week’s action, I am forced to picture moves to new highs since the rally has gone beyond the point where a reversal is likely. This is my best guess scenario for the Dow
Any move to new ATHs above 29,300 would suffice to put a top to wave 5 – and herald the start of a major wave down. Of course, the S&P and Nasdaq have already both made their own ATHs last month so the Dow is the odd man out, so far. We shall see
The dollar is not ready for major advance – yet
I had a possible Head & Shoulders reversal pattern forming last week but late-week action has cancelled that idea and it appears likely the dollar will make new lows
The wave 4 was a classic three up placing odds for new lows on firmer ground. But bullish sentiment is on the floor and COT shows a 5/1 bullish stance by hedge funds on the euro. Sentiment readings are very blunt instruments for pinpointing precise turns but with the dollar in decline, bearish sentiment will only grow – and provide the fuel for that reversal when it arrives.
I see massive short squeezes after the turn. But it should make a new low first.
But Gold is advancing with the euro
I turned bullish gold in recent days and this is why
The move off the August $2075 high is a typical three down and on a momentum divergence placing odds high for a break of the minor blue trendline and a move to new highs. I am plying the long side.
But eventually, when the dollar turns up, Gold should move contra and decline hard. I note that there has been tremendous buying of Gold ETFs by the retail crowd in recent weeks, but they are probably coming late to the party. In the meantime, the trend remains up.
Natural Gas is a big winner for us
Few UK traders trade this market – but they should! It is in a very strong recovery phase off major lows that appear to be following a four-year cycle
Note the precise hits on the anniversaries. If the cycle is still operating, we have about three years of bull market to the next major high.
Of course, with the zeal at which governments are displaying hatred of fossil fuels, an advancing Nat Gas price seems highly contrarian. And that is why I like this market!
Sugar continues to advance sweetly
Another contrary trade is our very successful Sugar campaign. With everyone trying to cut their sugar intake, why would reduced demand lead to higher prices? That wasn’t in the Economics 101 course!
But my analysis earlier in the year pointed to a likely rally phase off major lows with bullish sentiment in the dumps. That is my textbook setup for a contrarian campaign.
UPDATE ON MY BASIC £5K ACCOUNT
We have been carrying many successful positions into last week and my analysis suggested we take part profit at 600 on our long Wheat position that was taken at 492. That produced a profit of £1,080 on our £5,000 account (20% gain).
The initial risk was only £100 to the stop – a reward/risk ratio of a terrific 100/1. Not only that, but we still hold half of the original position at 492 that shows a gain of £1,000!
If that is the kind of trading that appeals, I offer a two week Free Trial to my VIP Traders Club that includes the BASIC £5k programme as a bonus.
Something funny is going on in the 30-yr Treasury bonds
I have been bearish on the T-Bonds for some time, expecting a major third wave decline. But now I see that I am not alone. Latest COT data shows large specs (mostly hedge funds) have built up all all-time record in net short positions of 70% of all open interest. This is unprecedented – after all, Treasury prices have been rising of late (yields falling).
But the curious thing is that the 10-year T-Notes show no such lop-sidedness – large specs are about even long/short.
Do they know something most of us don’t?