Yes, the ride is getting bumpier!
And especially in the Chinese markets (and also the Dow – see below). Latest data out of China appears to be dreadful and the MSM have jumped all over it with headlines such as this from the Telegraph: China faces an economic perfect storm – with potential catastrophic consequences. You really couldn’t get more dramatic than that. The article laid out a perfectly reasonable case for a melt-down in China. And the author is not alone – he has much company.
Can it be that when the Chinese economy wobbles, America catches cold and Western pundits rub their hands with glee as we all love to hit a leader when he/it/she is down. It seems to satisfy a basic urge. China’s economy has been on fire for twenty or more years and in Western eyes, it has become the leader in many fields.
But it has been aggressive in its rise. Just last week, the head of the largest Chinese EV maker BYD says has called on all the other Chinese manufacturers to combine to ‘demolish’ the competition. If they get their pricing right, they may just do that.
I believe their policy is to employ the classic ruse of using huge Chinese government subsidies to keep our landed prices super-low at first to kill off Western competition and then when they have an open field to themselves, start raising them.
But they face an uphill battle to convert all car/van owners to switch. One sign of this is the state of the leading charging station company in the US. Investors do not believe the transition will happen – here is Chargepoint Holdings chart which was the first publicly traded charging operator
Yes, we may be in an EV ‘revolution’, but not the one envisioned by the eco zealots.
Latest US Inflation data was ‘bullish’ – or was it?
Last week’s CPI and PPI data was thought by most pundits to show inflation was falling – and initially stocks were boosted on Thursday before falling back. But to me the more important data point was the non-farms payroll data. Once again, the numbers showed an increase in payrolls (bullish).
This data set is always ‘seasonally-adjusted’ which allows the model makers to include some ‘fudge factors’ to make the numbers come out right for their political masters.
But the more realistic household survey data shows a significant decline in the number of jobs created last month (bearish). And this repeats the pattern of previous releases.
All of this goes to show that the fundamental data is not a reliable guide to forecasting markets – far from it – even if you can trust the data.
What is a lot more reliable is the state of market sentiment where the Golden Rule states that when bullish sentiment becomes extreme, the rally phase that the building sentiment has created is in danger of reversing.
Most humans have a natural tendency to follow the crowd (herding) and join bullish bandwagons. When we see a market rising and read excited bullish articles, we tend to be convinced and join in. And as prices and the excitement rises to a crescendo, many of us bet the farm on the seemingly never-ending rally.
The excitement over the potential of AI is a classic example.
But that is precisely when experienced traders know that this is when the market is in great danger and vulnerable to a decline.
Last week I showed the chart of Meta Platforms -one of the leading companies at the forefront of AI. The stock had rallied for nine consecutive monthly closes – an extremely rare occurrence. And last week it was showing definite signs of reversing lower.
But with the US markets at a critical juncture – as I have repeatedly shown in these blogs – intra-day volatility has rocketed. This is the Dow chart I posted to VIP Traders Club members yesterday following the PPI data release:
Since 1 August there have been a dozen or so daily swings of up to 500 pts – a sharply greater level of volatility than in the recent past. The Elliott waves are not at all easy to read! Position trading here would have been full of loss-making whipsaws – a deadly scenario for all position traders. And that is why I have been very cautious about taking major positions – this on/off activity is a sure measure of indecision which will resolve at some point.
As for the resolution, is China showing the way ahead?
Last month, the index pushed clearly above my upper tramline which has been in place since May 2021 on hopes for more stimulus as the nation was emerging from the harsh lockdown phase. The market looked set for a renewed bull run with the expected stimulus kicking in.
Many traders would have taken this as a bull signal. In fact, for Pro Shares, we advised buying Alibaba on the breakout. But with the index now in decline, I advised taking profits.
But with growing signs the economy is not improving – indeed, early signs of disinflation are appearing – shares are selling off and are now trading under the tramline and that has created a ‘false breakout’. And false breakouts are usually followed by a sharp reversal.
Thus, the global economy is not as robust as some maintain and with the added headwind of looming Chinese property company bond defaults together with higher US Treasury and UK gilt yields, corporate profits are coming under pressure making current stock valuations a tad dear.
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We are starting a major bear campaign in stock indexes which should now be under way. My analysis here strongly suggests the historic and hugely destructive Elliott wave 3 down to new lows is approaching.
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The race to Net Zero – is it being lost already?
As the various deadlines for the elimination of fossil fuels looms (although not by China and India among others), we are seeing mini-revolts in the USA and UK against the authoritarian moves by governments to ban various useful devices such as petrol and diesel driven vehicles and gas stoves. I expect this push-back to magnify as the unaffordable costs involved in the revolution are becoming wake-up calls to more people.
This will have major impacts on markets (that is why I devote attention to this contentious topic). In particular, I forecast that copper – a vital metal to be used in the ‘transition’ – will decline in price.
While the ‘existential evils’ of CO2 is supposedly behind the push to Net Zero (actually it is a smokescreen for a push for a global economic re-distribution of wealth), here is a chart showing the life-giving property of this essential trace gas in a US state I once resided it – Virginia. Its rising concentration is highly correlated with rising food production. How can that be evil, I ask?
Needless to say, you will not be seeing this chart in any heavily biased MSM articles – or especially the totally brain-washed BBC. Or this one:
The coloured lines are the predictions from the many computer models and the black line is the actual measured readings – far less sensational and thus not news – than the flawed models.
The whole rationale behind banning fossil fuels is totally irrational.
So will we ever see headlines such as “Measured global temperatures are stable” Need I say more?