We continue to cash in regularly on the indexes, latest profit +165 points on the FTSE 100 June. We are short on Gold and long the euro. More to come soon...
We have consistently beaten the market this year, and it's just the beginning. When the calls are accurate it's really fun to trade. The next major move in the stock market is about to start, stay tuned...
The FTSE paused yesterday in the midst of the final move up. The index closed up as mining stocks woke up. I have said mining stocks are in a bear trend, well, from time to time and when they are oversold they will bounce back sharply and cause the FTSE to bounce as well. That’s what happened yesterday. Buying mining stocks now is like catching a falling knife, chances are these stocks will trade lower in the next few months.
The big unknown is Greece, there are rumours that Greece will default. A default and potential exit from the euro is consistent with the wave count, sometimes in the next few weeks I expect a big move down in the FTSE, the catalyst could be Greece. In the UK the consumer price index remained at 0%, the economy is still expanding but prices are no longer rising, there is a risk the economy will enter deflation in the future. More importantly China grew at the slowest pace in six years despite some stimulus measures and industrial production came in lower than expected. It’s the same story everywhere, central banks use stimulus to boost the economy but we don’t see any result, it look as if stimulus has the opposite effect.
One thing we must remember is that investors are addicted to stimulus, if China is slowing and more stimulus measures are expected, stocks will rise. In a period of bullish mood people don’t see the negative, only the positive. So today I expect a rally, the bounce in mining stocks will probably extend and crude oil is rallying. Plus Nokia confirms a bid for Alcatel –Lucent worth 16 billion euro.
The FTSE made a new all-time high above 7065 on Friday, the entire rally from the October 2014 low is nearing an end. Yet there is a lack of participation from the blue chips, the Top 20 Differential is lagging badly and is no way near overbought. The 13-day BTI is not overbought either, it seems the index has rallied out of thin air. What does that mean? It means the index is not as strong as it would appear to be.
When the big caps are not leading the charge, we should be cautious. Investors feel more optimistic about Greece, this has given the market a boost. But investors are in positive mood, in this situation they interpret bad news as good news. So today markets are rallying in Asia as investors shrug off downbeat Chinese trade data. Exports were sharply down underpinned by weak global demand. Investors hope China will add more stimulus to boost the economy, this is why markets are rallying.
The FTSE pushed to a new all-time high and the pattern is now in three waves from the bottom of wave 4. The index is above the upper line of the ending diagonal, the line is drawn from the highs on 21 November 2014 and 2 March. Get ready for a trend reversal.
Sentiment was boosted by news that Greece made a loan repayment to the International Monetary fund and continued M&A speculation. An increased in M&A activity seldom occurs near the end of a bear market, this activity tends to occur at the top of a bull market. Mega deals like the BG deal are a good timing indicator, it’s telling us the bull market is nearing an end.
One of the worst acquisitions of all time was the merger between AOL and Time Warner in 2000. The deal was worth $160 billion, one of the largest acquisitions and it occurred right at the top of the bull market in 2000. If history is any guide Royal Dutch Shell will regret its decision to buy BG. In the US, jobless claims point to a strengthening job market, this is in contrast with the latest nonfarm payrolls report.
The FTSE resumed its rally above 7000 and today it looks like the rally will extend. But the rally is a fifth of a fifth, a structure seen at the end of a bull trend. The rally is wave (v) inside wave 5, when wave (v) is complete, wave c (circle) will be complete and wave 5 will be over. This could happen above 7100. At these levels the rally from the October low will be in five waves (ending diagonal), this terminal pattern will soon be complete.