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We start the year with excitement, my new global markets strategy has already produced some fantastic results: +430 pips since end of November.

We took 58 pts on our long on gold.

Gold pulled back and we are now long again. It is possible gold is forming a triangle in the fourth wave of an advance as seen on the chart:

 

he next move would be wave (b) up near 1595.

We are long EUR/USD and short USD/JPY

We are looking to sell German DAX


Results since the end of November 2019

German DAX: +6 pts
Gold: +58 pts
EUR/USD: +195 pips
GBP/USD: +147 pips
USD/JPY: +24 pips


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We are expanding our range of markets

The trade alert app is scheduled to be complete in January. This app will cover FTSE 100, S&P 500, German Dax, T-Bond, EUR/USD, GBP/USD, USD/JPY, US Oil, gold, Bitcoin. While the app is being developed you can register to receive the signals manually. I need a small number of volunteers to try the service, please let me know if you would like to try the service.

We remain long on EUR/USD, I decided to go long because I believe EUR/USD will get a boost from the falling dollar. You know the Fed is increasing the money supply, this is negative for the dollar. Plus the technical pattern is bearish. The positive for the dollar is that the US economy is stronger than the EU economy but this is about to change.

When I look at the EUR/USD chart we have a two-year decline in five waves that ended on October 1st.

 

This pattern is an ending diagonal. After five waves down the euro should rally in five waves [1,2,3,4,5], I think a long term rally is underway. The first bounce wave wave 1, the latest pullback was wave 2 seen on the 120-min chart:

 

We have a perfect Elliott wave inside wave 2, wave 2 is in three waves [a,b,c (circle)] and wave c (circle) is in five waves and there is an extension in wave (v). EUR/USD is now rallying in five waves as the trend is up.


Special offer £10

If you want to receive regular analysis and trade signals on EUR/USD, S&P 500 and FTSE 100 for one month you need to download the e-Yield app. Other markets I discuss are gold, dollar index, bonds, GBP/USD, Wall street. I offer a one month trial for just £10. You can join the service here:

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Learn to anticipate the direction of the markets

Yesterday I sent a quick message to my clients on the e-Yield app, "FTSE on the 200-day moving average, bullish"

The 200-day moving average is a natural support area, but that was not the only reason that prompted me to issue a bullish view. There were other factors that I discuss below. I also recommended a long on S&P 500 for similar reasons.

The e-Yield app is an instant messaging app, my clients use it to stay in constant contact with me 24h/7days. When I see something I alert them.

Elliott wave pattern

The first thing bullish I noticed was the Elliott wave pattern on the 60-min chart, The decline from 7380 in the FTSE was counter trend because this pattern contains overlapping waves.

 

This pattern is a downward double zigzag [(w),(x),(y)]. This pattern appears when the decline occurs in an uptrend (pullback). When this pattern is complete and below the 200-day moving average the odds of a rally are high.

Sentiment

Market sentiment as indicated by the BTI is bullish. This indicator turned bullish on September 10th. In general when when this indicator is bullish the stock market trend is up.

Gold

 

I believe gold should go down because the previous rally is in five waves. The initial decline to 1483 was the first leg of the decline. The rally to 1535 on Tuesday is the second leg. The current decline is the third leg. As gold and the stock market have been moving in the opposite direction recently, and gold was preparing to turn down to complete the third leg, this forecast on gold supported a stock market rally. Then I needed to confirm my forecast on the FTSE with the forecast on the 10Y bond yield.


US bond yields

 

You need to understand the correlation between gold and bond yields, they move in the opposite direction. If I believe that yields are going to rise then gold is likely to decline. I think yields will rise because what we are seeing is a counter trend rally in three waves [(a),(b),(c)] in yields. The latest decline is wave (b), the next move is wave (c) up. This rally in yields will push gold down and the stock market up.

But this rally in FTSE and S&P has limited upside for different reasons. We are near the end of the rally, not at the start. Furthermore gold is in the third leg down and yield in the third wave up which suggests these moves in gold and yields won't last.

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If you want to learn how markets work you need to download the e-Yield app. You will learn a lot, I always chat about the markets and you can learn from me. You will also have access to my research, analysis and trade alerts on FTSE 100, S&P 500, gold, dollar index, bonds and EUR/USD. I offer a one month trial for just £10. You can join the service here:

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A robust strategy with low risks

If you don't have the time to trade I recommend you join my automated copy trading account. This is the best way to achieve consistent profits, you don't have to analyse the markets or look at your screen, I manage the trades for you.

I trade FTSE 100, S&P 500, Dow Jones, EUR/USD, GBP/USD and dollar index, intraday and short term. You will be surprised to see this strategy in action, no more sleepless nights, this strategy is safe.

I have a good understanding of the markets I trade and how they interact with each other. It's ideal for hedging, and to protect the account. Indeed so far the maximum drawdown in one month is 2.5%. I always believed that in order to be profitable you must have strict money management rules with small drawdowns. If you have small drawdowns it is easier to recover and make a profit.

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US Dollar index trading

The dollar was going down after the Fed became dovish but the downtrend appears to have ended. There is support above 95.00 the second test was followed by a strong rally. The main reason for the strength of the dollar are fear of a no-deal Brexit and lower growth forecast in the Eurozone. And of course given the strong labour market in the US and the stock market recovery, the Fed may become more hawkish going forward. I think investors have noticed.

It is possible the dollar will make a new high above 98.00 if the long term pattern is a rising wedge in five waves. Alternatively the dollar will peak near 97 if the current rally is third leg of an upward zigzag.  Longer term the dollar decline should resume.

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Meanwhile the global economy is deflating, and the S&P 500 is rallying, these two things don't mix well together. When the economy deflates the stock market plunges.  

 

Investors hope the US and China will agree a trade deal. Any rally caused by government stimulus/deals will fade and the stock market will decline to new lows. The difficult bit is knowing when the decline will resume. These government interventions can support the market for longer than you expect.  

 

Inflation is falling which is in line with the start of deflation, I expect prices to fall in the months ahead, prices of goods, services and asset prices. Right now some people are talking about a possible recession in the US. It will take months before the recession starts and months before the depression starts.  

 

The dollar will continue to decline, which means gold and GBP/USD will continue to rally. At the end of the depression a new crisis will emerge, the dollar collapse. The economic crisis will have taken its toll on the dollar, this will probably prompt a run on the dollar and this will precipitate a collapse in bond prices. The result will be inflation and possibly hyperinflation. The dollar will lose purchasing power, the stock market will be considerably lower, it could take ten or fifteen years before the stock market reaches the bottom.

 

This won't happen in a straight line, governments will intervene along the way, in the process they will create some huge rallies like the current one. As you can see there is no hurry to short the market, what I have learned from previous bear markets is that you want to sell high, as high as possible, because there are always some huge rallies caused by government intervention.  

 

The best way to profit will be with short term trading, and if you don't have the time to trade I invite you to open a copy trading account. Here is the link:

 

https://www.bettertrader.co.uk/blog/register.html 

Deflation is coming

The Fed has often said that inflation is low and many analysts are puzzled. Why is inflation so low after a massive money printing program by the Fed? The Fed has been worried by deflation since the last financial crisis, the purpose of QE was to create inflation, to boost asset prices and to create wealth and spending. The world economy is in the midst of a depression, this depression has been hidden by the Fed. If prices are falling by 3% and you create 5% inflation, real inflation is 2% which is where we are now.

Now the Fed is no longer doing QE, one would expect inflation to fall sharply. Indeed the depression is still underway, but the Fed is no longer creating inflation, this is why we see a global slowdown. China has been badly affected, what happens in China will spread to other countries. Analysts are now concerned deflation is taking roots in China after producer price inflation slowed sharply in December. In a deflationary environment prices fall including asset prices. The Chinese stock market has already collapsed, house prices are going down and commodity prices are declining. The same scenario will soon happen in the US, this is why the dollar is going down. 

Trump thinks the US can avoid a hard landing by doing a trade deal with China and the Fed thinks the economy is on track to perform well if they stop raising interest rates. But this won't change anything, the bear market and the depression were due long before Trump came to power, long before the trade war started and at a time when interest rates were at zero percent. A trade deal with China won't change anything, and lowering interest rates won't do much to the economy as they are already low. I remember in the 1990s when rates were near 10% and the economy was doing fine. If today the economy is struggling with low rates there is a problem.

We are in a global system where problems in a major economy spread to next major economy. Once the deflation process starts it is difficult to stop it. No wonder Trump is desperate to boost the stock market. Rising asset prices help inflation, this is the same story, we are told that if asset prices rise, not only inflation will go up but people will spend more as a result of increasing wealth. This has been tested with QE, I am afraid it has not worked. Deflation will come and the stock market will collapse. Trump and the Fed will do everything possible to boost the markets, but they will fail. There could be more upside in the short term, the re-opening of US government will help, but in the long term it's going down.

Dollar index: bullish breakout

Short term bullish, long term bearish

Bullisd Dollar index should coincide with declining GBP/USD

Here is the dollar index daily chart, the pattern looks like a triangle inside wave 4, a bullish breakout would coincide with a sharp sell off in GBP/USD.

Labour cost in the U.S. is going up

source: tradingeconomics.com

 

Unit labour cost increased at an annualized 1.2% in the third quarter of 2018. The forecast was for an increase of 1%. The trend has been rising steadily since 2016, it is a leading indicator of inflation. This together with rising prices as a result of tariffs on imported products and a sharp increase in the money supply will cause the dollar to rally. Right now the dollar is going down, a simple pullback in the uptrend. Based on this information we could see a larger than expected rise in average hourly earnings today when the job report is released. This would boost the dollar.