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Great Judgement Here At Better Trader

The euro is bouncing back after a long decline. A few weeks ago sentiment was extremely bearish, the relentless decline in EUR/USD was unbelievable. Going long in this situation is like catching a falling knife.

How many traders dared to go long? How many traders anticipated the bounce? Very few I think. It takes courage and great judgement to go long in a falling market.

This is what I do well here at Better Trader, we went long on EUR/USD when prices were depressed and closed the trade yesterday for a nice profit of 344 pips. You can read the report here

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Will China's Stock Market Bubble Be The Trigger?

Sentiment is bullish and when sentiment is bullish people take on more risk and become complacent. What should put them off buying stocks is ignored. Chinese stocks are soaring, they are soaring not because the economy is doing well but because people are hoping for more stimulus.

When the stock market rise out of thin air, people should become more pessimistic about the future, they should be more cautious. Well, this is not the case. I hear from my contact in China that people have gone crazy on the stock market. For many ordinary people the main subject of discussion is the stock market. They are so convinced they will make money that many are now borrowing to buy stocks. The thing is, when the guy polishing shoes in the street starts trading stocks you know the game is up. That’s the signal that tells you to get out. It could well be China that kick starts the next bear market.

The strong dollar has contributed to a softening US economy, this means the prospect of a US rate rise has been postponed.  At the FOMC meeting this week, I expect  a dovish statement. The US stock market has been slow to make a new high, now it’s made a new high it is about to turn down. The terminal pattern coincides with the same terminal pattern in the UK. The FTSE appears to have completed its pattern on 16 April when the index hit 7119.5. But a new high can not be ruled out because the S&P has not yet completed its own rally. In any case and even if the FTSE breaks above 7119.5, upside is limited because the pattern is terminal.

FTSE 100 Forecast

Sentiment is bullish again after yesterday disappointing news, the FTSE closed up. Most of yesterday’s economic numbers were weak. Chinese HSBC manufacturing PMI, German manufacturing PMI, German services PMI, EU manufacturing and services PMIs, UK retail sales, US jobless claims, US new home sales all worse than expected.

You know something is wrong when the market rally on bad news, the market can rally on bad news but only for a limited period of time. Sooner or later the market will catch up with reality, that’s when it will crash. I think this year there is a high probability the market will crash, the difficult bit is knowing what will kick start the decline. In general bear markets start when they are least expected. Everything is rosy then suddenly the market turns down. That’s my preferred scenario, stock markets will turn down after five waves up. Also market moving events tend to occur at the end of five waves up, something spectacular is about to happen. Will it be Greece leaving the euro or the bursting of China’s stock market bubble?

The declining euro is also a concern, the advantage of a weak euro is that European manufacturers become more competitive, so in theory manufacturing activity in Europe should pick up. This is not what we are seeing. I think manufacturing is weak because of a global slowdown, even at lower prices demand is weak. The FTSE will rally at the open, this move is expected to hit the 7070-7080 area. The pattern is terminal, it will end soon.

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2015, the trigger and it's coming

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...

Here is the FTSE 100 forecast prior to the rally on April 8th

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FTSE 100 Forecast

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. 

FTSE 100 Forecast

 

 

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. 

FTSE 100 Forecast

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. 

S&P 500 Forecast

 

S&P 500	Today	Next few days	Next few weeks
Trend	Up	Up	Up
Action	Buy	Buy	Buy
Trend reversal	Low	Medium	Low
	Key Reversal Levels
S&P 500 cash	below 2045.5	below 2045.5	below 2014
S&P 500 Future	below 2038	below 2038	below 2006.5
	Trade Setups

 

The trend is likely to reverse when the risk of a trend reversal is High. A breach of a key reversal level implies a neutral position.

Research provided by e-Yield

FTSE 100 Forecast

 

Last week’s decline has taken its toll on sentiment, but the trend in the FTSE is still up. The UK index closed down on four consecutive days and is now in a support area, a rally is imminent. Weakness in metal prices and mining stocks contributed to a negative finish on Friday, and Bank of England Governor Carney added pressure on stocks after saying that the central bank is still on track to raise interest rates despite subdued inflation. Fed Chair Yellen also said that US rates would likely start rising later this year but the pace of tightening would be data-dependent.

April is a positive month for stock, but the period from May to September is not the best period to hold stocks, so from May seasonal influence is not in favour of a rally. This year we have conflicting signals between rising interest rates in the UK and US sometime during the summer and deflation spreading in Europe. All this is negative for the stock market. Furthermore we have the UK general election in May, another reason to be cautious. For these reasons upside is limited this year, the FTSE may rally to 7100 to complete an ending diagonal, that is the best level we will see in 2015 I believe.

Last week sharp pullback was too deep to be labelled a fourth wave, the FTSE retraced 62% of the previous rally. In general a fourth wave retraces a small portion of the third wave. This means the pullback was the second wave inside wave 5. In an ending diagonal the norm is to have three waves inside wave 5, if the rally to 7065 was the first wave and the current decline is the second wave, the next move will be the third wave up. For this rally to unfold properly it would help if sentiment could turn bullish. I expect the BTI to turn up as the rally unfolds.

S&P 500 Forecast

 

S&P 500	Today	Next few days	Next few weeks
Trend	Up	Up	Up
Action	Buy	Buy	Buy
Trend reversal	Medium	Medium	Low
	Key Reversal Levels
S&P 500 cash	below 2039.5	below 2039.5	below 2009
S&P 500 Future	below 2032	below 2032	below 2001.5
	Trade Setups

The trend is likely to reverse when the risk of a trend reversal is High. A breach of a key reversal level implies a neutral position.

Research provided by e-Yield