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Hi. I am sure many agree with me that this market is way overvalued. Also it's now considered the market of last resort due to the mess most of the rest of the world is in. My open question is will the Fed burst the bubble, otherwise the crash when it does come will be that much worse?

An then there is the Donald....d

 

Yours

 

A former stockbroker in the UK of some 30 years experience.

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I am in agreement with you. Especially given this recovery is now the longest on record it’s dififcult to buy into the US market. All of Trumps policies are however meant to aid the US at the expense of others and hence why we see the US doing so well compared to others. All the warning signs are there however that we are coming to the top. 2s10s in USTs close to inverting, much of the rise in the S&P is due to the leading tech stocks, some of which have come under pressure. I’m staying very cautious for the latter part of the year and keeping most of my money in front end treasuries ( through interactive brokers). 2-2.5% is pretty decent. 

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Many thanks Mark. It also seems the US is now slowing, as is the world as a whole, and there is no way the US will be isolated from slowing global growth. I made a tidy sum shorting back in January/February, so I have done the same again recently. In any case no pullback are just not healthy!

 

Kindest

 

Nick

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Certainly makes sense to have a short on somewhere. I’ve got quite a bit in dividend stocks giving 5% odd in IUKD index and just making sure I’m fully hedged for any downturn into the end of the year. 

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I’m going to add my two cents tomorrow but have ‘followed’ this thread for the mean time. Just off home but will send tomo (when I’m on the clock ;) )

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So in my opinion although the cyclical downturn is needed and expected sometime soon, I do think that the regular equities stock market has room to run and given the amount of central government intervention at the moment there isn’t a near term risk to a downtrend or reversal of the market any time soon. 

Numbers from a macro point of view have certainly been supportive of this above claim, and as was mentioned above the US market under trump is still getting the much needed pump to maintain that momentum. Notice I say ‘much needed to maintain momentum’ rather than much needed. I.e. I don’t think it’s the best idea.

We’ve seen some key barometers to economic stability get forecast over te last few weeks which Is reassuring to upside movements, and whilst there have been some issues within the tech side of things, this doesn’t’ mean that the wider market will be pulled off the back of that. Put simply these events are more isolated. 

I can easily see us heading into a recession in the 2020 time frame which isn’t too bad – I would like to imagine this will be on the back of significant debt levels which are just so crazy high at the moment. Granted we’re in the longer bull market in history, but that doesn’t men now we’re at ‘the top’ that shares are going to pull back for any reason. You need to look at the forecast and expectations at the moment, rather than ‘gut’ – as past performance has no effect on future price action.

I personally keep an eye on this tuff for some good macro overviews. 

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I just hedge with FTSE futures. Which i realise is not a perfect hedge but in a downturn one would expect the more defensive dividend paying stocks to be protected more so than those not paying any dividends. If i have £50k of div paing ETF I just hedge with an equal £50k exposure in the futures. Time will tell if it works out well

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Guest clemmy
1 hour ago, MarkHicks1987 said:

I just hedge with FTSE futures. Which i realise is not a perfect hedge but in a downturn one would expect the more defensive dividend paying stocks to be protected more so than those not paying any dividends. If i have £50k of div paing ETF I just hedge with an equal £50k exposure in the futures. Time will tell if it works out well

so you're saying buy the DIV paying ETF and sell the same amounts worth of FTSE futures? 

But dont the div adjustments get pre-factored into that futures price so it's nullifying any/all exposure?

sorry im probably missing something here but would be really interested to hear about this!  

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Easiest thing in the world to agree stock markets are overvalued but so what?  They have been for some years now.  What is the right value?  Does it matter anyway?  Markets are driven by sentiment and all bubbles crumble at the point of maximum exuberance.  The question is really when will it all collapse, as collapse is what I believe it inevitably will do (i.e. not correct an power on, not this time).  When it does there will be little or no warning: no big data release, Fed decision or world event trigger,  Just an initially quiet topping out and stealth sell until the panic sets in.  And even then there will still be people hanging on and praying for their buy the dips strategy to come good again, but it won't...

Check out my long term chart on SP500 (similar can be seen on all US markets).  To me it seems like the end times are very near.  But tracking the SP500 may not be the way to go.  Right now the USD seems to be the main market mover.  Certainly Gold and Silver are responding to the dollar.  [BTW, when Gold/Silver start to rise with the USD that is a descent sign that the game may be up for stocks]  Central bank Interest rates are now steadily rising to match the true market rates (bond markets, which have been rising for a while now).  Did someone mention recession in 2021?  We are already in one, it's just that the data hasn't caught up yet.  Wage growth is non existent, jobs growth is chiefly in the gig economy and consumers have maxed out the credit cards.  Property markets are too high for anyone to buy, hence the drying up of transaction, and when interest rate rises start to impact repayments as fixed deals come to an end, well, in the words of Steve Eisman (of the Big Short fame) "Boom!"

So look at the USD then.  There is a strong case for a long term USD rally  (you can see the same on EURUSD and GBPUSD).  There has already been a bottoming out and turn here with a strong retrace to set up the current rally phase.  I am expecting a further retrace before the rally proper gets going but there is a chance this has already concluded and US D may power up from here.  If and when USD rally is confirmed then AND if GOLD/Silver are also turning and rallying then the bells will be tolling for Stocks.  When?  Who knows but so far this Autumn is looking like a time to watch closely.

 

SP500_Mtly_092018.pdf

DX_Mtly_092018.pdf

DX_Daly_092018.pdf

DX_Wkly_092018.pdf

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Guest nwplumbridge

Great stuff those charts and that you agree. The question as always is timing. Have you also looked at the Q ratio of the S&P which stands at about 1.17? So the market is at least 20% too high at present......

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Haven't seen that ratio but as I mentioned the fact is self evident so just looking for signs of when not if.

Today I think we have seen a W3 top, earlier than I thought but you have to go with what the market is telling you (sticking religiously to your bias is a good way to both loose money and not make any because you don't take profits - something I have alas really learned the hard way...).

Anyway if I am right I think we should now see a retrace move down to at least the Fib38% level off the whole rally up so far.  I am keen to see a significant retrace as this would be indicative of an end stage set up.

I think we have seen a strong break down through a supporting trendline and my EW counts work for an A-B-C so far (but early days!).  A strong retrace should also be quite quick.

Let's see...

 

SPTRD-1-hour_041018.png

SPTRD-Daily_041018.png

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I think the 2,800 area you are referring to is on my previous Daily chart @NWPlumbridge?  If so one thing I feel duty bound to say is that any longer term projection that I do is simple that, a projection, which must be constantly reviewed and updated as price action progresses.  Such price action can change my views about a set up.  A few days of market moves can reveal alternative set ups that we can't yet see.  Such a dramatic move as we have had in the past few days even more so.

I have an updated Daily chart and associated shorter time frame that tell me the recent move is the 3-4 retrace I have been waiting for rather than the beginning of the "BIG ONE".  I still believe we will see another leg up before the final top and the beginning of a long, painful, decline.  This fits with the Elliot Wave patterns and other associated indicates.

Having said that it is possible we have just seen the all time tops, some very experience people are calling it as such right now and they use similar analytical methods to me.  Of course the same people called the Top back in January so...  NO techniques are fool proof as it is all about interpretation.

As always, there is a minimum of 1 bearish and 1 bullish scenario.  The Bearish is fairly straight forward, whether or not in a small triangle as @Caseynotes chart illustrates on the 1 hourly, a break of ST support is indicative of a further move down.

In terms of the more bullish, 1 final leg up, scenario, I have a pair of parallel tram-lines (blue) on my Daily chart with a hit on Thursday and rally away in a pin bar price action formation.  A follow up smaller pin bar then occurred on Friday and also described an inside bar (this is usually, but not always, a direction turn signal). 

On the 4 Hourly I have EW A-B-C pattern, with a 1-5 pattern on the final wave C down and what looks like a 1-2 small rally and retrace, which suggest a further strong rally next.  You can't really make out the 1 hour Triangle on the 4 hour chart, which makes me a bit skeptical of its validity (normally I would be looking to trade a Triangle break out, but not in this case).  I prefer to look at the support/resistance levels above and below the 1 hour Triangle as triggers.  The 1 hour chart also shows the EW A-B-C down but this time also with PMD.  The small 1-2 rally and retrace turned on the 50% Fib and ST support level after a 3 spikes down to the Fib 62%.

The 2 scenarios will play out with either a break of ST support or resistance but my lead option is for a rally.  I see similar set ups across the main indices and am Long the FTSE at the W2 retrace turn point.

SP500-Daily_121018.thumb.png.4988b30e242f91bd83fe04e01ad971bf.pngSPTRD-4-hours121018.thumb.png.306b65da206750577dac3888ad6c0d14.pngSPTRD-1-hour121018.thumb.png.c329b683ee9691d62c5af0836ba231b1.png

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Many thanks for that. Lets see what tomorrow brings as it will surely determine the short term movements. Also remember Italy is in the spotlight tomorrow which in my view should not be ignored by anyone as the 3rd largest economy in Europe...……….

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Not sure what you mean by Italy in focus @NWPlumbridge?  Also when you say Italy is the 3rd largest you mean in the Euro zone right?  And that is relevant to the Euro but I doubt the US stock markets or the Nikkei or Chinese ones, nor the FTSE for that matter would care too much about Italy, unless there was a meltdown of course.  Much more relevant to world financial markets is the Euro so anything that destabilises the Euro, Like the Greek debacle, that is unresolved, is a cause for concern.  Like perhaps Merkel's sister party losing ground in Bavaria...

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SP500 has now broken out of a better set up ST triangle and is approaching the overhead near term resistance.  I am preferring FTSE trades at present as I believe it will offer better returns in this rally but as said before, a break of bear term resistance could be a trading point...  I'm just using it to support my overall thesis.

SP500-1-hour_161018.thumb.png.7232bf89ce72a7661d638f7ce8f6f8af.png

 

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So the Dow and other markets made their way up to overhead resistance and the Bears kicked in again.  There has been a breakout of a small scale Triangle formation after a 1-5 wave rally phase.  As set out a few days ago, I am now watching for a retrace move, probably back to the previous Triangle breakout zone (the a retest of the Triangle itself on some markets (e.g. Nasdaq).  If I see several markets retesting and rallying away that will be a potential trigger for Long trades, assuming my other criteria are also met.  This may not occur until next week as ideally we should see a clear A-B-C, maybe involving a retest of the Triangle just broken through?  There is also good NMD on this one but as I am not shorting this market, too risky for me, I can wait in the tall grass for price to tell the story.

DJI-1-hour_021118.thumb.png.712449ccb5b8725abaed87d3e81bc6b6.png

 

 

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Towards the end of Friday the Dow et al staged a weak rally but I ask myself, "would I go long now?" and the answer is No because I don't have enough signals (my rules set have not triggered a Long trade set up) and therefore I am waiting to see if these markets will continue down in the A-B-C retrace fashion and then I will see if I do get Long triggers further down early next week.

Trading strategy:

  1. Sit on the sidelines until things become clearer, big ADP and NFP numbers were not enough to push a break through, so much for news...
  2. Wait for retests of support zones (Triangle breakouts zones or actual Triangle line retest) and gauge any price action rally off those areas in the context of rules set triggers
  3. Watch across related markets - there should be supporting correlations (FTSE in particular has been somewhat predictive for US of later and showing more buoyant signs)
  4. Reassess on firm break through of support zones as they happen

 

 

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SP500 (and Dow) look set to break lower through a Triangle formation wave B that should bring up a retest of the lower breakout zones.

SP500-1-hour_061118.thumb.png.69af0241c51bec8e4a981c70ae39e63f.png

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I no longer think a fresh higher all time high on US large caps is the leading scenario, although it cannot yet be ruled out so remains in play.  It is fairly typical to see excessive whiplash volatility in an ending scenario, which is why the normal "rules" of EWT are suspended - e.g. a wave 4 can end lower than a wave 1 ends, normally this negates the set up - and you can see from my Daily charts below that the Dow is in a wide channel that has done exactly that and could still end up hitting another all time high, possible on a Santa Claus rally..? 😉).  However I think this is a less likely scenario than the top is already in.

The case for a fresh higher all time high (Daily Charts):

  • The above ending scenario could easily be in play and is consistent with a major trend change
  • The 1-4 count (red labels) on the daily chart is valid and could yet produce a final wave to 5.
  • Price remains within the up-sloping channel (blue lines), until this is broken the trend is unchanged (or at least the turn is unconfirmed)
  • There is NMD on the Daily chart at the early Oct turn into the sharp Bear move but it is weak and we have a higher momentum reading on the recent rally that does not have NMD (this is not conclusive!).  So another higher high than the 8 Nov high resulting in NMD would be ideal (ideal set ups almost never happen...  I am looking for sufficient ticks in the box not all of them)
  • The drop down from 2 Oct could be described as an A-B-C (a counter trend retrace move not a trend direction move).  However it could also be described as a 1-5, which is a trend direction move, sigh!
  • The rally off the lower channel line was very strong after a sizable penetration through it. Pin bar, very bullish (at least short term)
  • The rally broke the down-sloping channel and then retested yesterday, which held as support setting up a rally, which I think we are now in but will this be a fast move to higher highs or something else?

The case for something else (Market tops are already in!)

  • When it comes to market tops (or indeed bottoms) there is rarely a fanfare of trumpets announcing it.  No major news, no nothing.  You often get no, "Ah ha! I told you", from analysts or commentators (at least not contemporaneously), in fact you seem to get the opposite - stories about why this is just a correction and there is "still a bit to go yet".  We are getting all that and there was no fanfare...  Perhaps with too many people focusing on a particular topping out point we wont actually reach it?
  • As mentioned in another post, and related to the above, economists consensus is for recession in 2020.  People say economists consensus is almost always wrong so why not earlier?  Retail is certainly signaling recessionary headwinds and UK housing market is set for a fall (just as in 1987, albeit for different reasons).  Debt is off the charts, and was never properly addressed after the credit crunch.
  • The EU/Euro debacle is not addressed - Greece, Italy etc etc  A Black Swan doesn't need to be a surprise if people are open minded but all too many stick their head in the sand because it is human nature to not want to hear and accept truly bad new (viz Brexit vote going against the remainers - it was like watching a funeral!  Same re Trump election).  And these kinds of things are also indicators of social sentiment changes.  Cue the fall of Merkel and maybe now May too...
  • The long term charts (monthly) show the super cycle is coming to an end (based on technical analysis).  Closer in the 1-4 is surely posted on this final (I think) rally so we are left with picking the top rather than discussions about a continuing rally trend in my opinion.
  • If too many people are betting on another higher high and "still a bit to go yet" who is going to sell?  Volumes could get thin and the current rally could peter out.  In fact that could be just what happened on Thursday 8 Nov...
  • There have been 2 strong drops now, that is signifying nervousness in the sentiment of the market to me.  The "buy-the-dips" boys are still following their strategy, this is the problem with professional trend following...
  • Now look at the Weekly chart.  We have had an effective double top, Jan and Oct, which is sufficiently far apart to be meaningful.  One could even eek out a Head & shoulders formation from the 8 Nov high, although that is a bit too close for my taste but the potential neckline off that is a decent supporting trend-line (min 3 good touches).  (Note: we might get a better Right Shoulder off a later rally).  A break of this neckline and a subsequent break of the 2 lower support levels would seal the fate of the Central Bank Bull!  Cue the greatest Short ever!
  • There is NMD on the 2 Oct high, which is especially clear on the weekly chart and supported by other Oscillators.
  • As mentioned above the drop down from 2 Oct can be described as a 1-5, which signifies a trend change.  Normally you then look for a retrace to a suitable resistance level (Dow made 76%; S&P500 62%) both significant levels.  The Dow in particular is interesting because any rally to all time highs should follow a 1-5 but this one went too high to allow for subsequent waves to form (again not conclusive, you could get a very wonky 1-5 in an ending phase, which BTW would be a very good indicator of an eventual market top next!)
  • The recent rally to 8 Nov conforms more to an A-B-C, albeit a very powerful one, but it was stopped dead on the Fib 76% and then crashed back down hard
  • This was stopped at the Fib 62% and the Triangle and Daily channel breakout point, a typical place for a turn and rally.  However, IF this does bring up a rally it will be interesting to watch the price action to see whether it is a very strong rally (which it has to be if it is a wave 3 and must carry beyond the 8 Nov highs) OR a weaker retrace rally, which would confirm the down trend sufficiently for me (subject to the above mentioned support breaks).
  • The drop from 8 Nov was fast and in a 1-5 form, which suggests down is the new trend (aligned to the 1-5 version of the 2 Oct drop).  There was Strong NMD on the 8 Nov turn and weak PMD on the 14 Nov turn (if it turns out to be so...)
  • The set up, if correct, suggest a medium term EW 1-2 was completed on 8 Nov (pink labels).  The move down to yesterday is a wave 1 (blue) and I am looking for a retrace, probably to the Fib 62% levels but let's wait for price action on that.

Trading strategy:

  • I must declare that I am already Short from the Dow and S&P 8 Nov turns (so my bias is obviously Bearish).  I am seeking to pyramid these positions on the next turn and drop, which I believe will be a wave 3 of 5.
  • I have moved my Shorts stops to break even to guard against a new higher high scenario
  • I have closed all intermediate trend shorts to profit
  • I will not trade Long, want to keep my head clear to spot the potential retrace end OR alternative scenario.  Anyway as I believe this is the ending phase, regardless of a fresh higher high, I want to be Short not Long stocks
  • Watch and wait on the price action to see which scenario is conforms to best and wait for a turn confirmation at pre-defined turning points, with other indicators supporting.  Trade short on said set up confirmation and keep stops close against the alternative scenario.  Any turn should have a small 1-2 retrace but after than will run down hard so stops can be moved o break even on a sharp drop away.
  • After a confirmed turn, sell strength until this drop phase is over then reassess.

DJI-Daily_151118A.thumb.png.f293b25c1053d0dbfc53a30b463c2b24.pngDJI-Daily_151118B.thumb.png.f88a451f8a37b17378194721b099fc8e.pngDJI-Weekly_151118.thumb.png.5d2511580e468fde4a21dbbba6c362c9.pngDJI-1-hour_151118.thumb.png.ffa2d02a7ec7518b51532b011db70e6e.png

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Last chance saloon for the A-B-C scenario I have pegged out.  The US large caps must rally now or something else is happening, possibly a variation of the same theme but with the Nasdaq making fresh lows vs the Dow and SP500 there appears to be some divergence there.  Still a Long here with a tight stop below the recent low is a low loss risk bet while the set up still conforms to my road map.  I'll be looking for an exit around about the Fib 62% as per my road map but if the move turns out to be very strong then an alternative retrace target of 26,600 is possible.  If we do see the market racing up in a Santa Claus I will be wondering about the fresh all time high of course but that is a problem for another day.  Right now I am long with a tight stop, let's see what happens next...

DJI-4-hours_211118.thumb.png.4a95a453963c35150c6022e1c8a069cd.pngDJI-1-hour_201118.thumb.png.37cf2cf0d2d03f3cf95acb1b851af97b.png

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