Mercury

So looks my concerns about Gold/Silver turning back up and indicating a potential stocks bearish phase may be coming true. The FTSE has stubbornly refused to put in a higher high so they set up (as outlined in my Recession thread) remains bearish. The Dax has turned at the Fib 88% in what may turn out to be a wave 2 completion that triggers a strong move down before a probably Santa rally in a smaller 1-2 retrace. US large caps may or may not have a final ATH in them or do the same as the Dax with a lower low Santa rally top. For now I am simply focused on maintaining my Shorts off the breakouts. With Gold/Silver rallying and USDJPY falling the stage seems to be set for a period of Stocks bearishness. Bitcoin might be set to breakout into a rally too...

What makes you think they were dead? Interestingly every generation goes through an existential crisis. In the 60s/70s it was the so-called "duck and cover" (American phrase) fear of nuclear annihilation that gave birth to CND and protests like Greenham Common in the UK. Nuclear is still here but CND you don't hear so much about anymore. There was the Cold War and MAD for the 70s/80s, ended with the fall of the Berlin wall, although the Russian Bear never really went away and neither did China but the Cold War generation grew up and worried about other things, like career choices, getting on the first rung of the property ladder, getting married, bringing up kids etc etc. The 90s/00s brought us the power keg that is the Middle East, which still persists and the new Millennium ushered in the era of global climate catastrophy, which has people super gluing themselves to the very electric trains that would help the situation (madness). And it is a kind of madness that grips the zeitgeist such that if anyone dares challenge it they are immediately attacked by the mob that truly believes they are gonna die in they don't do something. Guess what? Life goes on and the World keeps turning. So cheer up, it may never happen. And if you can't do that then buy tinned goods and lots of water and dig a bunker under your house...

Looks like a Gold reversal, maybe into a retrace rally. Coincident with a stocks fall and/or USD rally?

Assume you mean't don't. What makes you think I'm being defensive? I have no emotional attachment to the way anyone else trades or sees the market, why would I?

Do that then. We wouldn't have an operable market if there weren't people on both sides...

Some more bad data from the UK, this time it is a slide in average earnings and an increase in claimants. Oh oh! Is Jobs data about to join the party? FTSE has broken a channel and this morning put in a potential failed retest of that channel. A drop from here is on the card and a lower low confirms a turn. Other indices remain decidedly less that buoyant, despite some better US data and new ATHs on all 3 large cap markets.

Interesting issue @dmedin, and one I have struggled with myself. I have a few personal insights for you, if care for them, as follows: Firstly I use multiple time frames for both analysis and as trading triggers, although I usually use the 1H chart as my main trading window, within the context of the bigger picture. With respect to EWT I never use it exclusively, and it is never an actual trigger for trading, merely an analytical corroboration. In other words I need to have a credible EWT set up but don't use label positioning as a trading trigger; it is too rough a technique for that. With respect to Daily vs 1H, often I cannot see the internals on the daily chart (e.g. a wave 1 with an internal 1-5 pattern) but the wave labeling should sense in the context of the rest of the labeling on the daily. In such cases I will then look to see if I can see the 1-5 internals on a shorter term time frame (4H/1H); occasional also 15 mins but below 1H things get less reliable for me. I will happily trade a price action move that conforms to my trading triggers even if the specific EWT at that point is not conclusive as I often see it in hindsight, however the contextual bigger picture EWT has to be present and credible for me to trade. If we look at the Daily chart for Coffee (below). The May bottom at present looks like a trend ending turn (a large wave C - see my previous posts for why I think this is a C). The rally up to wave 1 (purple) could be seen as either a 1-5 or an A-B-C, indeed my first thought was an A-B-C, which is what I was posting initially. However the move down to wave 2 (purple) is a clearer A-B-C, which suggested the previous rally was a 1-5. With another rally and retrace to follow (1-2 blue) and a strong straight rally to a new higher high vs 1 (blue), I can surmise that the current rally is part of a motive wave that will eventually breakout into a confirmed trend change and long term bull market. I cannot see the internal 1-5 on the wave 1 (brown) rally until I look at the short term time frame charts. However the wave 1 label is consistent with the rest of the daily chart labeling and I had a number of indicators suggesting a turn back down and I was anticipating a bearish retrace to set up a strong move to test the key 11,500 level. So far this is playing out. It must be noted that until we get a breakout and a higher high than the wave 1 (purple) point I cannot rule out a consolidation phase. Indeed there are 2 unclosed gaps on the recent rally, one right at the beginning, which could mean the whole rally gets retraced to a new lower low. If that happens then the wave 1 (brown) is negated. Like a lot (all) of technical analysis the price action needs to confirm which scenarios are possible until there is only 1 left. While I believe my Fundamentals case is strong for a long term bull market the technicals help to sort out the timing via the various scenarios in play. Currently my lead scenario is for a retrace to wave 2 (brown) and then a rally to test the key resistance level. However a deep rally might begin to change my mind. The case for my lead scenario is strong, including the strength of the wave 1 (brown) rally. It will take an equally strong bearish price action move to negate this.

And there it goes! Let's see what happens next but that break to the bearish side is suggestive of a further retrace move, as projected.

Gap ought to be closed and then we will see if there is to be a breakout this time or another false dawn...

But going back to the original point, it was you who talked up index correlation as it pertains to the Dow Theory. Now you seem to be suggesting that the US will continue to boom away but everyone else will fall back? Or just the UK? Note that the FTSE100 is predominately populated by international companies that derive most of their sales and profits from outside the UK, a lot of it in the US as it happens. Add to that a large proportion of mining and energy stocks (i.e. global industrial output) and it is hard to argue that the FTSE is a reflection of the UK economy, more realistically it is tied to the world economy, hence a divergence between these indices is relevant and non US large cap indices may very well be reflecting an early indicator of the end of the so-called Millennial boom

Not sure what London has to do with anything..? And UBS is a Swiss bank and this article relates to deeds perpetrated in Hong Kong...

Failing economy. Riots in the streets. Inability to form any kind of stable government. A total reliance of their big benefactor and yet a total antipathy to them despite the largess. A majority of the workforce working in government jobs with pensions that kick in at aged 50, being paid for my by the private sector so much as the EU. A truly dreadful balance of payments and national debt level. Yeah I'm sure you are right... Hmm,sounds a bit like Scotland actually...

We can only hope, although good luck getting into the EU and doing any better than Greece...

Love this bit from the article you posted @elle "Anybody who thinks they know what some hypothetical trade deal will produce is simply bloviating." It seems from the piece that stacked against all the negatively trending world economic data is the hope/belief that Trump will do a deal with China that will save the world... I'm not holding my breath nor risking my hard won capital on such a flimsy fundamentals case when the truth is blindingly obvious in the data.

So coffee looks like it is about to go into a bearish retrace (see my recent post for this set up). My feeling was/is that a bearish retrace EWT1-2 is need to prime the pump for a big breakout. Markets always seems to need a few attempts to make a significant trend changing breakout so at least 2 attempts could be considered a minimum here. We may yet get a period of consolidation around the 11,500 in addition to a breakout but for now I am concerned with whether we will see that 1-2 retrace and how far it will drop as the eventual turn would offer a great Long opportunity. The Fib 50% is always a favourite but there is also an unclosed gap just below this level so a close prior to a turn must also be considered as a very credible scenario. However I am getting ahead of myself as the bearish retrace is not yet confirmed. I do have the following technical support for it though: A turn at a confluence of 2 weekly chart resistance trend lines Overbought oscillators on the weekly and daily charts NMD on the 1H chart A gap break of a bullish channel on the 1H/4H charts A credible 1-5 rally to the turn point, indicating an A-B-C bearish retrace next Let's see if the breakout is confirmed but if it is my target for the retrace conclusion is around the 10,100-200 mark.

Interesting reading @elle, thanks for that. Has anyone else noticed the crazy Sales activity in the UK? Is there similar happening elsewhere? Every week Debenhams has a new sale, Mothercare send me a "closing down, everything must go" email, didn't actually see in the news that they were closing down... The Gap has had sales up to 50% off several times in quick succession over the past month or so. More retail units are being vacated in predominant high st locations and shopping centres. Retail just looks like it is in a recessionary decline. It has been bad for several Christmases but, dare I say it, this time it seems different... UK economic data today was bad and the FTSE didn't like it. Hmm, could bad news be bad again? Finally? Maybe the narrative the Perma Bulls are selling is wearing a bit thin... Perhaps this time is different and the central banks will be powerless in the face of main street reality. Doubtless they wont give up without a fight but what can lower interest rates do for a consumer except kill off any savings the may have? Let's look at the markets though, the FTSE100. As I have mentioned in my "Are we there yet" thread, the FTSE (along with every other market other than the US large caps) topped out a while ago, in May 2018 in fact fully 4 months before the US large caps had their large bearish drop in Oct 2018. In July 2019 the FTSE put in a lower high, when the US large caps put in a higher high (new ATH) and then dropped again. In the past days the US large caps are at new ATHs and the FTSE dropped with another lower high (in fact the 3rd one). The current price action looks decidedly bearish. Could the FTSE100 actually be performing a leading signal indicator role..? There are still several route maps and none of them seems to be straight down yet but all my scenarios are bearish on the FTSE100 and the current price action does not seem to support the "breakout to the moon" narrative of the perma bears to me. Still there is a while to go yet and I still like a drop and Santa rally scenario as my favourite.

OK I get the reasoning and it will most likely trade lower at some point but my challenge is twofold: firstly that the bulk of the bearish move is over; secondly the current retrace is complex, which is more difficult to trade out of. Therefore the risk/reward is not a good as other stocks, say J&J or Boeing, which you are also looking at. Same reasoning as for GE if you recall. If you are going to take the risk to Short a stock better to go for the bigger rewards. Catch a wave 3 down and you can ride it a long way in trend follower mode.

So on to Silver. Here we do not have a H&S formation but a possible double bottom, that has been my working hypothesis so far. This market dropped much further than Gold did from the 2011 highs (to the Fib 76/78% zone), which is one reason I don't buy a drop to lower lows than the 2015/16 turn. Silver broke out of a resistance trend line (weekly chart - grey line) around the same time as Gold broke out of its neckline. However the rally is in an awkward form and looks more like an A-B-C to me that the 1-5 I might have expected. So I relabeled from a 1-2 to a 1orA - 2orB (blue on my weekly chart). This is very important from an EWT perspective because the whole move up has been contained by an important resistance trend line (see monthly chart). If this line (purple on my weekly chart) is a valid upper Triangle line and the lower line is drawn off the double bottoms, which results in a slightly up sloping line, then a possible EWT labeling would be an A-E Triangle consolidation (red labels on the weekly chart). If this holds true then a further retest of the lower line is likely, which may coincide with the weekly trend line (grey) as well. The fact that Silver has been behaving far more bearishly than Gold would then make sense. Gold has broken out (rally has begun) but will most likely retest its neckline before it really gets going but Silver has yet to breakout! The upshot of this is a range for Silver turning into a rally of 1400 -1500. The former is a retest of the lower Triangle line and the latter of the weekly chart trend line (apologies this is coloured purple on my daily chart rather than grey, I have retained the 1-2 blue set up on my daily chart and shown the A-E on the weekly). If the A-E set up is proven correct then Silver could run down much faster than Gold but price action within a consolidation Triangle is subject to a lot of whipsaw action so care is needed if you want to trade it. More interesting will be the opportunity offered on Silver (and Gold) when the turn into the rally occurs.

I am focused on Gold and Silver at the moment, in terms of trading, for a number of reasons: the best and fastest moves are coming on these markets, therefore the best risk reward return; the charts have cleared up with last weeks decisive move, which signaled the more bearish scenario is in play, whereas other markets are still in flux for me; the resolution to Gold/Silver will be highly instructive for where other markets are going and for the wider economic outlook (more correctly sentiment in relation to the outlook). Last weeks price action was both very bearish and decisive in that it all but eliminated a simple consolidation pattern (i.e. a continuation of the much spoken about bull) with the break to new lows, especially on Silver (there is always a chance that the market reverses here to spite me...). With USD strengthening and stocks also continuing to grind slowly, slowly, up, the euphoria of Gold heading to the moon seems to be waning. This is very good news for me both because I was projecting a bearish retrace but also because of the simple fact that markets almost never head to the moon when everyone says they will. Why? Because if everyone truly believed Gold would hit $5000+ we would already be there or well on the way... Instead we got profit taking at 1556, a few point off where I had projected a turn. So is it down, down, down from here? Probably a bit more complicated than that but at this stage I stand by my projection for a retest of the H&S neckline. There are 2 possible ways to draw the neckline however (see the Monthly and Weekly charts below). The weekly chart neckline projects a turn into a long term rally at the Fib 50% (1360), which also has the advantage of a curious EWT guideline that a wave C can project 1.618 time of a wave A (also 1:1 and 0.618). This is based on the golden ratio, a mathematical phenomenon that occurs widely in nature. This isn't a guideline I place much store in myself but it is intriguing that it should coincide with the Fib 50%. The monthly chart neckline projection is for a turn at the Fib 62%, which is the most common retrace level. So that leaves me with a target of between 1300 - 1360 for the end of the retrace on Gold. Note from my charts however that I do not expect it to be a massive fast drop from here. If we got that I would be considering an alternative scenario that the market will penetrate all the support zones and produce a lower low beyond the 1050 lows from 2015/16 (a credible but as yet not compelling scenario for me). Where the forthcoming flag consolidation occurs could shed some light on how far the bearish move will go and my lines are indicative only. We could see a further reasonably fast drop down to maybe the Fib 38% (1400) before that Flag consolidation. This might offer some short term Short opportunities and/or profit taking on Shorts taken at the current breakout level (1457). The flag breakout (I expect this to be to the downside of course) would also offer a Short trading opportunity when it materialises and breaks down and a retest of the 1457 after a further drop could also present as a decent Short opportunity. I will be mindful that retrace moves can be a bit unpredictable and subject to fast reversals so trading with caution is indicated. Note also that on Gold the rally up to where I have denoted wave 1 (blue) is in a credible 1-5 form, albeit that the Pennant is very low down. This is not the case for Silver, which is even more interesting but I will need to open another post I think.

Can't see it @dmedin, the pin bars may be indicative but I don't buy the trend line, insufficient touches to be strong. Looks more like a consolidation retrace to me at present with a potential A-E pattern being played out. The E may turn within the channel but preferable at the top, so the risk is that there is still some upside left in the move. It would also yet morph into a more conventional A-B-C and rally higher. I am not sure why you want to Short this stock as it looks to me the majority of the move is over. Since the top out the market has traced a 1-3 of a likely 1-5 and looks to now be in a wave 4 retrace. The whipsaw price action is certainly consistent with a complex retrace pattern. In a traditional 1-5 under EWT you typically get 1 major retrace in simple form and one in complex form. The simple one was the 1-2 so it makes sense that the complex one (current one) is a 3-4. But price has already dropped to the Fib 62% level (or just above) so there isn't that much left to go. Personally I would be looking for stocks that are completing or have completed their wave 2s and are about to run hard and fast in a wave 3.

And there goes Gold. Strong price action confirms the trend. Possible retest of the support.now resistance to watch out for but otherwise the only thing to watch for prior to hitting the end points is a consolidation phase.

Silver has just made a lower low (not closed until the end of the day of course) but no matter as the support has been broken. Gold must surely follow? If confirmed this is a strong indication that the retrace rather than consolidation scenario is correct and we can expect further declines in gold/silver prices. As I write Gold is hovering just above its support level in a downward trajectory.

Yeah the breakout never really materialised @dmedin so the Long wasn't on. A long trade at the 6200 should have had a stop very close so that any reversal closes quickly or at a minimum a move to close or BE once the market put in that small rally up to 6300. Any Longs from lower could be held at BE or cashed once the reversal was recognised. The issue to be addressed now is whether the market is in a consolidation preparatory to a further break lower through the 5600 level or is in the beginning of a rising trend that will break to the upside. My route map to higher highs remains intact so long as the wave B (blue) low is not broken. So net the 2 levels of interest for me are 5600 on the low side and 6300 on the high side and until one of those is breached with the right price action moves we wont know the medium term direction. On a separate note, I find Oil to be a very tricky market to trade and only consider it when at potential major turns with a high rewards to risk ratio, if at all. There are better, more consistent and more forgiving markets, especially for beginners with small accounts. FX is the best for this I think. The trade du jour however was Short Gold, which is what I have been focused on tracking for some weeks. I did trade a small position on Oil but closed it when I saw the reversal. One other thing perhaps of interest is that to me trading is a bit like dingy fishing on a lake. If you have several people fishing off the same boat and one gets a bite the others take their rods out of the water and stow them until the fish is landed. When I caught Gold/Silver the other day I similarly closed off all my other interests until I was in a good position stop protected. This is about focus but also about money management and overall exposure management. Speaking of which, over to my Gold/Silver thread...

Interesting! I assume you are saying that because these 2 indices (Dax and Dow) are correlating in an upward trajectory that this confirms the bullish trend is intact. That is all well and good but it does not preclude bearish phases, which is what I was talking about in my post. Indeed I suggested that a turn here may not be the final turn (at least on US large caps). The key to the end of a trend is a clear signal that it has turned irrevocably, which we do not as yet have. However there is plenty of evidence that the bull may be running out of steam. Dow theory is a bit arcane in my view, other than the point about correlated global stock indices, which we have in spades these days. This is principally due to 2 major factors in my opinion as follows: The highly integrated nature of world economies due to the impact of globalisation, which, while it has many benefits, also creates an environment where "a rising tide lifts all boats", even rotten ones. This can be seen in microcosm when people talk about zombie companies being kept afloat due to excessively low interest rates and easy money when in reality they ought to fail. Easy money, money printing, QE, ZIRP/NIRP, government bank bailouts, "too big to fail", whatever your poison all of this is artificially propping up markets. This is most notably reflected in ideas like: "this time it's different"; "the new normal" and "value investing is dead". All of this is a signal of the kind of euphoria present at the end of a long bull market and will, I believe, be proven incorrect just as similar thoughts have been at the end of every past cycle high. In fact this is what contrarians look for. If you look at Dow theory specifically you will note that the original correlation in question was between industrial (DJIA) and transport (DJTA). I am not sure how relevant transport is to, say, tech stocks, which are the main driver of the current bull from an individual company/sector perspective, although in recent times it seems that defensives are the sectors propping up the indices, which isn't particularly bullish overall in my view and perhaps a warning sign? The main idea within Dow Theory states that the correlating index (say transport) should follow the lead index, industrial, to new highs within a reasonable time period. It doesn't say what is reasonable of course... If you look at the DJTA you will see that it has not yet made new highs (last one ws around June/July 2019 I think) plus some analysts are watching sectors like transport and reporting that they are showing recessionary signals. The idea being if manufacturing goes into recession then fewer goods are shipped then retail sales slow then job losses arise pretty much in that order. Note the job losses are the last signal, very lagging, yet everyone hangs onto US NFP like it the only thing. Also note that you can have a recession and an associated market fall without GDP growth going negative. GDP is specifically NOT a measure of recession. Even if you look at US GDP you will see that the rate of change is down not up. But let's look at the correlation between the Dax and the Dow, as this is your thesis. If the above main "rule" holds true then we can surely conclude that the Dax is not correlated with the Dow. The Dax put in its current ATH in Jan 2018. The Dow has put in 3 separate new ATHs since then but the Dax has not followed yet and may never do so. I don't know what the definition of "a reasonable time period" is but almost 2 years doesn't appear to qualify to me... Other factors that need to be consider within Dow Theory include: The fact that the theory is predicated on the notion that "the market discounts everything in a way consistent with the efficient markets hypothesis". The markets are anything but efficient, if they were there would be no price discovery, and therefore no opportunity, so this fact alone renders the theory arcane for me. "Volume should increase if the price is moving in the direction of the primary trend and decrease if it is moving against it". Looks to me like volume is actually decreasing, if the IG volume indicator is to be believed. Maybe we will get a burst of volume in time to come but at present it is not looking like a strong breakout rally so at least a bearish phase to "prime the pump" is necessary. "One difficult aspect of implementing Dow theory is the accurate identification of trend reversals". For me this means it is not useful to identify turning points. The main method in the theory is peaks and troughs, which is lagging. I use lower lows and key support breaks as confirmatory signals not trading signals. So net, there is no clear signal that the trend is over yet and I do align to the Dow theory in that I would need to see a lower high and lower low on a daily chart basis to conclude this but this is also EWT so I will just stick with that. However if we consider the main element of Dow Theory, correlation of averages, there is no correlation in terms of higher highs outwith the US large caps. As I have cited previously, all the other main indices have stubbornly refused to post higher highs. So from that perspective the Dow theory might we telling us that the game is up...

Something interesting occurred yesterday on US large caps (S&P500 and Tech), the drivers of the current Bull in my opinion and as such if they capitulate so will others. One of my lead scenario rally end signals is an exhaustion spike after a melt up. I am not sure that is what we are seeing yet but more on that another time perhaps. For now I am interested in two 4 hours candles from 12.00 to 20.00 yesterday. The first was up, the second was down and went below the start of the bullish one immediately preceding it. On it's own this doesn't mean much and the spike up wasn't that impressive so I don't think of it as an exhaustion spike as such but because this occurred at a resistance trend line, breaking through the line and then returning within it, and because there was also strong NMD (waning enthusiasm for the rally), and because volume continues to be on a declining path it seems, and because the Vix is at a potential breakout to the upside the sum of all these parts points to a potential turning point. Currently I favour a scenario where the US large caps drop and rally again in a Santa rally but that's a ways off yet, so I am not suggesting this is the end quite yet, it could be but more likely it may be a precursor. There is also another longer term channel line above so we could see a test of that yet before that bearish drop that precipitates a Santa rally. The Nasdaq posted an even more bearish move but the Dow didn't, so this seems to be a tech led issue, which is also telling as the whole Bull is tech led, although more latterly also defensives, which is also telling in my opinion. Add to this the Nikkei ending the week on a downers and the FTSE100 breaking a short term trend line and the overall picture does not add up to a full "Bullbirds are go" situation to me. So I will be watching for any potential breakout to the downside for some fast and large profits while continuing to trade elsewhere.