Mercury

And just before anyone trots out the inference that Hedgeye and zerohedge are all about the crash, it seems Hedgeye at least are not ready to call a recession yet. Hardly surprising as no one really can until it is official and by then it is already well on. If we see a recession in 2020 it may have already started... https://app.hedgeye.com/insights/77244?utm_medium=email&utm_campaign=Market Brief 1566313218&utm_content=Market Brief 1566313218+CID_f8fc8b4b8585015a19d0713ea37ca7c1&utm_source=campaignmonitor email&utm_term=READ MORE

Coming back to the thread topic, after an interesting but I guess off topic segue into the world of EWT (sorry if any non EWT guys were a bit bored by that), I saw this clip this morning and was intrigued by the overarching comment. Not sure if you can see it without registering but hopefully you can, basically this guy is saying he has never seen marco data so poor in his career, he is not a teenager... https://app.hedgeye.com/insights/77189?utm_medium=email&utm_campaign=Market Brief 1566313218&utm_content=Market Brief 1566313218+CID_f8fc8b4b8585015a19d0713ea37ca7c1&utm_source=campaignmonitor email&utm_term=Worst Global Economic Data Of My Career

Thanks @ChrisN, you are right of course but then again if something doesn't feel right or sit well it is pointless using it or indeed debating it. We can happily both do things in our respective ways and live and let live. Would be interesting to hear how you get on with this set up though, please continue to share progression as and when you feel it could be instructive, if you have a mind to. Agree @cryptotrader, it is an intellectual exercise and the markets are complex structure. Simplicity is all well and good but the professionals I see interviewed or read about seem to be anything but simplistic in their approach. Everyone needs to find their own methods and make it work on their own but there is no harm in learning new things, if one is truly open to it...

So that potential breakout to the downside never came and the market rallied back up to make a new high, just, but now, given underlying USD weakness (potentially) this pair may also have peaked and turned. The Fib 62% overhead was not quite hit, nor the 2 trend lines so another leg up at least to these levels is quite possible but otherwise, if USD does fall, this pair could be set up for a strong wave C bearish move.

Potential failed retest of the previous breakout zone on DX. A break to a new low vs yesterday may signal a long awaited strong bearish phase for USD.

Yeah I also don't see it @dmedin, unless you were reacting to his apparent minimisation of a no deal Brexit ("entrepreneurs will just get on with it")? As an entrepreneur myself I agree with his sentiment, business people want a resolution now please, one way or another. Democrats want an exit because that is what was voted for, regardless of how we voted ourselves, and that still matters in a true democracy. BTW the Lib Dems should change their name as well as their leader because there is nothing democratic about their policy on seeking to ignore the referendum result; Liberal Eurocrats maybe? 😉. I am convinced though that we will look back and be thankful to those who voted to get us out of the EU, that thing is gonna implode and have to be rebuilt and the Euro is the think that will do it, bringing it back to trading... Anyway, in terms of the economic points, he does come across as exasperated with central banks and I think many people are. Both CBs and politicians are looking for a way out, a way to keep the gravy train on the tracks. The reality is that the only way out is to let it crash and reset. As turkeys don't vote for Christmas, CBs and politicians will do "whatever it takes" to fight this, at least until they can get off the stage so it doesn't happen on their watch (Yellan did, Draghi did, looks like Carney is looking for an exit door...) but they are rapidly running out of road. The solutions proposed in other interviews are the stuff of fiction and this guy hasn't proposed any solutions really, just commented on why the ones being proposed are bad, because there aren't any credible solutions. Many the true source of his exasperation is that reality? When you find yourself at the end of a cul de sac what do you do? Obvious in't! Even if something nasty is waiting for you at the other end it is better to run at it than cringe at the dead end, which is what we have been doing. Let's just get on with it...

Thanks for that @ChrisN, I am aware of it and practice the complex retrace tracking myself too. What I was referring to was that the classic A-B-C corrective wave has the entire correction below (or above) the previous turn in my approach. I do use the classic A-B-C (5-3-5 internal wave profile) and also the complex retrace with the 3-3-5 internals and that one can get pretty tricky. There is also a version of this that can be 3-3-3. I also use the A-E Triangle form (3-3-3-3-3) for continuation consolidations and I find it especially useful for ending channels, I had a perfect one to set up my recent Shorts on US large caps. However in all classic retrace cases (A-B-CsI do not allow the wave B to eclipse the previous motive wave high. I am aware that some EWT analysts do use this mechanism. As a matter of simplicity I kind of reject the notion that a wave 3 (motive) top can be eclipsed by a wave B top in a retrace move. It would seem to make more sense in the classic 1-5 that the wave 3 is the peak and the next major peak would be the wave 5 but only after the retrace is completed. This is all a matter of personal choice of course, for me creating a trading and analytical method from existing technical analysis methodologies is about selecting the aspects of several that fits your psychology and testing it to ensure it works well. A key factor is understanding when it doesn't work, one example would be where one of the more exotic EWT retrace scenarios takes place. So I am aware but I do not use it in my methodology. Naturally I agree with your assessment of the power of the tool-sets but like anything it requires extensive study, practice and failures to learn how to use it best within the context of ones own psychology.

This is what the EURUSD looks like. At present, although a much weaker rally, which is great for my EURGBP trade, it is still a rally of the Fib 76/78% zone after an A-B-C. Longer to go than GBP to get resistance breaks and higher highs but, taken together with the DX charts, it does look like a turn into a rally. turn into a rally.

Strong bullish move in the past few hours on GBPUSD, less so on EURUSD but it is there too, despite the Italian PM resignation, so much for the news (maybe bad news is good news for FX as well as stocks... Anyway, regardless of the whys and wherefores, the price action looks like a retrace to the Fib 62% (in A-B-C form) after a decent rally away from support on PMD for a potential wave 1 (blue) turn. Will need to see a break of overhead resistance and of the daily chart upper channel line to get serious but for now I am happily Long off the fib 62% turn.

That may depend on which market you are referring to when you say "the market". Agri commodities basically seem to move in ranges but within those ranges they may move in broad 5s or 3s. As for FX, Indices and metals I have found that they do conform to the basics. Don't know what you mean by "except when it doesn't", could you be looking at it incorrectly? Maybe you could give us an example...

Potential channel breakout on the 1H chart. Corresponding possible turn on EURUSD and a big rally move, soon to breakout perhaps, on GBPUSD. Finally maybe some volatility on FX...

Ah I see where you are coming from now @ChrisN. You are deeper into EWT than me perhaps; I have chosen to ignore the more unusual structures. I stick to a standard A-B-C form where the move does not penetrate above the previous high (i.e. the 3 top in this case). I have seen published analysts/traders use these kinds of structures in the past but they rarely work out because they are not the norm. That said these are not normal times so maybe... And it is hard to get a decent wave fit on the US large caps rally up to the ATH. For now though I favour an ending channel scenario that may or may not produce another ATH on US large caps but I feel that any breakout of my channel to the downside will spell the end of the Bull. Obviously in your scenario a wave 4 would be below the channel (similar to your red trend line I think)?

Interesting point @dmedin and one I considered when transferring from individual stocks to indices. The dual issue I experienced was the need to track individual announcements on the financial calendar on stocks and the "rising tide raises all boats" factor of central bank policy. Better to trade the index in these crazy times as even rubbish stock seem to get a lift. Later, when the dust settles on a crash, maybe we can get back to value investing but for now I don't see the point.

Not sure I follow you on the wave 4 point @ChrisN, can you throw up a chart to illustrate?

There is a distinct different between the price you pay as a consumer and the price the farmers are paid. Consider that the commodity market dictated that the price of a pound of coffee was in 2011 was $31 and now it is $9. I don't know how much a farmer or local merchant might get vs those prices but let's say it is the same % or similar then the farmers have experienced a 70% decline in their revenue. Even if the buyers have been supportive, and retail prices only seem to go up right, then they will still have seen at least a 50% decline I would hazard. That would be enough to to drive me to something else... Also in the programme I saw it was reported that growers were struggling and leaving the industry. One coffee roaster had actually vertically expanded into growing to secure supply. I took this at face value. In any case my point was simply to illustrate a basic fundamental that triggered me to look at the charts. The power of the thesis is in the charts, the fundamentals merely support the reasons why the price charts have done what they have done since 1975 at least and will likely so so again.

Is that a failed support/resistance zone I see? Hit and rejection on the Fib 62% on NMD with a reasonable A-B-C form. As per my previous post, need to see a break below the 5750 level to get really into this but worth a close stop Short to add to my previous positions. A break low and then through the $56 mark would make this a really interesting medium term bearish move.

Could we be getting an interim A-B (brown) now that the probably initial A-B (green) is in? This would suggest a complex retrace move that would mean the Bull has topped with the recent ATH. A break through the current rally channel is in progress but it could morph into a small consolidation yet but for me the point is to watch the price action for ongoing clues as to whether we are there yet, which is the main topic of this thread after all... If this does turn out to be a significant bearish phase then look for a higher low than the B/2 (green) but still quite deep a retrace as this would be more synonymous with a complex retrace up than a strong bullish move. As I mentioned before, in an end game scenario, whether this produces a new ATH or not, we would expect to see a lit of whip saw price action. Let's see...

The real issue for capitalism is the reliance on population growth. Western economies are experiencing population decline and demographic skewing to the older side, with the multitude of government and societal issues that generates. Other economies like China are over populated and desperately trying to manage this with Western style economic and social practices like urbanisation. All these economic models were born out of exponential growth of population and therefore demand and therefore economic expansion. Pre 1929 it was industrialisation and electrification. Post 1945 it was post war baby boomers and rebuilding and urbanisation. Then we got the Tech boom, starting in the 1960s and still continuing. But the problem that brings on top of population reduction is job losses as tech takes over. Add to that short sighted Western politicos like Blair/Brown, pushing immigration to offset declining population, keeping the economy growing (temporarily) so that they can hold onto power, and constant migration pressure from poorer countries, which still have exponential population growth but no prospects at home and you get a situation which is unsustainable. This is a gross simplification of course but still... Enter the central banks and QE and negative rates in a Quixotic tilt at keeping the models they are wedded to afloat and the ensuing divisive widening of the already enormous gap between rich and poor and people like Zuckerberg and the Democrats in the US talking up paying people a "basic" allowance (like we should listen to some guy who had an idea for a website in university!) and it all adds up to an end game. BTW, watch or read SciFi The Expanse, if you want an idea of where the "basic" idea would likely lead us... Barking mad! Maybe Trump is not the megalomaniac we think he is? Maybe he sees this and is busy pulling up the drawbridge? Maybe it takes a megalomaniac to see it and take the necessary action? Maybe Boris Johnson is the UKs version. History will tell the tale. We know that the planet has a max carrying capacity for humans we just don't know if we have reached it yet but the signs are that we have. We MUST therefore have population decline, idiots who think we can manage the ecological disaster already under way without population reduction are living in LaLa land. We will get population decline either through a naturally motivated mechanism or a catastrophe (Malthusian theory, but really just common sense). Therefore you are right @dmedin that there would need to be a new model for economics under such conditions but human nature us such that we are never self aware enough and politically capable enough to take the necessary steps to manage these things effectively so inevitably it the current models have to die before we come up with a new paradigm. This is the same reason why we never see the recession and the market crash coming because there are always enough people talking it up: "this time it's different"; "the new normal"; Trump wont let that happen in an election year (like he could actually stop it!); the central bank wont let that happen; "helicopter money to the rescue; just write off all the debt and carry on! There are always enough people pouring scorn on people like Roubini who dare to challenge the received wisdom, name calling and and denigration and so on. Just look at the interviewers body language when (and actual language) when interrogating (because that is what is was) Harry Markopolos on the potential GE scandal. Whether it is the MSM, the politicians, the central bankers or the financiers they all have a vested interest in keeping the show on the road. Only the outliers see it and comment on it but they are kooks so ignore them... That means, to me, economically at least, a mega crash has to happen and only then can we reset this thing. If you are prepared for that and have funds at the bottom you will do well. If you hold on to outdated paradigms for investing you will get slaughtered, irredeemably so if you are anything over aged 30ish.

Interest professional view on the current market conditions, responses, price action; what is not driving it but seems to be received wisdom, at least in the MSM and retail side...; and a warning of things to come. Real Vision video on their free section: https://www.realvision.com/tv/shows/trade-ideas/videos/the-myth-of-the-infallible-central-bank

That is true @ChrisN, although when I was in Japan a while ago I saw clearly well educated older people working government created jobs and stayed in a place run by a lady who was clearly working hard to make ends meet but nevertheless the standard of living generally in Japan was high relatively speaking. Their companies continued to do ok because their customer base was still sound. I guess my point is how much worse would it be when their customer base erodes heavily due to a global shock?

Ah, no @tehka, retail. Strictly a long term capital appreciation trader rather than income seeking.

Of the specific event @AbDXB1345 maybe counter parties with exposure to GE, whether the insurance companies referenced by Markopolos or suppliers to GE, especially any with a significant portion of their business with GE. As GE has been a poor performer for decades it is not likely to be a huge impacting factor for investors as Enron was in 2000, given that Enron was riding high. For me it is more about a signal of a wider problem within the economic data being reported. It is rarely just one organisation that is hiding things, typically this is tip of the iceberg stuff and the contagion risk is that it spreads to the wider market and that will be enough to trigger a collapse event and a resulting recession or worse.

Interesting item for me this @AbDXB1345. I do some training at the institute of chartered accountants and use historic market/economic shocks as a backdrop for what Finance and Accounting departments need to be doing to be prepared for the future. Long story short I have been talking about what the next big shock will be and what the impacts would be (i.e. a signal of the next big economic and market shock). If this is real then it would certainly qualify, although I would never have guessed that it would come from such a venerable company as GE. While many commentators have been talking about global macro economic and political events no one has been talking about the next big corporate scandal (although I think in retrospect we will hear a lot about share buy backs as having been a huge hidden Ponzi!). It is a truism that no one sees a Black Swan before it happens, maybe then this is it. However I see this as potentially a signal of the end of the Bull (look at what happened when Enron/WorldCom fell - it is not surprising to me that this coincided with the 2000 stocks collapse). In terms of the stock itself, it peaked in 2000 at circa $50 (I mean it never recovered from the first tech boom!) and has been in a dramatic decline ever since and now it is trading at $8.70. If the accusation proves true GE fails and gets asset stripped (can you imagine! GE?). So the target could be zero but what happens to a trade if the company fails? Does it pay out? If this is played out in the media there could be a lot of whip saw price action as the PR and legal battle commences so I wouldn't be too keen on becoming embroiled in this myself TBH. Definitely worth following though so thanks for raising it.

Thanks for sharing your idea @tehka, nice to see some new contributors and new actual trade ideas coming out. For the record I am long term bearish stocks so this chimes with my bias. However I am short/medium term bullish. I do not think the time is yet ripe for the bearish move. I am more of a US large cap follower myself but Hang Seng is one of the markets that I think may have already topped out, see my "Stock market turning points - are we there yet?" thread for more on this if you have a mind to. If I use my analytical method on the Hang Seng I see the following: The index may have topped out in early 2018 OR it may have another leg up in it. It would not be beyond the realm of possibility for a strong push on US large caps to drive a final bullish move on the Hang Seng. This would be an end stage exhaustion bull run I am guessing but we will have to wait for further price action to see. The rally since 2009 has been less powerful than elsewhere, particularly the US large caps and has put in 3 distinct bearish phases, including the current move. If the red labeled EWT is true then we will see another ATH and if my Pennant is valid then that high could be around the 36000 mark (all conjecture at this point). I have a decent pair of up sloping channels, the lower of which provided support of late. There is also a decent horizontal zone of support at the recent turn up (circa 24000). Additional I have a resistance trend line (black) with a supporting prior pivot that lends credibility to the ATH 36000 target. Zooming in to get a closer picture on the weekly (2nd chart) the move down to Nov 2018 could be an A-B-C (bullish) or a 1-5 (bearish) so no help there. The rally was stopped at the Fib 62% (a classic retrace level so maybe an A-B-C then?). However at this point there are too many scenarios to pick out a clear lead candidate so all I can say is that the April 2019 turn could be a retrace end preparing for a larger drop (the price action since then might support this) or only the first wave of a larger retrace to maybe to the Fib 76/78% or the wave 1 of a final bull run to another ATH. If we look at the daily chart we can see that there was Positive Momentum Divergence (PMD) at the recent turn and again an inconclusive form to the bearish move down. All in all I would not be keen on a Short at this time and in fact I would want to see a break through the 24000 support level to get Bearish confirmation or price action and other signals at a higher level of a credible bearish turn. Further price action will add to the picture and hopefully clear up some scenarios (or ideally take them off the table) but with US large caps rallying I would sit back and wait on this one, for now. If we see other indices turn bearish that may change things but bear in mind that in an ending phase there is typically a lot of whip saw price action as Bulls and Bears slug it out for dominance so watch out for Bear traps. I firmly believe that all the major indices are connected and the next big shock will be global not local. In terms of targets, I think that any break of the 24000 level signals a long term Bear market so I would be think much longer term but then I am a long term swing trader so horses for courses on that.

I was watching a TV series called "This Giant Beast That is the Global Economy " starring and narrated by Kal Penn, actor in "House" and speech writer with Obama. It doesn't really cover any new concepts, although there were a few interesting observation in their, like what the most important commodity in the global economy is... (I wont spoil it for anyone who hasn't seen it yet and wants to but it was not that obvious and is blindingly obvious in retrospect). One thing that did pop out that I though was relevant for the forum was that the price of coffee is way too low for farmers to make money. The logical conclusion of this is that they will farm something else and supply will be curtailed and then prices will go up, the basic perpetual cycle of supply and demand change. This very basic fundamentals proposition motivated me to look at coffee on the charts to see if there was a building opportunity and I think there may be. I will preface my analytical assessment with the statement that I know very little about the coffee industry other than how to select a great bean type as a consumer and make a great flat white. If I look at the long term charts (Quarterly/Monthly) I see that coffee trades in a large range from about 4000 to 34000 at the extremes (or $0.40 - $3.40 per US pound if you prefer). This seems to represent the classic economics supply and demand curve in candle pricing form. With the available data we can see a set of cycles between the market top and bottom zones that in the main run fairly directly between the zones. At this point my thesis would be that if you catch the market right at either extreme you can hold until price reaches the opposite end of the range (net 30,000 points or so). For best results you want a straight run rather than one with large reversals. If I apply EWT to the chart I see a series of 1-5s and A-B-C, although this is arguably less relevant than for markets that do not operate between such obvious ranges as the key is obviously to look at trading when the market enters, or more correctly, then exits the range extremes zones. Still it is interesting to see that the run up in the mid 70s was a motive 1-5 that still marks the high point in price. After that I see a series of massive A-B-Cs culminating in a slightly lower high extreme price in the late 1990s than that printed in the 70s (still went into the market top zone though). This high then produced a 1-5 down to the lowers price on the chart around 2002. The next move up to 2011 could be either an A-B-C or a 1-5 and the current move looks decidedly like an A-B-C. If the 2011 move is an A-B-C and the current move is also an A-B-C then I would expect the current move to be a larger wave B that ends higher than the previous low and spawns a massive rally that ends higher than the previous high and is a 1-5 that goes pretty much straight up. Either way the current move is and A-B-C so will end higher than the previous low and as most of the bear moves end inside the market bottom zone I can reasonable conclude that this move will end somewhere between 4200 - 8000. Let's look at a shorter term charts to see if we can refine this. I have 2 weekly charts attached, the first of which shows the bearish move down from 2011 and the second of which zooms in on the final wave C of C. In the first chart I can see a clear A-B-C structure to all 3 of the larger A-B-C wave form of the bearish move. This confirms an A-B-C and not a 1-5 and also confirms that the market is in a final wave C of C, which will spawn that Bull market. I also have a nice upper resistance trend line and 2 possible lower lines (both may be valid) with a lot of good current (green circle) and prior pivot (purple circle) touches. If we look at the second weekly chart the wave C of the larger wave C (from the wave B pink) is cutting a clean 1-5 pattern and looks to have just completed the 3-4 part of this. The rally to wave 4 (blue) is in a-b-c, which you would expect of a retrace so the next bearish phase should be a final wave 5 that will mark the end of the overall bear market. I would be looking for price to hit one of the lower channel lines but inside or on the 8000 level ideally. Note all previous moves that did not make it to the extremes zone were not wave Cs (As or Bs) and all the 5 did. So the conclusion to this is that all wave Cs or motives 1-5s penetrate the extremes zones of the range but As and Bs tend not to. Also 1-5 waves tend to run hard and fast and make more extreme price tops. The current move looks line a Wave C that would spawn a 1-5. Finally looking at the daily chart the current bearish phase looks to have put in a 1-2 (green) of that final 1-5 I am looking for. I will be tracking this for the 3-4-5 and other signals to see if I can spot the turn. As and when price breaks out of the upper weekly trend line resistance I think a strong bull market will be in play that could be a motive 1-5 that makes it into the extreme market top zone. In all of the bull turns through there has been a strong short term retrace so the best strategy might be to let the turn happen and spot the initial retrace turn. In these agri type commodities getting in on such a range extremes turn has to be the way to play it. I will be tracking this one with interest for a while but it will require some time still to mature I think.