Still playing the markets

TRUMP changes mind

"Trump had said previously he would not be satisfied with a partial deal to resolve his effort to change China’s trade, intellectual property and industrial policy practices, which he argues cost millions of U.S. jobs. On Friday he said he had decided that a phased approach was appropriate."

So it looks like the back and forth of "deal or no deal" will be an ongoing theme for months and possibly years to come.

The markets were euphoric about the "latest deal" though the details were not released until after the market close on Friday - 

So some scepticism to come for next week?

Charts :
easy money and trade optimism are pushing indices to new highs, bell-weather stock  AAPL, also reached a new high on Friday.

DOW daily
Friday left what could be a shooting star (www.investopedia.com)
Warning that uptrend may fail..

The key to this will be the price action on Monday.

Market correction of Trump rally or 2008 rally?

The markets are obviously correcting and have been since October.

The US markets have outperformed the rest of the world.

European markets seem to be in bear moves since around May 2018.

So the BIG question is - referring to US markets and the DOW in particular;

What exactly are the markets correcting?

Since 2008 there has been a bull market

Within the bull market there has been a correction leading into 2016 , and a rally since then - the " Trump" rally.

A correction in early 2018 and a rally to new highs

DOW monthly chart below

The box outlines the Trump rally
Show a double top
The rally has retraced to the 23.8 % Fibonacci level, this is usually the minmum retrace
Odd are that it will test the 38.2 % level , 22300 approx.
Why?  Too many investors are still in the BUY the Dip mentality
The market has changed since the first correction on 2018
There are genuine concerns about a slowing economy in 2019 which doesn't support valuations seen earlier in 2018 - whether recent falls have made these fairer is still open to debate - so UNCERTAINTY - never good for markets
Trade wars - more UNCERTAINTY

What if the correction is actually of the whole rally from 2008 ?

The market has rallied over 300 % since then
A correction of that would be more severe (and still be in a SECULAR BULL market)
DOW chart below showing Fibonacci retracement levels
Coincidence - 23.8 % retrace is almost same as the 38.2 % retrace shown in first chart (22300)
If the correction is for the whole 2008 rally, there could be a lot of pain ahead. 
In Elliott Wave terms the whole rally from 2008 could be a wave 3 (typically the largest and longest), with the fall in February as a smaller wave 4 and then rally to new highs for smaller 5 , which completes wave 3.

All that aside , favour a fall to 22300 unless the markets turn around PRONTO!

Talking heads (CNBC) keep talking about how the market is good value - good contra-indicator.

CAVEAT:  Medium term bearish scenario may change if there is some deal with China, the FED LOWERS rates instead of raising.

"To subdue the enemy without fighting`is the supreme art of war." - Chinese philosopher Sun Tzu

G20 - weekend it's a CRAPSHOOT -a risky or uncertain matter.

full of news - will Trump and Xi agree to be friends?
(I put it in the vernacular form, as Trump speaks like this - and quite often in a very child-like form, which is probably why he appeals to half of the American people)


So  looking at the charts :
Dow Industrial  - (I'm not an expert in candlestick formations but do refer to a book I have dealing with Japanese Candlestick charting)
What can we see?

1.  In candlestick terms each of the highlighted moves has a long bullish candle, followed by a "spinning top" - a sign that buyers and sellers are evenly matched or indecisive.
2. Looking at the firs 2 highlighted patterns : these are called " Evening star" they usually occur at the top of a trend.
3.  This implies that the next big move will be down..HOWEVER as this weekend is a CRAPSHOOT - several scenarios can happen.

a.  A large gap and crap
b.  large gap up and continue
c.   large gap down and recover
d. large gap down and continue
e small range trade

"Do I feel lucky?' Well, do you, punk?" 


So...if you're feeling brave - take a position
If not flat is also a position - and there will be trades to do after the event.

Have the markets bottomed?

If you listen to CNBC then you would probably think that every time the market has a big up day the market has bottomed and the BULL market in force for the last 10 years has resumed.

Looking at the charts gives some perspective.

DOW daily
what can be seen?
1. Since the 8th November there is a downtrend
2.  in the down trend there are 2 counter trends up - 2 days and 1 day
3. yesterday's rally may be the 3rd.
4. The down trend has not been broken (Yet)
5. The rally needs to break 25400 before we get a higher high

So odds favour the move down

What can change this?
Well this morning there was, to quote DJT, fake news about a trade deal between China and the USA, which was lost in translation. (story here), and the futures leapt higher (DOW cash hot 24700 - just touched the down trend line).

So what dod that do?

Probably a lot of short sellers were stopped out of positions, and possible many entered long.
30 minutes later, all reversed and both bearish and bullish traders were "stuffed£

DON'T trade news

Big week ahead -

This week will be full of the mid term elections in the USA voting on Tuesday.

News can move markets short term - but generally speaking unless it's a bolt from the blue (KCTM, Lehman  etc) the charts can help to navigate the turbulent waters, keep an eye on resistance and support.

The chart below shows the DOW daily and a BULLISH set up from an Elliott Wave perspective.

I'm no expert but I know that an impulse is 6 waves which is then followed by a 3 wave corrective. This is the simple explanation as waves can sub-divide.

Bullish:  we have finished wave 3 and the recent fall has been a correction i.e. wave 4 and now we are in the final wave 5 up.  The rally from the lows may be a wave 1 and we are now in wave 2 down..wave 2 down can be quite deep - it will suck in the bears thinking this is the start fo a new bear market (if it break the recent low - it MAY BE).

If we hold then we should have a good rally which will eventually make a new all time high.

Be nimble this week, don't get married to a view or position.  It will be volatile - and could offer some good opportunities if we get large moves up or down