The most important news you missed

Friday, 2 November 2018
London, UK
By Sam Volkering

  • POTUS and his dodgy vids
  • The biggest news no one is talking about
  • We were right once, we’ll be right again

Before we get started today, a reminder that below my article today you’ll find the latest in our series from ‘The Billionaire’s Trader’. His series continues to draw back the curtain on the techniques he’s uses throughout decades as a highly successful trader for some of the world’s largest institutional investors and high net worth individuals, so don’t miss it.

Now, onto the latest…

One of the ways we consume the latest world developments these days is through Twitter.

We find that Twitter provides more ‘real-time’ updates on what’s happening around the world than any news outlet does. Or rather, Twitter alerts us as to what’s going on, and then we go off-Twitter to find out more.

Of course, occasionally you just get the direct news from Twitter, because Twitter is where the news was made.

Let me explain that a little more.

You’ll probably see a little bit about President Trump today. Something in particular is a mid-term election video he posted to his Twitter account. This post wasn’t on his ‘POTUS’ account. It was on his @realDonaldTrump account.

It’s a video of an illegal Mexican immigrant who killed two cops, during his murder trial. At first (and second) viewing it looks like a parody video of some sort.

Then you realise it’s a real, legitimate attempt to sway voters to vote for the Republicans in the US midterms. The catch phrase ‘Make American Safe Again’ tops the video off nicely.

It’s incredibly mortifying to think people will be swayed by something so amateurish. But hey, it’s America.

So the US midterms are going to dominate the news for the next few days. And no doubt there will be loads more from Trump and his Twitter account.

Another gem we picked up on Twitter this afternoon was about Brexit. Here in the UK, Brexit is once again dominating the headlines.

It comes after the Bank of England came out this afternoon (UK time) leaving interest rates as they were at 0.75%.

The talk about Brexit picked up because Mark Carney commented the BoE needs to be prepared in the event of a ‘no deal’ Brexit.

What that means…well, no one is really sure. We think it means Brexit just leaves the EU and they don’t agree about any kind of transition on trade, immigration, finance, or anything.

The chances of this no deal Brexit are slim. But even if it did happen, who cares? Most people think the UK is going to plunge into some kind of Wild West — like the whole country will be thrown back 45 years overnight.

That’s not going to happen. In fact, maybe a ‘hard Brexit’ is exactly what the country needs. So long EU, it’s been fun (not). Good riddance.

You see, we think the UK is an important market for industry. Whether it’s as a trading partner to countries like Australia and the US, or as a global financial hub, the UK doesn’t need the EU as badly as most people think they do.

The reality is, most people just want to holiday in Spain hassle-free. That’s not going to change.

But with all this Brexit and US midterms talk, we haven’t even mentioned today’s reversal in stock markets — particularly tech stocks.

If you missed that one, have a look at the markets section below. But to sum it up, tech stocks are back on the rise. Well, we told you so.

But soon there will be another important ‘we told you so’ moment. One that has huge implications for the UK and a new global mega-trend.

Markets

Overnight the Dow Jones Industrial Average closed up 264.98 points, or 1.06%.

The S&P 500 gained 28.63 points, or 1.06%.

In Europe, the Euro Stoxx 50 index finished up 6.70 points, or 0.21%.

Meanwhile, the FTSE 100 fell 0.19%, and Germany’s DAX gained 21.03 points, or 0.18%.

In Asian markets, Japan’s Nikkei 225 is up 170.16 points, or 0.78%. China’s CSI 300 is up 2.37%.

In Australia, the S&P/ASX 200 is down 5.50 points, or 0.09%.

On the commodities markets, West Texas Intermediate crude oil is US$63.57 per barrel. Brent crude is US$72.84 per barrel.

Turning to gold, the yellow metal is trading for US$1,233.41 (AU$1,701.40) per troy ounce. Silver is US$14.74 (AU$20.34) per troy ounce.

One bitcoin is worth US$6,371.42.

The Aussie dollar is worth 72.48 US cents.

Sometimes it’s nice to be 100% right

US midterms, Brexit, stock market volatility. There’s so much to capture your attention. But there’s one massive development that was announced yesterday that you need to take note of.

It was an announcement from the British Government. And in typical British fashion it was a very low-key, ‘keep calm and carry on’ moment.

According to the UK Government website:

For the first time in the UK, expert doctors have been given the option to legally issue prescriptions for cannabis-based medicines when they agree that their patients could benefit from this treatment.

That’s right: medicinal marijuana is now legal in the UK.

Bet you didn’t see that in the news today. Well it is. You can even see the announcement here.

Well, we’re going to say it…

We told you so.

Here’s proof.

On 21 April, 2017 we wrote in Australian Small-Cap Investigator about our experience in buying and using a cannabidiol (CBD) vape in the UK:

The only ingredients in the canister are CBD, and pharmaceutical grade coconut oil to help create the vapour. So far so good. It doesn’t taste all that strange. It also doesn’t make you high. That’s because it’s all CBD. There’s no THC in it at all. That’s also why we were able to buy it online in the UK without the cops kicking down our door.

On 17 May, 2018 we wrote in Money Morning about a comedic drug bust in the UK:

Right now [cannabis is] not legal from a medicinal or recreational perspective. Marijuana drug busts continue to happen across the country. But we think that it’s a short space of time until the UK also flicks on the green light.

And on 30 May, 2018 we wrote in Microcap Trader while making a stock recommendation set to benefit from potential legalisation in the UK:

With a cultural uprising, our view is that the UK will be the next, majorly developed economy, to open up their market to medicinal cannabis.

We say this because we had the opportunity to attend Cannabis Europa just over a week ago. It was a cannabis conference in London for the European industry to come together and talk science, business and regulation.

Ultimately, the outcome was positive for medicinal cannabis markets across Europe and soon, we believe in the UK.

We were right. And now medicinal marijuana is legal in the UK. It’s done. It’s a market primed to explode with a legal green rush.

It’s not quite as poised as the Aussie market was back in early 2017. But it’s not too far away. We now foresee a UK market that will open up a licensing regime for legal medicinal marijuana production, distribution and cultivation.

And ultimately, over the next couple of years, we expect both Australia and the UK to follow Canada’s route and fully legalise recreational marijuana as well.

By the end of 2020, we would expect that at least one of the UK or Australia will have a fully 100% legal medicinal and recreational marijuana industry. It’ll be just like Canada.

We were right on this once. And we’ve already found stocks that are benefitting from the new green rush. We think we’ll be right again. And there will be a whole new list of cannabis companies set to boom.

Regards,
Sam


How to Understand Two Decades of Trading in One Simple Chart…
By The Billionaire’s Trader

The markets have been wobbling. Market commentators are falling over themselves to explain why there is more to come…or why now is the time to buy before the bounce.

Do any of them give you exact levels to buy or sell?

Do they tell you afterwards when their comments have been proven wrong?

Do they say how much of your portfolio you should risk? How much to hedge? Or where and when to take a profit? (Or even when you should cut your losses and move on?)

No. Of course not.

By keeping their comments as vague as possible, they know it will be difficult to pin them down at a later date. Therefore, the sum total benefit to you of their words is zero.

Or less than zero, because you end up even more confused than you were to begin with about what to do next.

That’s why I’ve spent so much of my time over the last few weeks introducing you to my trading ‘language’. It’s so we can have a meaningful conversation, which involves more than vague notions about what the future might hold.

I hope you’ve been able to learn something. And I hope I can bring you along on this journey, even though it involves an investment of your time and your energy to learn new ideas and challenge your current way of viewing markets.

So far, we have answered a few important questions about price action. But you may not yet understand how powerful this is. 

So today we’ll use the answers to the two questions I’ve answered over the past few weeks to analyse the S&P/ASX 200. And after such a tumultuous month in October, I hope you’ll agree that this is a worthy cause.

If you’ve missed the previous articles and need to read them so you can follow along today, you can find them here, here and here. I’d highly recommend that you read them first if you haven’t already. You don’t have to, but without those primers, you may find today’s essay harder to comprehend.

As I said, I am teaching you my trading ‘language’. So you need to learn the ‘words’ that make up the language first.

To recap, these are the three questions I posed in my first article:

  1. What does a market look like when it changes direction?
  2. Is it possible to work out where markets usually change direction based on past price action?
  3. If so, can we use this knowledge to enter trades that give us a good probability of being able to take profit fairly quickly to create a ‘free option’ so we can see what happens from there without risking our initial capital?

I’ll answer the third question next week. But first I want to cement in your mind the power of the answers to the first two questions. The answer to question one involved the concept of buy and sell pivots. The answer to question two gave you my key retracement levels in a trending or range-bound market of 12.5% to 25% and 75% to 87.5%.

We’ll use a quarterly chart of the S&P/ASX 200 since 2001 to do our analysis.

A quarterly chart means that there are three months of trading shown in each and every candle.

Now, don’t get confused by the chart I’m about to show you. There’s a lot going on. Normally, I wouldn’t put as much information on a chart, but this is just to show you how everything fits together.

In order to follow along properly, I recommend right-clicking on the link below the chart, in order to open it in a separate window. Then you can put the chart side-by-side with this essay.

So, remember we’re using the answer to two questions for all of the analysis! If you understand the concepts I’ve given you so far, you should be able to walk beside me in this analysis even though it may appear complex at first sight.

So here we go…

Just two answered questions to understand two decades



chart image

Click to enlarge

The first thing I want to draw your attention to is the buy and sell pivots.

I’ve labelled the first four buy and sell pivots from 2002 to 2009. Ask yourself whether you think it might have been handy knowing what the most recent quarterly buy or sell pivot was during this period.

Imagine if you had hedged 50% or so of your portfolio when a quarterly sell pivot was confirmed and then took the hedge off once a buy pivot occurred. Would that have helped you to sleep at night?

Now look at current prices after the awful October sell off that we just saw. If prices finish the year below the low from the September quarter, it will be confirmation of a sell pivot on the quarterly charts. That will be when it’s time to batten down the hatches. 

After the October sell off, we have had a monthly sell pivot confirmed. Obviously before a quarterly sell pivot is confirmed you need to see a monthly sell pivot confirmed. So from here I’m definitely on a more bearish footing, and as a trader, will look at opportunities from the short side on any rallies.

But the quarterly chart is the one that the large investors are looking at. Once the quarterly charts have confirmation we will see follow-through selling. 

The thing that adds to my confidence about this prediction is the location of the quarterly sell pivot.

Look at that chart again. Notice the large buy and sell zones labelled ‘BZ1’ and ‘SZ1’. They are based on the range that occurred during the crash (from ‘A’ to ‘B’ in the chart).

Remember I said that my key retracement zones work in a trending or range-bound market. When a range starts to develop we usually see a series of moves from the buy and sell zone of the range back to the point of control, which is the midpoint of the range.

Notice how price action has developed since the crash. We saw a rally in 2009 from ‘B’ straight back to the point of control of the whole range (the midpoint).

Prices then sold off in 2011/12 to the buy zone of the range, where they reversed course and then rallied straight back to the point of control once again. We then saw a rally into 2015 which hit a huge obstacle at the bottom of the sell zone of the range, and prices plummeted straight back to, yep you guessed it…the point of control.

On the most recent rally since the start of 2016 (‘C’ to ‘D’ in the chart), we have seen a rally all the way back up into the sell zone of the wave ‘A-B’ (labelled ‘SZ1’). We are also potentially staring down the barrel of another quarterly sell pivot.

With the knowledge you now possess from the answers to the two questions I asked you, what does that make you think? To me it says: time to sell.

But to be even more precise, I can give you clear targets on where this market will probably head, if we get confirmation of the quarterly sell pivot.

Look at the range ‘C-D’ which is the most recent up-wave that occurred from 2016 to the present. We can make calculations based on that wave to create targets and to tell you where you should look to either offload risk or put on short sell positions.

The sell zone of that wave is between 5,940 and 6,150. By the way, I think we will rally into that zone over the next month or so and meet stiff selling pressure there. The buy zone of the wave is between 4,860 and 5,070. The point of control of the whole range ‘A-B’ is at 5,000 which is within that buy zone. Having a target back there makes a lot of sense.

So with the answer to two questions, I have just given you clear actionable comments about what to expect. Where to look for opportunity to profit, and how to lower your risk.

Without the language I’ve been teaching you, all I can do is blather on like the rest of them. Now that you are starting to see the power of a few simple ideas to explain something extremely complex, our conversation can begin to cut through the market mumbo-jumbo.

Hopefully, this will lower your confusion, and add some value to your day.

Stay tuned for the answer to question three next week.

Until then,
The Billionaire’s Trader