Pinpointing the next big market move

Thursday, 15 November 2018
Melbourne, Australia
By Bernd Struben

  • Losing US$32 million…every minute
  • Dissenting opinions
  • Are markets set for a bounce?

I am more interested in how markets change direction than in what particular direction they are going in.’

The Billionaire’s Trader

The writing is on the wall.

Granted, it’s a bit smudgy…and open to interpretation.

But the way I read it, the simmering trade war between the US and China is nearing its endpoint.

This will have profound implications for global trade and the Aussie stock market.

Of course, not everyone agrees. But then what fun would that be?

We’ll get back to that shortly. First a reminder.

Tomorrow marks day one of Port Phillip Publishing’s exclusive speed trading Masterclass, courtesy of The Billionaire’s Trader.

The free, three-part trading Masterclass is called ‘The 3-Minute Speed Trade Advantage’. But what it’s called isn’t really important.

What is important is the 27 years of proven trading techniques The Billionaire’s Trader has agreed to share with our subscribers. If you’ve been following along with his series of guest essays (be sure to scroll down for today’s) you’ll know this includes ‘wave structure’.

And no, that has nothing to do with surfing.

Here’s the rest of The Billionaire’s Trader’s opening quote from above:

I am more interested in how markets change direction than in what particular direction they are going in. Wave structure is very important, and it is a combination of the knowledge of wave structure and how markets change direction that gives me my edge.’

To apply that same edge in your own trading, be sure to sign up for his free trading Masterclass. Click here for all the details.

Now, to the markets.

Markets

Overnight the Dow Jones Industrial Average closed down 205.99 points, or 0.81%.

The S&P 500 lost 20.60 points, or 0.76%.

In Europe, the Euro Stoxx 50 index finished down 19.46 points, or 0.60%. Meanwhile, the FTSE 100 fell 0.28%, and Germany’s DAX closed down 59.69 points, or 0.52%.

In Asian markets, Japan’s Nikkei 225 is down 142.35 points, or 0.65%. China’s CSI 300 is up 0.49%.

In Australia, the S&P/ASX 200 is down 29.67 points, or 0.52%.

On the commodities markets, West Texas Intermediate crude oil is US$55.91 per barrel. Brent crude is US$66.12 per barrel.

Turning to gold, the yellow metal is trading for US$1,211.71 (AU$1,674.56) per troy ounce. Silver is US$14.14 (AU$19.54) per troy ounce.

One bitcoin is worth US$5,719.57. That’s a fall of 9.8% since this time yesterday. And it puts bitcoin at its lowest price since its meteoric rise over a year ago.

What can you expect next for bitcoin? Stay atop all the latest crypto investment advice here.

The Aussie dollar is worth 72.36 US cents.

Losing US$32 million…every minute

Now back to the US–China trade war…and why I see light at the end of the tunnel.

Despite putting on a brave face, China is not in a position to endure a lengthy, bruising trade war with the US.

For example, here’s an eye-popping statistic from today’s Bloomberg:

China’s non-state companies, the economy’s traditional growth engines, have lost about $32 million a minute since June as markets sink.’

That’s more than AU$44 million bleeding from China’s growth engines…every minute! If the recent market pullback has seen your portfolio take a hit, perhaps you can take some solace from that.

Now, not all of this pain is due to the tariffs Trump has already levied on Chinese imports. In fact, despite the tariffs, Chinese imports have notched up. But that’s just a snapshot in time.

Trump’s next move will be to increase the 10% tariffs on US$200 billion worth of Chinese imports to 15% on 1 January. And he’s promised to expand tariffs to target all Chinese goods imported into the US on that date as well. Meaning more than US$500 billion worth of goods.

That won’t be good for either party.

But Trump holds a much stronger hand than Xi Jinping. Unemployment in the US is at 50-year lows. And the sugar hit from Trump’s massive tax cuts should continue to power through the US economy next year.

To be sure, China’s official growth figures are still solid as well. But China is in the process of a major economic overhaul, intended to transition the economy from manufacturing led to consumer driven. And this transition is seeing mass urbanisation.

The Communist Party simply cannot afford any major bumps in the road that will impact urban employment. Not without some heads rolling.

High credit to Xi for staying at the table this long. But I believe we’re about to see some significant concessions from the Chinese side. Enough, in either case, for Trump to declare his trade renegotiations a success and reach ‘a great deal’.

The first of those concession are likely to be offered up at the Group of 20 (G20) summit in Buenos Aires on 30 November and 1 December.

While it’s almost certain that Xi and Trump won’t resolve the trade dispute then, I expect things will move forward quickly from there.

As Bloomberg reports:

The U.S. and China have resumed contact “at all levels” over trade ahead of a planned meeting between President Donald Trump and China’s Xi Jinping, White House economic adviser Larry Kudlow said…

“We are talking to them again,” Kudlow said. “We’re having communications at all levels of the U.S. and Chinese government” to prepare for the Group of 20 leaders’ summit in Argentina, taking place Nov. 30-Dec. 1.

Then there was this, also from Bloomberg:

Chinese officials have outlined a series of potential concessions to the Trump administration for the first time since the summer as they continue to try to resolve a trade war between the world’s two largest economies, according to three people familiar with the discussions.

The article notes that two of the sources involved in this report say China’s newest commitments still fall short of the major reforms Trump’s been demanding.

That’s as you’d expect though.

Whether you’re negotiating an international trade deal or haggling over a used car, you never reveal your best offer…until you have to.

Dissenting opinions

As I said above, not everyone agrees that the trade war is nearing its final stage. Which is what keeps things interesting.

From The Australian Financial Review:

Nobel Prize-winning economist Joseph Stiglitz says there is a greater than 50 per cent chance that the United States enters into a trade war with China, and he is certain American workers will lose…

“Like all wars, at first you say – oh it won’t happen, it is so stupid, who is going to win?” he said.

“You don’t realise there is a lot of stupidity in the world. It’s just beginning to sink in that we are going to go to a trade war of a serious proportion.”

Look, Stiglitz may be right. Though I did earn my degree in economics, I certainly can’t match his Nobel Prize.

But you have to wonder about his ‘greater than 50%’ chance ratio. It’s nicely vague…and smack-bang in the middle of the probability curve. As an investor, there’s not much you can really do with that.

I also suspect there’s a bit of political bias behind his forecast. I’m just guessing here, but I’d say there’s a higher than 50% chance Stiglitz isn’t a big Trump fan.

For example, here’s his quote from a bit further on in the same article:

“The business community are just celebrating their tax cuts to billionaires and corporations. It is unbelievable selfishness that they are willing to overlook misogyny, racism and bigotry to get more money in their pocket.”

Misogyny, racism and bigotry?

As the filth farming peasant in Monty Python and the Holy Grail proclaimed, ‘What a giveaway!’

To tie this off, if Stiglitz is proven wrong here, as I suspect he will be, this should prove great news for the battered Chinese stock market.

As I suggested to you last Wednesday, the iShares FTSE/Xinhua China 25 Index [NYSEARCA:FXI] should gain alongside any broader Chinese market gains.

With a market cap of US$5.4 billion, it holds some of China’s largest stocks.

The ETF is down 2.8% over the past week. But if good news begins to emerge on the trade front over the next few weeks, this is one you might wish to keep an eye on.

As a reminder, I don’t make official recommendations here. You should do your own research before investing a single dollar.

Comments or questions? Send them to letters@portphillipinsider.com.au. If we publish your email, we’ll only print your first name.

Are markets set for a bounce?

That’s all from me for this week. Tune in tomorrow for the latest insights from Sam Volkering.

And read on for today’s special essay from The Billionaire’s Trader.

Today he explains why he believes we’re closer to a bounce in the markets than we are to more selling in the short term.

That’s short term, mind you. He gives more details on the mid and longer-term outlook below.

Whether you’re interested in learning about trading or are looking to improve your already established trading methods, don’t forget to sign up for his upcoming trading Masterclass.

The free, three-part ‘Speed Trading’ series starts tomorrow.

To register, simply click here.


Why You Shouldn’t Miss Friday’s Masterclass
By The Billionaire’s Trader

We’ve covered a lot of ground over the past few weeks.

I have a feeling that, if you’ve read all of these updates, you’re either dreading seeing the next one, or you’re really engaged, knowing that you’re getting the kind of information few people have access to.

I know what it’s like reading articles by market commentators. There are so many views flying around, and there is so little accountability in any of them. That makes it almost impossible to pick up clear signals about whether or not someone actually knows what they are talking about, and is actually worth listening to.

Personally, I don’t really listen to any market commentators because I find it clouds my judgment.

I’d prefer to ‘listen’ to the charts. 

In order to stake my claim as a trader worth listening to, I have to draw on actual words said in the past that you or I can’t deny. That’s why I’ve worked so hard to bring you into my world, and have  given you exact levels along the way. The words are there in black and white, and importantly, I’m accountable for them.

Even though you’ve only seen my essays in Port Phillip Insider for a few weeks, a lot has happened over that time. The S&P/ASX 200 has gyrated wildly as the two-year uptrend comes under pressure.

So today, I’d like to revisit the article of mine you may have read on Friday, 2 November. That’s nearly two weeks ago. It contained an in-depth analysis of the past two decades of trading in the S&P/ASX 200 Share Price Index (SPI) futures using the answer to the questions I posed in my first essay.

If you’re new to this, you’re welcome to search the Port Phillip Insider website archive, or — better yet — just sign up at the end of this article for my FREE ‘Speed Trading’ Masterclass which starts tomorrow.

To repeat, it’s completely free of charge and it will give you a quick look under the hood of my trading method.

The other added bonus of signing up for the Masterclass is that I will send you bonus material, such as quick video updates about the market over the next few weeks. That’s something that will come in handy now that volatility is picking up.

So, if you’re a trader who is interested in learning a bit more about my trading model and systems, you should definitely take the time to watch the upcoming video series.

Now back to the analysis. The chart I used for the 2 November essay is below:

Buy zones, sell zones, and pivots



chart image

Source: CQG Integrated Client
Click to enlarge


Now, there’s a lot going on in that chart. Normally, I wouldn’t include so much information, so as not to confuse.

I’d like to draw your attention to a few comments I made within the article, namely:

After the October sell off, we have had 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….

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.

The bold sentence states that I expected the market to rally over the next month (from 2 November), with stiff selling pressure to be encountered between 5,940 to 6,150. The high reached on Monday this week was 5,946, and since then the market has plummeted 206 points or 3.5%.

I’d call a 200-point fall in 2 days ‘stiff selling pressure’, and a high of 5,946, which is 6 points above the lower bound of the level I gave you, was pretty much spot on.

Yet again I need to drive the point home that the analysis was based on the simple idea of there being a particular zone within trends and waves that constantly sees buying or selling pressure. It’s the area where reversals have the highest likelihood of occurring. 

My article on Monday this week made the claim that it was time to start hedging long term portfolios which is a very big call to make. I wrote that due to the very high level of indicators that were flashing red on my system. That call was before the selling over the last few days.

Any articles I read in the papers usually show how great people are at talking about what happened in the past. I’m sure this morning there are plenty of articles quoting people who act as if they knew the market was about to fall 200 points in two days and they were perfectly positioned for it.

But show me an article written in the financial press on Monday that told you to lower your long term equity exposure other than mine. I don’t think you’ll find one.

Look, I’m not writing this to boast (although you may think that). I write it because I believe my method of analysing the markets helps to pinpoint key market moves. Because of that, I’m keen for as many people as possible to see and learn how it all works — hence tomorrow’s ‘Speed Trading’ Masterclass.

But don’t for a minute think that, after getting that analysis right, I’m about to hang up my boots and dine off the glory for the next 30 years. Markets are my life…and have been for a long time. And quite frankly, I haven’t seen a more exciting, and potentially more profitable trading set-up than I see now.

If I was forced to make a statement about the market right now, I would say we’re closer to a bounce than we are to more selling in the short term. I can even give you some exact levels to keep your eyes on over the next day or so…just for fun. But feel free to use in your own trading, if you wish.

All I have to do is look at the wave, up from the low made a few weeks ago, and calculate the buy zone of that wave. There, we’ll find where the buying pressure will probably eventuate in the short term.

The range is 5,632 to 5,677. If we see some selling down into that zone over the next day or so, my bet is that we will see a good bounce from there to squeeze out some short-term bears. And all bets are off if we see prices plummeting through the low from a few weeks ago at 5,588.

If that happens, the market could quite literally go into free-fall for hundreds of points. (I’m writing this article today, on the morning of the 15 November, prior to the market open).

I don’t know that the market is ready to do that just yet, but all the signs are present that we may not be that far away (weeks to months) from that occurring. 

Again, I hope that gives you a taste of my analysis. The ‘Speed Trading’ Masterclass starts tomorrow. I hope you’ll join me. It’s completely FREE to join, so why not set aside the time to join me.

To register, just go here.

Till tomorrow,
The Billionaire’s Trader


Finally, don’t forget to check out the latest from The Australian Tribune:

‘Indonesia Blind to Reality of Australia’s Israel Embassy Location’

There’s something the mainstream doesn’t mention regarding Scott Morrison’s proposal to move Australia’s embassy in Israel to Jerusalem. Whether the embassy moves or stays put, it can’t possibly exacerbate the long running conflict between the Israelis and Palestinians.

This week, while the Aussie embassy remains faithfully in Tel Aviv, the Palestinians launched hundreds of rockets into Israel, killing at least one man.

The Israelis responded with…’

If you’re fed up with sanitised, politically correct dogma cut and pasted from one mainstream source to another then The Australian Tribune is for you.

And it’s absolutely free.

Sign up here to get The Australian Tribune delivered free to your inbox five days per week.

You can visit our website at https://www.theaustraliantribune.com.au/ to read the complete article above now.

Cheers,
Bernd