Dovish remarks from the ECB and the FEDs failure to raise interest rates has precipitated the view that cheap money will be around well into 2016. Shares were already doing well on Friday following the ECB hinting at further QE in December. The market was then taken by surprise by a 0.25% Chinese interest rate reduction to 4.35 %. This is the 6th time the Chinese have reduced rates in the last year.
The combined actions of these countries was enough to push the stock markets of the world out of a nasty trading range. The Dow had been becalmed at a 62% retracement of the range between the 2015 high and low and on Thursday and Friday broke upwards to my short term target of 17650. I have been writing about this level for some weeks and have explained the importance of the level over the past two weeks. The level is also discussed in a TIP TV video that’s on this blog. I have been long of the Dow on a spread bet for most of this month and took profits on that trade on Friday. I am still holding my shares which are unleveraged positions and they all look fine.
The high of the day on the Dow on Friday was exactly defined by a 78% retracement of the annual 2015 range and this is a very important level. Above this level then the bull market is well established once more. Let’s hope that this is the case but I would not rule out a nasty pullback soon above this level. As discussed last week I feel that further moves will be highly volatile affairs as the bull that started on March 9th 2009 is becoming mature. In Elliott speak we are in a wave 5.
The 78% level will attract short sellers during the week ahead so please internalize that the AB=CD pattern charted by the rally from the Black Monday low is looked upon by FIB based traders as an ideal and high probability shorting opportunity. It’s still a time to be vigilant and heed the advice on the home page of VectorVest. Stay in the moment and don’t allow your mind the luxury of hanging out in the past or future. As an EOD trader your present moment is defined by the Primary Wave and the underlying trend. In this moment all is good.
On the VectorVest webcasts that I do every two weeks my Dow spread bet was discussed in some detail. Also I have been as sure, as one can be in this business that the Euro was going to fall and get down to parity with the dollar. After a painful few days it was a great week for that trade. The Euro fell from 62% of the last range and from a text book Gartley pattern to the tick. On Friday it broke the channel that the Euro has been trading within since March. A good place to get onboard or to add to the position would be a kiss of the channel. I am doing a webcast on Monday afternoon at 130 BST and will discuss this trading opportunity.
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In the UK the VectorVest program gave the strongest BUY signal already on the 8th of October (a confirmed call) so the strong move on Thursday and Friday was of no real surprise. As I write the Primary Wave is UP and we have three Green Lights showing in the Color Guard. The Green Light BUY has been confirmed by the RT kicker timing system which shows that the Composite is rising and the momentum of the move is rising. A very strong situation. The Composite of the UK market is shown below
Avon Rubber is the star of my portfolio and has broken up and is now trading at 11.35. I need a few more of these. Barratt and Carnival look highly likely to break from ascending triangle patterns while I see Saville and Howden Joinery seem to have found support after a disappointing week. BPI is in profit and both the technical and the fundamental position looks exceptional.
I am holding all my shares and will add three more over the next few days to be fully invested after observing the market action on Monday morning.
Many thanks to all of you that came along and supported us at the Investors show yesterday. It was great to see you all.
David Paul
24th October 2015
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