Steady as she goes.

As discussed last weekend the VectorVest Composite of the London market fell to support on Monday. The obvious trendline that defined the upper boundaries of the falling wedge that I have been discussing here for weeks and a 62% retracement of the last upswing fell on the same level. It’s also an important level on the chart of the Composite that been active since September 2014. This is where the smartest bullish money was sitting. The chart is shown below.

 

The progress upward has been slow. Friday’s positive trading lead to a change in the Primary Wave on VectorVest. The Primary wave changed to UP. The underlying trend is Down and as you can see from the front page of VectorVest the overall trend situation is UP/Down. The Color Guard has yet to print any Green Lights so it’s far too early to start to purchase shares in my humble opinion

I am still of the opinion that the pullback between the 21^st of July and the 27^th of July was a wave 2 in Elliott speak and that the Composite is now within a wave 3 which should be the strongest and largest wave.

From the low, last October, the Composite is trading in a wave 5 and that means that presently the equally weighed index of the total UK market is within a wave 3 of a wave 5 and that may leave many of you scratching your head. The first 10 years of studying Elliott is the worst.

As I have often said the Elliott view is totally subjective and the trend picture on VectorVest is reality. Just follow what the Market Timing Gauge on the front page of VectorVest tells you and you can’t go far wrong.

At the last up signal of a few weeks ago I accumulated 5 positions out of the approximately 10 that I require to be fully invested. These shares are all out of my Big Hitters search and they have all held their ground during the pullback of the 21^st to the 27^th. The Big Hitters search finds shares that are growing earnings both aggressively and safely. These shares should all be trading at less that their VectorVest calculated value. Remember the only way to make money is to find the value of an asset and pay less for it.

I see Carnival made a new 52 week highs yesterday and that was very pleasing. I have positions in Carnival, Avon Rubber, Barratt, Saville’s and the Go Ahead Group. GOG has fallen a little in a falling wedge pattern which is a bullish sign and that gives me some comfort.

I won’t do anything more until the Color Guard prints some Green Lights. The Green Light shows that the price of the Composite has risen day over day and week over week. It’s an excellent signal that price should move higher especially when the signal is confirmed by the RT Kicker Timing system.

The summer is always a period of chop and this one is no different. The waveform from the October low is mature but I am betting that there is some more to come

The big story of the past week has been the bloodbath in commodities. I am eagerly watching but feel that it’s still too soon to get onboard. The yields from Royal Dutch Shell and Rio Tinto look very appetizing. I am still of the opinion that the bear market is commodities is very mature and that this bear will precede a strong bull market in the aforementioned shares and many others such as BHP and Anglo. Getting involved at the cusp of the turn would lock in a great stream of dividends and in my view a substantial capital gain. Watch this space.

Please stay in the moment and follow the signals and watch your stops closely in this environment where the trend is very mature.

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David Pau

1^st August 2015.