The market continues to rally into the end of January, as I predicted in the previous update, but I wouldn't call that the best trade of the year. Best call of the year? Maybe...
Second to calling the recent top in BitCoin, the best trade of the year - drum roll please - is
And without further ado - yesterday's reversal in the $GBP, and the $USD! And even if you don't trade currencies (and I can start a sentence with the word "and", because this is my blog) there is a lot to be gained by reviewing the most recent market action in the GBP/ DXY ($USD). After all, all markets respond the same way. Certain markets, or trading vehicles (levered/ futures/ options/ currency trading) may provide more risk, or more volatility, than others, but they all trade the same way. The charts work; no matter the market! Those who claim technicals don't perform, or predict markets, aren't watching the right technical indicators. More likely, they're basing their technical analysis on their own personal bias (emotion), or following others, who do the same. This is the main reason most traders lose money consistently.
Here's the inside scoop: I confirmed with one of my trusted trading buddies, yesterday morning, that the #DXY was a buy. I should say we both confirmed it individually, and in my mind, that confirmed that what I was seeing in my charts, was correct. This is a pretty rare occurrence, as I tend to be the contrarian. I chart in a vacuum, and view most of what I see on twitter, as a contrarian indicator... but we had already confirmed the reversal on the British Pound earlier in the week, and were tracking the bearish trend in the $GBP, after calling that top. If you've been following me on Twitter, you should know I'm talking about.
The catalyst for the $GBP currency trade was President Trump's statement - from Davos - that, "the US Dollar is going higher", and once again the charts predicted the future.
That may sound hokey, but this happens on a regular basis, and you'll often see the news confirm a reversal. I suppose certain news is manufactured, in order to move markets, but more often than not, the news will confirm the trade. For example: You may see a market trying to build a base, or perhaps you're seeing a washout to an oversold condition, and the market looks like it's ready to build a base, and next thing you know, breaking news (good or bad) provides the catalyst for short covering.
To document:
1. The top on Bitcoin - which we saw coming a mile away. The larger pattern is a megaphone top, with a little throw-over beyond the top of the triangle - typical. This chart from Dec. show me already looking for the top, using candlestick analysis. I even provided the stop hunt, showing were Bitcoin would break, and it did, just like I said it would. Some negative Nancys' would say I was early, and wrong, but waiting 1 month for a major reversal is nothing. Maybe this was the best trade of 2018 after all, but I think few were equipped to trade it. Now every "Johnny Come Lately" wants to short it, of course.
2. The topping pattern on the $GBP - looks familiar.. like the action on the Dow.
3. The bearish trend which was confirmed on the $GBP, yesterday, and the subsequent snap-back rally, which turned out to be a good swing trade. This is what great - real time - trading looking like!
I put a lot of charts out there, but folks see what they want to see... For example I provided my short term bullish outlook earlier in the month, and even provide the $VIX chart on a regular basis, and this has kept us on the right side of the trade, but it seems like all that gets retweeted is the occasional bearish tweet, or a call for a possible pullback, and most these folks - who frankly just don't get it - don't even speak English. Maybe these contrarians are being drawn from my public stock charts page, which is entitled "Charts of Doom", and which I haven't updated in months - by the way - but then they ignore my short term outlook, the $VIX and the 1000 charts I publish on twitter every month.
Ignore the contrarians. Mute them, and if that doesn't work, block them as I do.
As far as the broader market - you hear a lot of people calling it overbought, but I'd only call it a little over heated, and a bit overly bullish. Some would say it's "too hot to touch". You've heard Jim Cramer make this ridiculous assertion, because he's guessing. The momentum scared him. Traders don't guess, we follow the trend, we trust trustworthy indicators, and we like momentum, and none of my indicators are flashing "overbought". As long as traders are focused on the short term charts, and as long as those charts continue to work, and the $VIX says fear is contained, then the market is not too hot to touch. I would stay nimble as always, and if you feel that you have to remain fully invested, then I would also be hedged. My favorite hedge at the moment is short the $STOXX600
Very short term the $SPX is trading (consolidating) in a tight range, with a good possibility of another breakout, and my short term outlook - provided in the previous blog - still stands.
The stock to watch is $AAPL - as a breakout back above the 175 level will bring buyers in.
AA
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