Anyone who follows oil (or at least tosses it a side glance from time to time) knows that it has been stuck in a tight range for 2-3 months now. Following the “laws” of price action, expansion gives way to congestion and congestion gives way to expansion…eventually.
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A number of days ago, Dutch commented how there’s nothing bearish-looking about the stock market. This permabear has to agree. Of course, this is not to say I’m buying stocks – – you know me better than that! – – but there certainly isn’t any core failure going on that I can point to as evidence that all holy hell is going to break loose.
Let’s take a look at a few charts. First of all, here’s the Russell 2000. As you can plainly see, it has been in a solid channel uptrend ever since the February 11 2016 bottom. We are getting close to the midline of this channel. This is somewhat similar to the position we were in during the couple of months preceding the election. Our friends in Gainesville keep talking about a Wave 4 that’s about to hit, and I’m inclined to agree (but that’s just my book talking).
The dollar has been one of the biggest contrarian trades I have seen in years. Every time the market is so certain about the direction it will run, it does the exact opposite and often in extreme fashion. In my last weekend update, I noted how we called the multi-year rally off the 2011 lows when the market was expecting the dollar to crash due to all the QE. And, I also noted how the dollar has been moving down after the Fed has raised rates, despite the common expectations that the dollar should rise.
Some days, if you listen really closely, you can almost hear the dollar laughing as it moves “unexpectedly.”
The same has happened with the Chinese Yuan. Recently, China spent 1 trillion US Dollars (a quarter of their FX reserves) over the past 3 years in an attempt to prop up the Yuan. However, the Yuan still lost close to 14% of its value against the USD over this time period. Moreover, our lead analyst of our Forex Service at Elliottwavetrader.net, Michael Golembesky, appropriately advised a short in this market despite the Chinese “intervention.” In fact, Mike and I wrote several public articles on this potential trade. And, as you know, he has been quite successful in that trade, even though most others in the market would not consider such a trade in the face of the unprecedented action by the Chinese government.
As I prepare to board the plane home, this seems as appropriate a post as any: semiconductor companies have been just nuts for the past fourteen months, ripping higher hundreds (or even thousands) of percentage points. Darlings such as NVDA, INTC, and AMD, shown below, have made fortunes for people. I am short NVDA and AMD, however (to good effect so far), and I’d like to point out that these beasts can be subject to drops which are just as zany as their ascents.