Market risks from both sides of the pond.

The US markets recorded their largest percentage fall in three months on Thursday but rose slightly on Friday. FIB orientated traders will have noticed that the Dow found support on Friday at a 78% retracement of the last range after charting a fairly text book three wave correction.

Markets were unnerved by the rhetoric between the White House and Korea, the strong possibility of a trade war with China and worries over the stability of President Trump’s team. The terrorist attack in Spain added to negativity and the price of Gold which tends to do well in times of turbulence pushed over 1300$ but failed to hold the figure. Gold mining shares such as Randgold in London had a great finish to the week. Commodities such as Copper, Aluminum and Zinc are all pushing over multi year highs. Shares such as Kaz.L and Rio.L are on a strong bull run. They are much undervalued as calculated by VectorVest with excellent earnings potential (RV).

The Midas Touch charting method on VectorVest has produced excellent signals on commodity shares. The method uses a double smoothing technique to eliminate the noise in order to focus on the major trends. It’s the best method of trading commodity shares that I have found in 35 years of fairly active searching. The layout is preprogrammed on VectorVest and each day a list of all the shares that rank positive on the Midas Touch system is provided.

The VectorVest Composite of the UK market is shown below. This is an equally weighted index of the 2159 shares that VectorVest follows on both the LSE and AIM. Both the Primary Wave and the Underlying trend are Up after the close on Friday 18th August with the Underlying trend confirmed by price action since the 19th July.

comp

The red and green triangles on the chart show the longest term and most conservative buy and sell signals known as Confirmed Calls.

The price action of the Composite is within the confines of a technical formation known by chartists (as is the author) as an ascending triangle. It is a bullish pattern but needs to break the top horizontal line defining the pattern to confirm.

My mentor MR W D Gann wrote that markets tend to break on the fourth attempt. In fact that was the only time Gann would take part in a breakout trade. A break upwards in the next few days and weeks would be a break of the present formation on the fourth attempt and that would be (in my humble opinion) very bullish. The bearish divergence between the price of the Composite and the Market Timing Indicator (MTI) is however a negative factor. The price of the Composite made a double/treble top while the MTI charted falling tops.

The advice on the front page of VectorVest is that of caution and that’s excellent advice.

I remain in my unleveraged stock positions and will add to Trifast when the share moves to a Buy recommendation and the advice on the front page of VectorVest is positive. I discussed this share and three others in a video on Core Finance which was posted on this blog early last week.

The ascending triangle pattern discussed above is mature and nearing a decision point. It’s a positive pattern and the probabilities favour an upward break. However if the pattern should fail and the bearish divergence wins the day, then that would lead to a fairly sharp reversal. For that reason it’s my view that the next few weeks are very important and critical.

All we have to do is to stay present and simply react to the signals on the VectorVest program in the context of your personal trading plan. The new app for the Android phone/tablet is excellent and even the busiest person should have no time based excuse.

Stops should be actioned without fear or hesitation.

 

David Paul

August 19th 2017

 

 

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