Saturday, 9 March 2024

By Murray Dawes Editor, Retirement Trader and Fat Tail Microcaps

[2 min read]

Dear Reader,

A year ago if you had said to me that US 2-year bond yields would be at 4.5% at the start of 2024 and stocks would be rallying strongly to new all-time highs I would have said you had rocks in your head.

But here we are.

Markets can do things that you never expect and often do.

When you read the textbooks about why markets do this or that and then experience them in real-time you realise that there isn’t a set of rules that can’t be broken in markets.

That’s why I have spent so much time training myself to trust the charting model I have developed more than whatever is going on in my head.

Sometimes my head and the charts agree and at other times they are in conflict.

When the conflict arises I have to step back and consider the possibility that what I think should happen is just plain wrong.

The conundrum that I have faced is that stocks usually struggle while rates are elevated, and they also can sell off sharply if something breaks while rates remain high.

But instead stocks are acting as if the good times are here and will remain into the future.

My charts turned 100% bullish in November last year and I thankfully trusted their judgment and started adding positions in my trading services.

But the fear of elevated rates and sticky inflation remains.

The bullish theme that aligns with the charts and hint that the rally we are witnessing may have serious legs is the adoption of AI.

What if many sectors across the economy can adopt AI rapidly and shed employees while increasing efficiencies?

Not great for the employees of course and I think we are all looking over our shoulders, but company profit margins would surge, and stocks would look cheap.

I think it’s a valid argument to make and markets are certainly running with that theme for the moment.

Stocks are trending to new all-time highs in the US and Australia and the small cap sector is finally starting to play catch up.

My mate Callum over at Australian Small Cap Investigator (who has been picking one winner after another quite frankly) has decided to do a deep dive into the AI opportunities brewing in the Aussie market.

He’s got a presentation whipped up for you next week so make sure you keep your eyes peeled for that.

I have still got my thinking cap on considering what sectors I think will benefit first from AI adoption and am just generally getting more bullish and willing to go with my charts which are saying the path of least resistance is up.

Gold has been the sector I’m going after due to the potential of a major breakout occurring right now.

In today’s Closing Bell video I outline the tension between high interest rates and the paradigm shift in AI, and also have a look at gold and explain why I think an explosive move to the upside could be pretty close.

Regards,

Murray Dawes,
Editor, Retirement Trader and Fat Tail Microcaps

Murray Dawes is our resident expert trader and portfolio manager. He is a former Sydney Futures Exchange floor trader who went on to design custom trading systems and strategies for ultra-wealthy clients (including one of Australia’s richest families). Today, his mission is to help ordinary Aussie investors make profitable investments, while expertly managing risk.

He uses his proprietary system for his more conversative and longer-term-focused service Retirement Trader…and then applies the same system to the ultra-speculative end of the Australian market in Fat Tail Microcaps (this service is strictly limited and via invitation only).