US Federal Reserve – Playing With Fire Part II

Throughout the last few weeks of 2021 and early 2022, these comments and posturing by the US Fed have created some very big downside price moves in the US major indexes. As a result, the US markets’ volatility levels (VIX) have moved to a recent average between 17~21 – nearly 3x historical normal levels.

US Fed Likely To Move Very Slowly On Rates

One thing that I believe has become evident to many people is that we have moved past the COVID stimulus conversations of the past 24+ months. Inflation, rising prices, constricted supply-chains, and an excess of capital throughout many global markets appear to have shifted how the US Fed interprets future risks. The Fed is telegraphing these concerns to investors very clearly right now, which means traders/investors are shifting their focus away from high-flying Growth stocks.

Even though traders are attempting to shift capital away from certain risky sectors in the US and global markets, I still believe we have about 60 to 120+ days before the bigger market shift takes place.

The US Federal Reserve will likely start addressing inflationary concerns by reducing their balance sheet assets – not by aggressively raising interest rates. I feel the US Fed will navigate Q1:2022 and Q2:2022 by reducing balance sheet assets while allowing the global supply-chain issues to attempt to resolve themselves. By June/July 2022, or later, I believe the Fed may start to consider rate increases as a means to slow inflation.

Fed Comments Shift Investor Sentiment – Metals In Focus For Later 2022

This move away from Dovish/easy-money policies will push traders to consider more traditional hedge investments – like Gold and Silver. I’m sure you’ve read some comments over the past 24+ months about Gold being an extremely undervalued asset as the US Fed poured trillions of stimulus dollars into the economy? These comments were made concerning the fact that Gold rallied from $1450 in 2019 to almost $2100 in 2020 – over 12 months (over +43%). Could a big move in Gold/Silver happen again in 2022 or 2023?

My research suggests a Double Pennant/Flag formation in Gold suggests the $1675 support level becomes critical soon. It also indicates a Breakout/Breakdown move may start to happen before March or April 2022 – near the APEX of the current Pennant/Flag formation.

The key APEX range is currently between $1785 and $1830. This represents a very tight price range where Gold may attempt to consolidate as we move towards the March/April Apex. My research suggests a move to levels near $1740 to $1750 may happen just before the Apex Breakout/Breakdown initiates. So, watch for a bit of downside price volatility in Gold before the end of February 2022.

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Junior Gold Miners May Rally +45%, Or More, On A Gold Price Rally

The Junior Gold Miners (GDXJ) Weekly Chart shows a firm support level near $37.35 that should act as a floor for price. My research suggests the next 45+ days will see GDXJ prices stay below $44 to $45 – trading in a reasonably tight range before starting to rally higher near the end of February 2022.

I believe Metals and Miners are aligning for a late February 2022 or Q2:2022 rally. The reason is that I believe the positioning by the US Fed, and expectations related to later 2022 (a mid-term election year), may prompt quite a bit of concern for the US and global equities. This will likely push investors and traders into “old-school” hedge instruments – like Gold and Silver.

That means Junior Gold and Silver Miners maybe about 55+ days away from an explosive upside price trend.

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SILJ May Rally +70% to +100%, Or More, On Fed Actions

Near the end of 2022, I published a research article highlighting the incredible opportunity in Silver – focusing on how the Gold/Silver ratio had recently reached another peak level and had started to decline: Fear May Drive Silver More Than 60% Higher In 2022. This move suggests the disparity between the price of Gold to the price of Silver shows Gold is appreciated (and holding greater value) than Silver over the past few years.

The COVID virus event, and the subsequent Fed/Government stimulus, shifted investors/traders focus away from precious metals and into the equities market speculative rally. Now that the US Fed is starting to warn of more aggressive rate increases and other actions, precious metals are suddenly much more important as a hedge against future risks.

This SILJ Weekly Chart highlights the incredible base level, near $12, that continues to offer traders a fantastic hedge against a sudden Fed move. Using a simple Fibonacci Price Extension, we can see a $20 target level (+61%) and a $25.64 target level (100%). If the $12 level holds as a base/support, SILJ may be one of the easiest and best hedges against a sudden Fed move right now.

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The US Federal Reserve is, in my opinion, playing with fire

The COVID Virus Event pushed global debt levels higher by more than $19.5 Trillion Dollars (Source: Bloomberg ). The rush to attempt to save the global economy has created a massive surge in global debt levels – pushing the global debt to GDP level to well above 356% (Source: Axios).

Why is this so important right now? Because the US Federal Reserve is talking about an attempt to move interest rates and Fed decision-making back to near-normal levels. In my opinion, this was the one fault of Alan Greenspan in 2006-07. The thought that we can raise rates to “near normal level” at any time when we have grown debt levels excessively throughout the world is failed thinking and ignorant, in my opinion.

The US Federal Reserve is trapped and almost backed into a corner. I believe the US Fed will find any rate increases above 1.00 before the end of 2023 will significantly disrupt the global speculative bubble. Any attempt to move rates to levels near or above 2.00 would represent a nearly +2000% rate increase in less than 12 to 24 months. If you want to see a shock to the global markets where global debt to GDP is closing in on 400%, try raising the FFR by more than 2000% over a short period of time. That is what I call “playing with FIRE.”.

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(Source: Axios)

2022 and 2023 will be filled with significant market trends and increased volatility. Right now, traders and investors need to understand the global markets are attempting to quickly transition away from a speculative/growth phase as the US Federal Reserve attempts to telegraph future rate increases. So it’s time to start thinking about how to prepare for unknowns and how to protect your capital more efficiently.

Growth sectors and US major indexes may continue to move higher for the next 30 to 60+ days, but my research suggests Q2:2022 may represent a “change in thinking” related to a late-2022 Fed shift. We are starting to see the markets move away from the speculative bubble-type trending we saw in 2020 and early 2021. Keep your eyes open and learn how to prepare for the big trends over the next 3+ years. The Fed is playing with fire right now. One wrong move and the markets could start a drastic price correction/reversion.

Finding The Right Trading Strategies

If you have struggled with finding opportunities over the past year or so and want to know which are the hottest sectors, or how to protect and grow your capital, then please take a minute to review my Total ETF Portfolio – Triple-Strategy Trading Plan to help you profit from these big market transitions.

Learn how I use specific tools to help me understand price cycles, set-ups, and price target levels in various sectors to identify strategic entry and exit points for trades. Over the next 12 to 24+ months, I expect very large price swings in the US stock market and other asset classes across the globe. I believe the markets are starting to transition away from the continued central bank support rally phase and may start a revaluation phase as global traders attempt to identify the next big trends. Precious Metals will likely start to act as a proper hedge as caution and concern start to drive traders/investors into Metals.

I invite you to learn more about how my three Technical Trading Strategies can help you protect and grow your wealth in any type of market condition by clicking the following link:   www.TheTechnicalTraders.com

For a look at all of today’s economic events, check out our economic calendar.

Chris Vermeulen
Founder and Chief Market Strategist of The Technical Traders Ltd.

 

Death, Taxes, and Time Decay

Options offer traders and investors more leverage and risk mitigation than just purchasing shares outright. For example, if I were to purchase 100 shares of a stock at $100 per share, my total capital outlay would be $10,000. Options give us the right to buy or sell at a certain price for a pre-determined length of time.

I could control that same 100 shares by purchasing an At-the-Money call with a $100 strike price with 90 days to expiration for perhaps $6 per share, or $600 total capital outlay. That’s powerful leverage. My downside risk is also limited to the amount I paid for the option, in this example, $6 per share. Compare that to purchasing the stock where my risk is, in theory, as much as $100 per share. (Although they’re relatively rare, “flash crashes” happen, companies can and do go bankrupt, get de-listed, etc.)

Since options give the holder the right to buy or sell at a specific price for a specific time period, they have a time value component right up until expiration. Included in the price of every option (put or call) is the cost of the time value remaining in the option. In comparison, the holding period for stock can be indefinite, and there is no risk of expiration — only market risk.

Intrinsic and Extrinsic Time Value

The price of an option comprises two parts – intrinsic and extrinsic (time) value. Intrinsic value is simply the difference between the underlying’s market price and the option strike price. Extrinsic value is another term for the value of the time left in an option before it expires. When we buy an option, part or all of what we’re paying for is the option’s time value. The further away the option expires, the more time value will be worth. Prior to expiration, there will always be some time value. But there may or may not be any intrinsic value to an option. Options with no intrinsic value are referred to as Out-of-the-Money (OTM) options.

If you’re an option buyer with the right to buy or sell at a certain strike price, the “bad” news is options have a finite life – they expire. But for every option buyer, there is a counterparty. Option sellers are collecting a premium in exchange for taking on an obligation to either buy or sell shares at a certain price for a specific period of time. For option sellers, expiration marks the end of their commitment – so expiration is “great” news for them.

Time Decay

When we buy options, time decay works against us. For the holder of a long option, the option’s time value will decrease a little day by day as expiration draws closer. As an asset, time value is like an ice cube, melting slowly at first and then rapidly until it has entirely melted away. This is not to say don’t ever be a buyer of options. If we happen to be right about direction, duration, and magnitude, a long put or call option can generate a significant profit.

Option time value is measured by Theta Decay and is commonly estimated daily by the calculated Theta. Theta is one of the more valuable of the Option “Greeks” to make use of. Essentially all trading platforms for options can be configured to show Theta as part of the Option Chain.

Is it possible for the time value to increase rather than decrease even though the calendar time to expiration is decreasing? Yes, it certainly can. Remember that the price put on time value is variable and determined by market forces. If the underlying stock becomes much more volatile than it had been, then the value for that time can increase, sometimes substantially. If the underlying has been very volatile and becomes less so, then the time value can shrink.

To Sell Or Buy Options?

We can significantly turn the odds in our favor by being the seller of options. In that case, we’re selling any intrinsic value (which would be $0 in the case of an Out-of-the-Money option) along with some portion of time value. Intrinsic value will go up or down with the price of the underlying. But in the end, as expiration gets close, the remaining time value will always approach $0 regardless of volatility. That we can literally “take to the bank.”

There’s a well-known quote from Warren Buffett – “If you don’t find a way to make money while you sleep, you will work until you die.”. Buffett is also famous for being a seller — not a buyer — of option premium. Like Mr. Buffett, I too like to make money while I sleep.

WANT TO LEARN MORE ABOUT OUR OPTIONS TRADING SERVICE?

Every day on Options Trading Signals, we do defined risk trades that protect us from black swan events 24/7. Many may think that is what stop losses are for. Well, remember the markets are only open about 1/3 of the hours in a day. Therefore, a stop loss only protects you for 1/3 of each day. Stocks can gap up or down. With options, you are always protected because we do defined risk in a spread. We cover with multiple legs, which are always on once you own.

If you are new to trading or have been trading stock but are interested in options, you can find more information at The Technical Traders – Options Trading Signals Service. The head Options Trading Specialist Brian Benson, who has been trading options for almost 20 years, sends out real live trade alerts on actual trades, such as TSLA and NVDA, with real money. Ready to subscribe, click here:  TheTechnicalTraders.com.

Enjoy your day!

Chris Vermeulen
Founder & Chief Market Strategist
TheTechnicalTraders.com

 

US Fed Playing With Fire – Bubbles May Burst While Bond Yields & Metals Rally

As a result, traders quickly attempt to adjust their capital allocation levels as risk assets, technology, and US major indexes roll lower because of expected Fed Rate Hikes and other Hawkish activities.

We will explore how the US Fed’s comments and potential future actions may prompt significant market trends in 2022 and beyond. We’ll also attempt to identify how and when the US Fed may disrupt the US markets. We know the actions of the US Fed will prompt some significant trends over the next 12 to 24 months. We know certain assets will likely rise in value as fear settles into the markets because of rising interest rates and deflating asset bubbles. It is just a matter of understanding how the speculative asset bubble of the past 8+ years and how the US Fed may move to pop these speculative bubbles soon.

Asset Bubbles Everywhere, The Global Markets Continue To Froth

Asset bubbles, such as those created in Cryptos, the US stock market, US Real Estate, and the art/collectible market over the past 5+ years, have visualized the US Fed’s easy money results in terms of bubbles.

Take a look at this chart showing the growth in certain asset classes since the start of 2019. It is incredible to think that these asset classes have rallied so far and so fast in just over 35 months:

  • The Grayscale Bitcoin ETF rallied more than 1200%.
  • The Technology sector rallied more than 200%. Real Estate rallied more than 85%.
  • The S&P 500 rallied more than 94%.

The US Federal Reserve’s move to lower interest rates after the 2018 market collapse, which resulted in a December 24, 2018, Christmas Bottom, prompted an incredible rally phase where traders followed the US Fed in piling into assets. As long as the US Fed continued buying assets and kept interest rates near zero, global traders had no reason to fight the US Fed.

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(Source: StockCharts.com)

Is The US Fed About To Pop The Bubble From The Stratosphere?

Our research suggests the US Federal Reserve is changing its policy a little late into the game. However, it appears the US and global markets have already “rolled over” in terms of growth trends and expectations. This SPY to QQQ ratio chart highlights that the US markets entered a peaking phase in late July/August 2020 and reached an ultimate peak in February 2021.

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(Source: TradingView.com)

S&P 500 PE Ratio Suggests Investors Are ALL-IN For The Next 90+ Years

In other words, it appears traders have reached their ceiling in terms of what they believe the US Fed is capable of doing at this stage in the rally. For example, the PE Ratio of the US Stock market ending in 2021 ended just below 30, with a historical high for 2021 near 37. The historical mean is 15.96 – which is still relatively high for the US stock market.

Remember, a PE level of 15.96 means any investor buying in at those levels would need a minimum of 15.96 years of a company handing over “every penny of revenue” to the investor (excluding all costs, payrolls, taxes, fees, and other operating expenses) to cover the PE multiple of the investment. So a PE level of 30, as we see at the end of 2021, suggests that stock price valuation levels are at least 60 to 90+ years ahead of real returns.

The only thing that can change this historic level of speculation in the markets is a deleveraging/revaluation event.

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(Source: multpl.com)

From the US Fed’s Actions To How Traders Should Prepare For Shifting Markets

This first part of our ongoing research into the US Fed’s actions and where they are telegraphing their intents will continue. Part II of this article will investigate how traders should read into these shifting markets and where we’re attempting to highlight what has taken place over the past 3 to 5+ years.

We’ve managed to live through an incredible event in history. I can only think of one other time when a global superpower extended this type of credit and support for the worldwide economy. That was the Roman Empire many thousands of years ago.

What we experience over the next 20 to 40+ years could be the biggest and most incredible opportunity of your lifetime. The process of deleveraging all this debt and working all this capital through the global markets over the next few decades may present one of the most incredible investment/trading opportunities anyone has ever seen in over 1500 years.

Look for my Part II to this article, and we’ll continue exploring the current shifts in the US and global stock and asset markets.

Finding The Right Strategies That Will Help You Navigate Through Bulls & Bears

If you have struggled with finding opportunities over the past year or so and want to know which are the hottest sectors, or how to protect and grow your capital, then please take a minute to review my Total ETF Portfolio – Triple-Strategy Trading Plan to help you profit from these big market transitions.

Learn how I use specific tools to help me understand price cycles, set-ups, and price target levels in various sectors to identify strategic entry and exit points for trades. Over the next 12 to 24+ months, I expect very large price swings in the US stock market and other asset classes across the globe. I believe the markets are starting to transition away from the continued central bank support rally phase and may start a revaluation phase as global traders attempt to identify the next big trends. Precious Metals will likely start to act as a proper hedge as caution and concern start to drive traders/investors into Metals.

I invite you to learn more about how my three Technical Trading Strategies can help you protect and grow your wealth in any type of market condition by clicking the following link:   www.TheTechnicalTraders.com

Chris Vermeulen
Founder and Chief Market Strategist of The Technical Traders Ltd.

 

Will 2022~23 Require A Different Strategy For Traders/Investors? Part III

Is The Lazy-Bull Strategy Worth Considering? – Part III

This last part of our multi-part article compares trading styles amidst the increasing price volatility and extended hyperbolic trending. We’ll explore what we’ve witnessed in the US markets over the past 5+ years and highlight what to expect throughout 2022. Additionally, we’ll highlight and feature the strategic advantages of our advanced Lazy-Bull strategies.

Lazy-Bull Rides Big Trends & Avoids Excessive Risks

Many people are inherently opposed to the Lazy-Bull strategy because they’ve been conditioned to think trading requires actively seeking various opportunities every week. We don’t quite see it that way. Instead, we see the opportunity for growth and consistency existing in taking 4 to 12+ strategic trades per year while the markets set up broad momentum moves/trends. Our objective is not to trade excessively just for the sake of trading. Instead, we want to take advantage of when the markets enter opportunistic periods of trending and ride those trends as far as they go.

This example Weekly SPY chart showing our TTI trading strategy highlights the growth phases in various trend stages. Notice the GREEN and RED sections on this chart where our system has identified directional changes in the major price trends. Over the past 11+ years, there have been numerous bullish price trend phases resulting in 12 months to 36+ months bullish price trend trends. These major price cycles make up part of the advantage of the Lazy-Bull strategy.

We are not actively seeking the strongest stock symbols throughout these trends. Instead, we are simply relying on the strength of the US major indexes to carry our trades further into profits as the market’s trend. The TTI strategy is a “set it – and forget it” type of strategy until the strategy generates a new entry or exit trigger.

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Volatility & Price Rotation Make 2022 More Dangerous Than 2021 – What Next?

Our research shows 2022 will likely continue to exhibit increased price volatility and bigger price rotation. Meaning 2022 could be very dangerous for shorter-term strategy traders as volatility levels may disrupt traditional stop boundaries or other aspects of their defined strategies.

It is important to understand how and when these issues creep into a strategy and attempt to move above these issues.

Looking at the Q1 through Q4 data using our proprietary Data mining utility, I’ll give you my insight related to the data and what I believe is likely to happen in 2022. Remember, this data consolidated the past 28-29 years of trends in the SPY to present these results – going back to 1993. That means that this data is compiled through several various price trends, major market peaks, major market bottoms, and various volatility levels along the way.

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Q:2022 Analysis

Q1 data suggests an overall positive/upward price trend is likely in 2022, with the Total Monthly Sum across 29 years totaling 37.94. Broken into annual gains, that translates into an expected $1.30 gain in the SPY in Q1:2022.

The Total Monthly NEG (negative) range appears to be more than double the Total Monthly POS (positive) range. However, we may see some price volatility in Q1:2022 that surprises the markets. For example, maybe the US Fed makes surprise rate increases? Perhaps it relates to some other foreign market event disrupting the US markets? I don’t know what it will be, but I feel some market event in Q1 is likely, and this event may prompt a fairly large downward price rotation in the SPY.

Overall, I believe Q1:2022 will end slightly higher than the end of Q4:2021 levels and may see the SPY attempt to break above $490~500 on stronger earnings and continue the market’s bullish price phase.

Q2:2022 Analysis

The second quarter seems a bit more stable in overall price appreciation trends. The data shows a shallow NEG value compared to a moderately strong POS value for Q2. Because of this, I believe the second quarter of 2022 will slide into a relatively strong upward Melt-Up type of trend after a potentially volatile Q1:2022.

The Total Monthly Sum value is higher in Q2 than in Q1, suggesting Q2 may exhibit a stronger upward momentum as a more apparent trend direction sets up after the Q1 volatility.

The US Fed will likely attempt to aggressively reduce its balance sheet throughout Q2 and into Q3:2022 if my expectations are accurate. This may create some additional market volatility in Q2 and Q3:2022 – but I suspect the US Fed will attempt to conduct a lot of this activity relatively quietly – almost behind the market strength/trends.

Q3:2022 Analysis

Q3 shows data that is somewhat similar to Q1 overall. I interpret this data as showing moderate bullish trend strength within the typical mid-Summer US market stagnation in trend. Mid-Summer trends tend to be a bit more sideways in nature. Many traders are vacationing, enjoying the Summer weather, and/or not paying attention to market trends and dynamics. Because of this, I expect the July through September months of 2022 to be relatively quiet and mundane.

Additionally, we have the mid-term US elections set up in November 2022. The July through September months will be packed with political posturing, campaigning, and various events filled with antics to distract the markets from focusing on real issues. As a result, election years tend to be somewhat quiet – especially in the 2 to 5 months leading up to the actual election date.

The end of Q3:2022 and the start of Q4:2022 could see some bigger, more aggressive price trending. The elections, ramping up of the early holiday/Christmas seasons, and the end of Summer may prompt traders to move into undervalued assets or other opportunist trades seeking to ride out an end-of-year trend. Right now may be a great time to identify strong swing/position trades to close out 2022 with some nice profits.

Q4:2022 Analysis

Q4:2022 shows a very strong bullish trend potential, with the POS results greatly surpassing the NEG results. Historically, this is because of the traditional Santa Rally phase of the US markets and may play a big role in 2022 if the US economy stays strong throughout 2022.

Overall, I expect the US Fed to act in a manner that supports the “transitioning” of the global markets away from excessive risks while attempting to nudge inflationary trends lower. There is talk that the US Fed may take aggressive action to combat inflation, but I see the Fed’s actions are more subtle than brutal at this stage.

I believe the US Federal Reserve is keenly aware of the fragility of the global markets after many years of excessive easy-money policies. In my opinion, the current market environment is more similar to the late 1960s and 1970s than the 1990s and early 2000 time frame. We’ve seen a massive influx of capital in the global markets – push all traditional economic metrics “off the charts” after the COVID event. That capital will work itself throughout the global economy, disrupting more at-risk companies and nations’ capabilities, but still prompt a moderate growth component for many years to come.

Volatility, Trading, And Profiting From Bigger Trends

The entire point was to discuss the opportunities of moving above the current excessive price volatility and adopting a trading strategy that is more suited to bigger, broader market price trends. In 2019, I warned that 2020 was likely to be very volatile.

In February 2021, I warned that 2021 was likely to be very volatile for certain market sectors: WILL 2021 PROMPT A BIG ROTATION IN SECTOR TRENDS? – PART I

In early January 2020, I warned the US markets may be set up for a “Waterfall Selloff”: ARE WE SETTING UP FOR A WATERFALL SELLOFF?

Today, I’m suggesting that price volatility will likely peak sometime in 2022 or 2023 and begin to subside as the excesses of the past 8+ years continue to process through what I’m calling the “transitioning phase” of the markets. This market phase is more of a deleveraging and revaluation phase which started in February 2020 – in various sectors. It has now extended into many global economies where excess risk factors are being addressed and revalued (think China, Asia, and other areas).

This transitioning process will likely continue in 2022 and 2023, meaning traders need to be prepared for the increased price volatility and adopt a style of trading that will allow them to profit from these bigger trends. This is why I’m suggesting taking a higher-level approach to trade over the next 24 to 36+ months.

Certain market trends will still allow traders to pick up some fantastic profits as sectors and various undervalued symbols gain momentum. Overall, though, I feel that 2022 and 2023 will be moderately difficult for shorter-term trading strategies and that a higher-level, longer-term approach may be a much more beneficial approach.

Want To Learn More About My Long-Term Investing Strategy?

My Technical Investor strategy is uniquely suited toward this type of trading style. It is simple, longer-term, and rises above the moderate price volatility that disrupts many shorter-term trading strategies.

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Get ready; 2022 will be an excellent year for traders with big trends and bigger volatility. We have to stay ahead of these trends to protect our capital and allow it to grow more efficiently. The risks of more traditionally moderate volatility systems getting chewed up in this extreme environment will continue. So be prepared to move towards a more protective trading style to survive the next 12 to 24 months.

If you are interested in learning more about how my Technical Investor (and other trading strategies) can help you protect and grow your wealth in any type of market condition, I invite you to visit  www.TheTechnicalTraders.com

For a look at all of today’s economic events, check out our economic calendar.

Chris Vermeulen

Founder of Technical Traders Ltd.

 

Financial Sector Starts To Rally Towards The $43.60 Upside Target

Near November 24, 2021, I published a research article suggesting the Financial Sector, XLF in particular, may bottom and start to move higher, targeting the $43.60 level. After watching XLF rotate lower and form multiple bottoms near $37.50, it appears to finally be starting a new breakout rally phase ahead of Q4:2021 earnings. Will it rally up to my $43.60 target level before the end of January 2022? And how far could it rally beyond my $43.60 target?

Using a simple Fibonacci Price Extension allowed me to target the $43.60 level. Duplicating that range and applying it to the top of the $43.60 target level will enable me to see a higher target range of $49.55. This upper target level would result from a 200% Fibonacci price rally from the original price range I identified back in late November 2021.

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Could it happen? Sure, it could happen. Financials are uniquely positioned to benefit from higher consumer engagement in almost all levels of the economy. Housing, consumer spending, credit/loan origination, fees and services, trading, and other services – they all combine into Banking and Financial Services. I expect Q4:2021 to show robust consumer engagement and housing data, likely prompting many financial firms’ strong revenues/earnings results.

My original financial sector (xlf) research article included (below) for you to review:

The recent downward price rotation in the Financial Sector (XLF) may have frightened some traders, but my research suggests this move is setting up a future bullish price target near $43.60 – a more than +11% move. The end of the year Christmas Rally phase of the markets should drive spending and Q4:2021 expectations strongly into the first quarter of 2022. Unless something big breaks this market trend, traders should continue to expect a “melt-up” bullish price trend through at least early January 2022.

Sign up for my free trading newsletter so you don’t miss the next opportunity!

The Financial Sector continues to deliver strong earnings and revenue data each quarter. The way consumers and assets prices have reacted after the COVID market collapse says quite a bit about the ability of financial firms to generate future profits. Financial firms actively engage in financial services, traditional banking, real estate, and other investments, and corporate financing. The rising inflation trends and consumer spending activities suggest the US economy is still rallying after the COVID stimulus and recovery.

Financials May Rally 10% to 15%, or more, by January 2022

My analysis of XLF suggests this recent pullback in price may stall and start a new bullish price rally targeting the $43.60 level – a full 100% Fibonacci Price Extension of the last rally in XLF.

This Daily XLF chart shows the extended rally in early 2021 and the brief pause in the price rally between June 2021 and early September 2021. Now that we’ve entered Q4:2021 and the US economy appears to be strengthening in the post-COVID recovery, my expectations are that most sectors, and the US major indexes, will rally throughout the end of 2021 and into early 2022.

This recent pullback in XLF sets up a solid buying opportunity for traders targeting a +10% rally that may last well into January/February 2022 – or longer.

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Longer-term Financial Trends Suggest Another Rally Above $44 May Start Soon

Over the past 6+ months, moderate rally phases in XLF have shown a range of about $4.00 to $4.50. I’ve highlighted two recent rally phases in XLF on this longer-term XLF Daily chart below with gold rectangles. I believe the next rally from the recent pullback will be similar in size and prompt a moderate upward price move targeting the $43.60 level – or higher.

Although there are some concerns related to the continuing recovery in the US markets, I believe the momentum of the US recovery and the strength in the US Dollar will push many US sectors higher over the next 60+ days. Closing out Q4:2021 and starting Q1:2022 with a fairly strong rally that may surprise many traders.

The Financial sector is likely to present very strong Q4:2021 revenues and earnings data as long as the global markets don’t push some crisis event or other issue that could detract from the US economic recovery. Right now, the biggest issues seem to be China and Europe.

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Concluding thoughts

My opinion is that any moderate price weakness in the Financial sector will be short-lived and will resolve into a bullish price rally, or “melt-upward” type of trend, as we move into early December 2021. Once the US Debt Ceiling issue is resolved, I believe the Financial sector will begin a very strong rally pushing prices above $44 or $45 as Q4:2021 earnings expectations drive investors’ focus into Technology, Consumer Retail, Financials, and Real Estate.

The strength of the US Dollar is driving large amounts of capital into US assets and stocks right now. Based on my research, it is very likely that the US major indexes and certain sectors will continue to rally into early January 2022. If my analysis proves accurate, we may see a +11% to +18% rally in XLF before the end of January.

If you are interested in learning more about how my strategies can help you protect and grow your wealth in any type of market condition, I invite you to visit www.TheTechnicalTraders.com

Chris Vermeulen

Founder of Technical Traders Ltd.

 

Why Successful Traders Make More By Trading Less

During my 25 years of trading and mentoring others, I have been dragged through the coals a few times. And by that, I mean I have; blown up a few trading accounts; had some massive gains only to watch them turn into worthless penny stocks, and; I even had one trade based around the volatility index blow up and become worthless the day after I bought it. I’ve had many other painful and costly trading experiences between those as well, and I know there will be more in the future. This leads me to the first topic I would like to talk about – learning through experience.

#1 – Learned Through Expensive Experiences

I help a lot of traders each year from all walks of life. They range from 18 to 85+ years of age. Some are total newbies, financial advisors, money managers, all the way up to billionaires. What is apparent is that the most successful traders (those who make money year after year) have the same things in common with how they trade. They all:

  • walk a straight and somewhat unemotional line outside of learning from losses and trading mistakes.
  • focus on managing their capital because they understand just how quick and easy it is to lose money, which is why they focus and follow strict rules.
  • follow very specific trading strategies/rules and do not trade on emotions.
  • protect their capital ALWAYS with stops and position management
  • only trade specific trade setups that put the probabilities in their favor
  • focus heavily on index and bond positions
  • say their trading feels slow/boring most of the time
  • trade multiple strategies

#2 – Ignore High Flying, News, Manipulated, and Hype Based Moves

It’s hard not to participate in some of these wild rallies and stock crashes we have seen over the last couple of years. It’s a natural tendency to want to take part in what everyone else is doing, and the lure of instant oversized gains is powerful. But, unfortunately, most individuals who get involved in these trades lose money for a good reason. They are trading based on greed/emotions with no real measured trading plan.

Don’t get me wrong; I’m not saying, “don’t trade these stocks.” In fact, many of these are incredible opportunities for experienced traders. These types of stocks generally become ideal for day traders and even momentum and aggressive swing traders. They can provide some quick extra cash. But that’s what these types of trades are – small, fast, higher risk trades that only a seasoned trader should trade.

For some reason, traders come into this business thinking it’s a game and believes these are the types of trades that should always be traded. They take oversized positions only to experience significant damaging losses to their account.

I conducted a survey a little while back, and the survey results blew my mind. Most people want to trade the volatile media-driven hype stocks and commodities. People fall in love with specific assets and want to trade only those, even if there are better assets and more efficient ways to pull money out of the market.

The results below frustrate the heck out of me because, to me, it makes no logical sense if you are in the market to make money.

Trader Survey Results Confirm Why it is Hard To Make Money

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The above results make sense as studies have proven that humans react seven times more based on emotions versus logic. This is why the stock market has such wild price swings with Euphoric blowoff tops and Panic washout lows.

People are highly addicted to riding their emotions (adrenaline/dopamine), and they love the rush of fast-moving stocks and gambling, which is why the markets are regulated, along with casinos, for that matter. Simply put, people lose control of common sense and logic when they are on tilt with emotion.

Fast-moving assets with extreme volatility act as a bug-zapper light, which attracts bugs, only to kill anything that gets too close. In this case, new traders think they can make quick and easy money from hot stock in the news.

Trading is a numbers game, and it requires logic, rules, and a proven strategy to win long-term.

Based on the survey we did with thousands of traders, you can see that making the same amount of money with fewer trades and lower risk is not that exciting. Instead, traders prefer high volatility assets like metals, and natural gas, which are manipulated and have large wild price swings.

Also, from a trading statics point of view, those two are among the most difficult to trade.

As a pilot, I know the importance of keeping calm, having checklists/rules, and systems in place. Without them, you will eventually crash and burn; it is just a matter of time. The same holds true for trading and investing in that you need to trade what makes the most money, trade only the best setups, and have the lowest risk.

Hottest Symbols vs Biggest Trends

Bottom line, I don’t care about trading every day or trying to catch the hottest symbols everyone is talking about. Instead, I care about catching and riding the biggest trends in the US stock index and the Treasury Bond ETFs. These are highly liquid sentiment trends that produce oversized gains each year. This is also the reason ETFs have taken over the mutual fund market and why financial advisors and hedge funds primarily trade/own stock index funds and bonds.

Through the Technical Index and Bond ETF Trading strategy, I help individuals and advisors trade more efficiently. This strategy trades SPY, SSO, SPXL, QQQ, QLD, TQQQ and TLT, TBT, TMF, which generate large, compounded returns as shown in the chart below:

Graphical user interface, text Description automatically generated

This proprietary ETF trading strategy is straightforward and only generates about 3 to 10 trades per year. Most traders dislike this type of strategy because it lacks lots of action and volatility. If you noticed, you won’t find many professional advisors telling you to jump into the fast-moving hype stocks, and for a good reason – they know better and want to protect your hard-earned capital.

#3 – The Power Of Slow & Steady Gains Are Mind-Bending!

As I learned a long time ago (and this holds true for almost everything across the board), learning something new, like mastering how to trade slower, consistent strategies, can take some getting used to. Everything new will always be a challenge, but once you master something, it becomes simple, low stress, and you will experience more consistent results.

Take a look at this data from an Atalanta Sosnoff report. This should get my point across about how powerful slow, boring, consistent returns pack a powerful punch and why thousands of traders from 82 countries follow my index and bond trading signals.

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Source: Eagle Asset Management.

The Technical Index & Bond ETF trading strategy has consistently produced positive annual results (CGAR average ROI 15% – 51% depending on ETF leverage, only 7 – 21% max drawdown).

If you traded with the 2x or 3x ETFs, you would have crushed the S&P 500 every year and experienced that rush feeling that leverage/volatility provides but within a safer/smarter way.

Passive trading styles like this are a bit different from those you may have traded in the past. My objectives consist of four very important concepts:

  • Protect Capital At All Times.
  • Trade Only When Strategically Opportunistic (probabilities are favorable).
  • Trade Efficiently Using Bonds As Trade When Fear Rises among traders and investors.
  • Move to cash or money market fund when the index and bonds are both out of favor.

Concluding Thoughts:

In short, I hope this has helped confirm your thinking of trading less and focusing on more solid trade setups. Or maybe it has opened your eyes to the world of slow and steady gains wins the race, with much less stress and effort.

If you are interested in learning more about TIBT – Technical Index & Bond Trader, I invite you to visit www.TheTechnicalTraders.com/twa

Chris Vermeulen

Founder of Technical Traders Ltd.

 

Will 2022~23 Require Different Strategies For Traders/Investors Part II

Is The Lazy-Bull Strategy Worth Considering? Part II

I started this article by highlighting how difficult some 2021 strategies seemed for many Hedge Funds and Professional Traders. It appears the extreme market volatility throughout 2021 took a toll on many systems and strategies. I wouldn’t be surprised to see various sector ETFs and Sector Mutual Funds up 15% to 20% or more for 2021 while various Hedge Funds struggle with annual returns between 7% and -5% for 2021.

After many years in this industry and having built many of my own strategies over the past decade, I’ve learned one very important facet of trading strategy development – expect the unexpected. A friend always told me to “focus on failure” when we developed strategies together. His approach to strategy design was “you develop it do too well in certain types of market trends and volatility. By focusing on where it fails, you’ll learn more about the potential draw-downs and risks of a strategy than ignoring these points of failure”. I tend to agree with him.

In the first part of this research article, the other concept I started discussing was how traders/investors might consider moving away from strategies that struggled in 2022. What if the markets continue trending with extreme volatility throughout 2022 and into 2023? Suppose your system or strategy has taken some losses in 2022, and you have not stopped to consider volatility or other system boundaries as a potential issue. In that case, you may be looking forward to a very difficult 12 to 14+ months of trading in 2022 and 2023.

Volatility Explodes After 2017

Current market volatility/ATR levels are 300% to 500% above those of 2014/2015. These are the highest volatility levels the US markets have ever experienced in the past 20+ years. The current ATR level is above 23.20 – more than 35% higher than the DOT COM Peak volatility of 17.15.

As long as the Volatility/ATR levels stay near these elevated levels, traders and investors will likely find the markets very difficult to trade with strategies that cannot properly adapt to the increased risks and price rotations in trends. Simply put, these huge increases in price volatility may chew up profits by getting stopped out on pullbacks or by risking too much in terms of price range/volatility.

The increased volatility over the past 5+ years directly reflects global monetary policies and the COVID-19 global response to the crisis. Not only have we attempted to keep easy money policies for far too long in the US and foreign markets, but we’ve also been pushed into a hyperbolic price trend that started after 2017/18, which has increased global debt consumption/levels to the extreme.

2022 and 2023 will likely reflect a very strong revaluation trend which I continue to call a longer-term “transition” within the global markets. This transition will probably take many forms over the next 24+ months – but mostly, it will be about deleveraging debt levels and the destruction of excess risk in the markets. In my opinion, that means the strongest global economies may see some strength over the next 24+ months – but may also see extreme price volatility and extreme price rotation as this transition takes place.

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Expect The Unexpected in 2022 & 2023

The US major indexes had an incredible 2021 – rallying across all fears and COVID variants. The NASDAQ and S&P500 saw the biggest gains in 2021 – which may continue into early 2022. Yet I feel the US markets will continue to transition as the global markets continue to navigate the process of unwinding excess debt levels and potentially deleveraging at a more severe rate than many people expect.

Because of this, I feel the US markets may continue to strengthen as global traders pile into the US Dollar based assets in early 2022. Until global pressures of deleveraging and transitioning away from excesses put enough pressure on the US stock market, the perceived safety of US assets and the US Dollar will continue as it is now.

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(Source: www.StockCharts.com)

Watch For Sector Strength In Early 2022 As Price-Pressure & Supply-Side Issues Create A Unique Opportunity For Extended Revenues/Profits

I believe the US markets will see a continued rally phase in early 2022 as Q4:2021 revenues, earnings, and economic data pour in. I can’t see how any global economic concerns will disrupt the US markets if Q4:2021 data stays stronger than expected for US stocks and the US economy.

That being said, I do believe certain sectors will be high-fliers in Q1:2022 and Q2:2022 – at least until the supply-side issues across the globe settle down and return to more normal delivery expectations. This means sectors like Automakers, Healthcare, Real Estate, Consumer Staples & Discretionary, Technology, Chip manufacturers, and some Retail segments (Construction, Raw Materials, certain consumer products sellers, and specialty sellers) will drive a new bullish trend in 2022.

The US major indexes may continue to move higher in 2022. They may also be hampered by sectors struggling to find support or over-weighted in symbols that were over-hyped through the end of 2020 and in early 2021.

I have been concerned about this type of transition throughout most of 2021 (particularly after the MEME/Reddit rally phase in early 2021). That type of extreme trending usually leads to an unwinding process. I still don’t believe the US and global markets have completed the unwinding process after the post-COVID extreme rally phase.

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(Source: www.StockCharts.com)

Will The Lazy-Bull Strategy Continue To Outperform In 2022 & 2023?

This is a tricky question to answer simply because I can’t predict the future any better than you can. But I do believe moving towards a higher-level analysis of global market trends when the proposed “transitioning” is starting to take place allows traders to move away from “chasing price spikes.” It also allows them to position for momentum strength in various broader market sectors and indexes.

I suspect we’ll start to see annual reports from some of the biggest institutional trading firms on the planet that show feeble performance in 2021. This recent article caught my attention related to Quant Funds in China.

I believe we will see 2022 and 2023 stay equally distressing for certain styles of trading strategies while price volatility and an extreme deleveraging/transitioning trend occur. Trying to navigate this type of choppy global market trending on a short-term basis can be very dangerous. I believe it is better to move above all this global market chop and trade the bigger momentum trends in various sectors and indexes.

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Part III of this research article will focus on Q1 through Q4 expectations for 2022 and 2023. I will highlight broader sector/index trends that may play out well for investors and traders who can move above the low-level choppiness in the US and global markets.

WANT TO LEARN MORE ABOUT THE TECHNICAL INVESTOR AND THE TECHNICAL INDEX & BOND TRADING STRATEGIES?

Learn how I use specific tools to help me understand price cycles, set-ups, and price target levels in various sectors to identify strategic entry and exit points for trades. Over the next 12 to 24+ months, I expect very large price swings in the US stock market and other asset classes across the globe. I believe the markets are starting to transition away from the continued central bank support rally phase and may begin a revaluation phase as global traders attempt to identify the next big trends. Precious Metals will likely start to act as a proper hedge as caution and concern start to drive traders/investors into Metals.

I invite you to take a few minutes to visit the Technical Traders website to learn about our Technical Investor and Technical Index and Bond Trading strategies and how they can help you protect and grow your wealth.

Have a great day!

Chris Vermeulen
Chief Market Strategist

 

Will 2022~23 Require A Different Strategy For Traders/Investors?

Is The Lazy-Bull Strategy Worth Considering? – Part I

Many traders struggled in 2021 with the extended price volatility and sideways price trends. Recently, news that Bridgewater’s 2021 results were saved by December’s +7.8% gain (Source: Yahoo! Finance) leads me to believe a number of independent funds and investors are going to have a tough end-of-year return for 2021.

Average Hedge Fund Returns Less Than 25% Of The 2021 S&P500 Gains

The volatility in the US and global markets throughout most of 2021 took a toll on traditional trading strategies. With the VIX trading above 12 on average throughout almost all of 2021, traditional trading strategies may not have been able to adjust to this increased volatility in the US markets – getting chewed up along the way.

I wrote an article series about how computerized trading strategies can fail when volatility levels increase beyond traditional boundaries a few weeks ago. You can read the first of the three part series, US Federal Reserve Actions 1999 to Present – What’s Next?, and then link to the other two.

A screenshot of a computer

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(source: Aurum.com)

Many of the best Hedge Funds could barely squeeze out a profit in 2021. While the S&P500 rallied more than 27% in 2021, you can see from the graphic above that the average returns for Hedge Funds in 2021 were a paltry +6.24%.

I expect that the US and global markets will continue to stay in extended price volatility ranges throughout all of 2022 and into 2023 as broad global market transitioning continues to take place. This expectation leads me to conclude that the “Lazy-Bull” strategy may be better suited for traders/investors over the next 24+ months than more active trading strategies.

What Is The “Lazy-Bull” Strategy?

The Lazy-Bull strategy is a term I use for my proprietary strategies – The Technical Investor and the Technical Index & Bond Trader. I call it the Lazy-Bull strategy because it is straightforward and only generates about 3 to 10 trades per year (on average). Many traders dislike this type of strategy because it it does not require many trades and does not provide the rush/roller coaster ride that many think they should feel while trading, which is not how it should be.

Having said that, overall, this strategy has consistently produced positive annual results (CGAR average ROI 15% – 51% depending on ETF leverage, and only 7 – 21% drawdown) – beating the SPY almost every year. If you traded with the 1x, 2x, or 3x ETFs then you would have crushed the S&P 500 every year, and experienced that positive rush feeling that leverage/volatility provides.

My trading style is a bit different than most other traders. My objectives consist of three very important concepts:

  • Protect Capital At All Times
  • Trade Only When Strategically Opportunistic (probabilities are favorable)
  • Trade Efficiently Using Bonds As Trade When Fear Rises among traders and investors.

Through the Technical Investor and Technical Index and Bond Trading strategies, I help individuals and advisors learn how trading more efficiently using the Lazy-Bull strategies is for generating large compounded returns as shown in the SP500 chart below.

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I’ll go further into detail regarding my strategies as we continue this multi-part article.

Reading Into Q1:2022 – What To Expect?

Right now, the world is waiting on Q4:2021 earnings and economic data. The first Quarter of 2022 should be very exciting for US traders as the year-end momentum of 2021 may carry forward into Q1:2022 with solid revenues and earnings. After that, we move into Q2:2022, which may be much more volatile overall.

Let’s look at our proprietary data mining utility to see what we might expect from the markets in the first Quarter of 2022.

January 2022 has more than a 1.41:1 probability ratio of staying positive based on the past 29 years of historical data. Ideally, the average positive and negative monthly ranges are about equal – nearly $5.00. The accumulated monthly data shows that January is usually overall positive by at least $2.50 to $5.00.

February 2022 has a much higher chance of extreme volatility. February 2022 shows a much greater positive to negative ratio while the possibility of a bullish February drops to a 1.33:1 probability ratio. Overall, I would suspect larger price volatility in mid to late February 2022 as the markets attempt to transition into late Q1 expectations.

March 2022 has the same 1.41:1 probability ratio as January, yet the overall likelihood of extended downside price trends is about 20% greater than January.

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My analysis of this data suggests January and March of 2022 may surprise traders with a potential for a significant upward price move headed into Q2:2022. I believe Q4:2021 will also surprise traders as US consumers continue to engage and spend. This will lead to higher expectations for Q1:2022, which may set up a bit of a rally ahead of April/May 2022.

Q1 and Q2, historically, seem to be strong in terms of traditional market growth and expectations. Yes, there have been instances when unexpected volatility disrupts the more customary types of trends – and 2022 may be one of those years. Our research shows the US Fed may make early efforts to move away from extreme easy money policies – which may shock the markets.

Our research suggests the possibility of a 7% to 10% rally in the SPY in the First Quarter of 2022. If our extended research is accurate, our predictive modeling suggests more extreme price volatility may also play a significant role in how price trends/moves in 2022.

Is The Lazy-Bull Strategy Worth Considering?

In Part II of this article, we’ll review the entire year of 2022 Quarterly Data Mining results and present more evidence that 2022 and 2023 may be years where a shift in strategy plays an important role for traders/investors. With the VIX trading above 15 more consistently, many strategies will get chewed up and spit out as the markets roll 9% – 15% up and down while attempting to transition away from the post-COVID stimulus.

Get ready; 2022 will be an excellent year for traders with significant trends and bigger volatility. We just have to stay ahead of these trends to protect our capital and allow it to grow more efficiently. The risks of more traditionally moderate volatility systems getting chewed up in this extreme environment will continue. So be prepared to move towards a more protective trading style to survive the next 12 to 24 months.

Want To Learn More About The Technical Investor and The Technical Index & Bond Trading Strategies?

Learn how I use specific tools to help me understand price cycles, set-ups, and price target levels in various sectors to identify strategic entry and exit points for trades. Over the next 12 to 24+ months, I expect very large price swings in the US stock market and other asset classes across the globe. I believe the markets are starting to transition away from the continued central bank support rally phase and may start a revaluation phase as global traders attempt to identify the next big trends. Precious Metals will likely start to act as a proper hedge as caution and concern start to drive traders/investors into Metals.

I invite you to take a few minutes to visit the Technical Traders website to learn about our  Technical Index and Bond Trading strategy and how they can help you protect and grow your wealth.

Have a great day!

Chris Vermeulen
Chief Market Strategist

 

Sector Themes In Play In The Markets For 2022

Years like 2021 saw a solid broad-based performance in many stock market sectors. Relatively simple approaches such as Indexing and Sector Rotation did well. But with macro changes in play and many uncertainties for 2022, we may very well see broad indexes underperforming while individual sectors dominated by a few stocks really shine.

Dips will continue to be bought unless something significant changes. But let’s not forget that we’re long overdue for a substantial correction. Significant risk catalysts are:

  • Fed actions.
  • International conflicts (i.e., Russia and China).
  • Pandemic developments that are not currently known.

There’s always the risk of the unknown – the literal definition of a “Black Swan” event. We shouldn’t get too complacent, knowing that we may need to get defensive to protect capital suddenly. When it’s time to be defensive, let’s not forget that CASH IS A POSITION!

Sector theme DRIVERS FOR 2022

Many uncertainties about Covid and the lingering effects on the economy remain. Inflation has roared back to 30-year highs. Strong employment numbers and consumer spending are fueling significant growth in corporate earnings. We also have a shift in bias at the Fed on interest rates and quantitative easing. These are the “knowns” and are theoretically priced in.

For these reasons and more, we should expect more of a “Stockpicker’s Market” in 2022. Certain sectors will do well and weather corrections better than the broader markets.

Even short-term traders can gain an edge by paying attention to what sectors are strongest. Traders tend to benefit most from playing the strongest stocks in the strongest sectors for bullish trades and choosing the weakest stocks in weaker sectors for bearish trades. That “tailwind” can make a significant difference in results.

Let’s look at some sector themes and individual names to keep an eye on in 2022.

ECONOMIC NORMALIZATION

A long-anticipated return to a “normal” economy will continue to be a theme — we just don’t know if that will be Post-Covid or Co-Covid. Or when. Air travel, theme parks, hotels, cruise lines, etc., have all suffered in the persistent Pandemic. What does seem to be changing is the idea of a “new normal” where virus variants may be with us for years to come. We will adjust socially and economically to that for the foreseeable future. DAL, UAL, LUV, AAL are airlines to watch, and the JETS ETF may be a good way to play a general recovery in this sector.

5G INTERNET

The much-hyped rollout of 5G network technology had its share of setbacks and technology disappointments. But 2022 should see the 5G deployment start to take off as technical issues are worked out, and the promise of widespread coverage with transformational performance becomes real. In the background supplying the 5G infrastructure are AMD, QCOM, ADI, MRVL, AMT, XLNX, and KEYS. Along with infrastructure and testing companies, shares of major carriers T, TMUS, and VZ languished for much of the second half of 2021 and looked poised for recovery in the coming year.

ARTIFICIAL INTELLIGENCE

In all its various forms (including autonomous vehicles), AI will remain a developing trend. Big players in the space to watch include MSFT, AMAT, GOOGL, NVDA, AAPL, and QCOM.

EVs and AUTONOMOUS VEHICLES

Electric Vehicles (EVs) are nearing an inflection point where widespread adoption is poised to take off. Technology and cost competitiveness has improved where some EVs will reach price parity with their traditional internal combustion counterparts.

While there are many smaller players in the EV space, automotive stalwarts F, GM, and TM are investing very heavily. TSLA has been grabbing the headlines, but many others want to stake out their territory in the space, including whole tiers of manufacturers and infrastructure enablers like WKHS, XPEV, NKLA, and CHPT.

MATERIALS and MINING

Gold, silver, and related miners underperformed for much of 2021 and now look poised for a recovery year as inflation, and monetary concerns grow. GLD, SLV, GDX, GDXJ, SIL, SILJ look good as both longer and mid-term plays. Metals and miners may get hit initially with a significant downturn in stocks but could ultimately demonstrate their safe-haven potential.

Specific to the growth in EVs, battery technology, etc., copper, lithium, and related basic materials should see stronger demand ahead. FCX looks particularly interesting as a dual play on gold and copper. LIT may be a good ETF play on lithium battery technology.

SEMICONDUCTORS

The market for chips is primed for exponential growth. EV’s have about ten times the number of specialty semiconductors as conventional vehicles. AI, crypto, 5G, mobile devices, and ubiquitous computing should drive growth in the semiconductor sector for some time to come.

REAL ESTATE

Real Estate and Homebuilders should continue to do well while employment numbers remain strong and if interest rates don’t rise too quickly. The inventory shortage in most real estate markets will likely persist well into the new year.

Storage REITs like PSA, LSI, and CUBE have been big winners in the Covid economy and still have room to run.

SUMMARY

Many sectors still look bullish after gains in 2021. But there are “storm clouds” on the horizon, and we must not take future performance for granted.

Lastly, one of the simplest ways to assess how sectors are measuring up is to watch the charts for the S&P SPDR series sector ETFs and a few others. Here are some notable ones to watch:

https://www.thetechnicaltraders.com/wp-content/uploads/2021/12/Dec-31-article.png

These can give us a good starting place to look for leading stocks in winning sectors as the year unfolds.

Let’s remain vigilant for possible market corrections and may the wind be at our backs!

Want to learn more about our Options Trading Service?

Every day on Options Trading Signals, we do defined risk trades that protect us from black swan events 24/7. Many may think that is what stop losses are for. Well, remember the markets are only open about 1/3 of the hours in a day. Therefore, a stop loss only protects you for 1/3 of each day. Stocks can gap up or down. With options, you are always protected because we do defined risk in a spread. We cover with multiple legs, which are always on once you own.

If you are new to trading or have been trading stock but are interested in options, you can find more information at The Technical Traders – Options Trading Signals Service. The head Options Trading Specialist Brian Benson, who has been trading options for almost 20 years, sends out real live trade alerts on actual trades, such as TSLA and NVDA, with real money. Ready to check it out, click here: TheTechnicalTraders.com.

Enjoy your day!

Chris Vermeulen
Founder & Chief Market Strategist
TheTechnicalTraders.com

 

Early 2022 Should Continue A Melt-Up Trend In January/February

The US markets have already started a melt-up trend – which is what I expected to happen prior to the bout of volatility over the past 30+ days.

A Very Late Santa Rally Could Prompt A Powerful Move Upward

A very late positive shift in the US major indexes may prompt a powerful upward price trend in early 2022. I expect that Q4:2021 earnings and revenues will continue to impress traders while the US Dollar strengthens above 95. This combination of a strong US economy with a stronger US Dollar will continue to attract foreign capital investment in US equities in early 2022.

Traders won’t want to miss the potential for a Q1 and Q2 rally phase in the US markets IF the US Fed stays moderately inactive throughout the first half of 2022.

Sign up for my free trading newsletter so you don’t miss the next opportunity!

Traders were concerned that the US Fed and Inflation would prompt a sudden shift by the US Fed. Still, I believe the new Omicron COVID virus and the shift away from hyper-inflationary trends may alter how the Fed sees the global economy in 2022. The US markets may be strengthening simply because of the additional stimulus and strong US consumer activity from the recovery/reflation trade momentum (late 2020 and almost all o 2021). The early 2022 trends may carry momentum into the first two Quarters of 2022 with slowly diminishing strength overall.

Please take a minute to review our ADL Price Predictions for 2022 in this research article: The Technical Traders

S&P 500 Rallying To New All-Time Highs To Close Out 2021

The S&P 500 recently rallied to new all-time highs just days before the end of 2021. This move suggests traders are shifting away from broader market concerns and starting to pay attention to the pending Q4:2021 earnings and revenue data and the 2021 Annual Data that will hit over the next 30 to 60+ days.

Even though the markets are looking for any reason to spike the VIX (volatility), I believe the momentum behind this rally phase is going to continue to drive the S&P 500 up towards 5000 – or higher. My expectations are that we will see a fairly strong 5% to 8% rally in early 2022 from the 2021 end-of-year price levels. I believe the US market is attracting lots of foreign market capital as long as the US Fed does not do anything to topple the current market dynamics.

https://www.thetechnicaltraders.com/wp-content/uploads/2021/12/Chart_21-12-30_ES_W.png

NASDAQ Is Struggling To Reach New All-Time Highs, But Could Explode Higher In Early 2022

Even though the NASDAQ appears to be more volatile than the S&P500 and Dow Jones, it stands a very good chance of exploding higher in early 2022 as Q4:2021 earnings are announced, and end-of-year revenues and US economic data are presented in January/February. I expect that technology will continue to dominate trends related to how US consumers spend their time/money in 2022 – especially if we continue to go through more COVID virus waves.

The sectors I’m watching in 2022 are Housing, Technology, Healthcare, Consumer Staples/Discretionary, Metals/Mining, and Retail. If there are any signs of concern in the US/Global markets, I expect to see these concerns appear in the strongest sectors right now (Consumer, Retail, Metals, Housing, and Technology). The US Fed will probably not take any severe actions in Q1:2022 and maybe talk about raising rates in Q2:2022. This means the US markets will continue to attract foreign capital, and traders need to prepare for a potentially explosive upside price trend in the NASDAQ before March 2022.

https://www.thetechnicaltraders.com/wp-content/uploads/2021/12/Chart_21-12-30_NQ_W.png

 

Predictive Modeling Suggests 7~10% Rally In SPY/QQQ Before April 2022

The recent rotation in the SPY/QQQ has shaken some traders’ confidence in the ability of any potential rally – blowing up expectations of a Santa Rally. Yet, here we are with only five trading days before the end of 2021, and the US major indexes are nearing all-time highs again.

PREDICTIVE MODELING SHOWS A CONTINUED MELT-UP TREND THROUGH JAN/FEB 2022

Our Adaptive Dynamic Learning (ADL) Predictive Modeling system may hold the answers you are looking for. Let’s look at a few charts to prepare for what may unfold over the next 60+ days.

First, this SPY Weekly ADL chart highlights the range of potential outcomes going forward into March/April 2022. The further out we attempt to predict using this technique, the more opportunity exists for outlier events (unusual price trends/activity). Yet, the SPY ADL predictive modeling system suggests a very strong upward price trend in January/February 2022, with a possible narrowing of price in late February – just before another big move higher in March/April 2022.

There is an outlier trend that appears below the current price trend. So far, this outlier trend has not aligned with price action over the past 5+ weeks and shows an alternate support level near $430.

The ADL predictive modeling system suggests a broad market uptrend is likely in the SPY, with an initial target near $490 possibly being reached by early February. If Q4:2021 earnings come in strong and revenues continue to impress the markets, we may see a rally above the $490 level before the end of February 2022.

After the tightening of price near the end of February 2022, it appears the SPY will consolidate near $480, then enter another rally phase and attempt to rally above $500. This type of price action aligns with solid Q4:2021 expectations and continued Q1:2022 economic growth.

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ADL PREDICTS QQQ WILL RALLY ABOVE $430 BY MARCH/APRIL 2022

This Weekly QQQ ADL Chart highlights a similar type of price trend compared to the SPY. The QQQ appears to have a more consistent upward trend bias with a fairly solid upward price channel trending through the first four months of 2022. It appears the QQQ will rally to levels above $420 by mid-February 2022, then stall for a few weeks, then resume a rally trend through most of March 2022 and into early April 2022. After mid-April 2022, it appears the QQQ will consolidate, again, near the $420~$425 level.

This ADL prediction suggests Technology, Healthcare, Consumer stables/discretionary, Real Estate, and other sectors will continue to do well in Q1:2022 and beyond. A rally of 7% to 10% in the first few months of 2022 may send the US markets dramatically higher throughout the rest of 2022 if economic growth stays strong.

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The ADL predictive modeling system has proven to be a valuable tool in understanding what lies ahead for the markets. Not only does it show a range of potential outcomes and price targets, but it also helps us understand if and when price breaks beyond these ADL predictive ranges (which translates into a unique price anomaly).

Price anomalies happen. The COVID-19 price collapse represented a unique price anomaly in 2020. This event, somewhat like a Black Swan event, hit the markets hard and quickly sent prices tumbling. It is important to understand that these events can still happen in the future and can dramatically disrupt expected price trends.

Still, if the ADL predictive price trends continue to be accurate, it looks like Q1:2022 and Q2:2022 may continue to see moderate upward price trends with bouts of sideways volatility taking place. The range of the ADL predictive levels (the MAGENTA LINES) shows the type or expected volatility in the markets for Q1 and Q2. It appears volatility will stay elevated over the next 6+ months – so get ready for some big, explosive price trends.

Watch for the markets to continue to melt higher over the next few weeks as traders prepare for Q4:2021 earnings to start hitting in early January 2022. We may see the US markets start another big upside price trend – possibly breaking to new all-time highs soon enough.

WANT TO LEARN MORE ABOUT PREDICTIVE MODELING?

Learn how I use specific tools to help me understand price cycles, set-ups, and price target levels in various sectors to identify strategic entry and exit points for trades. Over the next 12 to 24+ months, I expect very large price swings in the US stock market and other asset classes across the globe. I believe the markets are starting to transition away from the continued central bank support rally phase and may start a revaluation phase as global traders attempt to identify the next big trends. Precious Metals will likely start to act as a proper hedge as caution and concern start to drive traders/investors into Metals.

Please take a minute to visit www.TheTechnicalTraders.com to learn about our Total ETF Portfolio (TEP) technology and how it can help you identify and trade better sector setups. We’ve built this technology to help us identify the strongest and best trade setups in any market sector. Every day, we deliver these setups to our subscribers along with the TEP system trades. You owe it to yourself to see how simple it is to trade 30% to 40% of the time to generate incredible results.

Have a great day!

Chris Vermeulen
Chief Market Strategist

 

Fear May Drive Silver More Than 60% Higher In 2022

Historically, Silver is extremely undervalued compared to Gold right now. In fact, Gold has continued to stay above $1675 over the past 12+ months while Silver has collapsed from highs near $30 to a current price low near $22 – a -26% decline.

Many traders use the Gold/Silver Ratio as a measure of price comparison between these two metals. Both Gold and Silver act as a hedge at times when market fear rises. But Gold is typically a better long-term store of value compared to Silver. Silver often reacts more aggressively at times of great fear or uncertainty in the global markets and often rises much faster than Gold in percentage terms when fear peaks.

Understanding the Gold/Silver ratio

The Gold/Silver ratio is simply the price of Gold divided by the price of Silver. This creates a ratio of the price action (like a spread) that allows us to measure if Gold is holding its value better than Silver or not. If the ratio falls, then the price of Silver is advancing faster than the price of Gold. If the ratio rises, then the price of Gold is advancing faster than the price of Silver.

Right now, the Gold/Silver ratio is above 0.80 – well above a historically normal level, which is usually closer to 0.64. I believe the current ratio level suggests both Gold and Silver are poised for a fairly big upward price trend in 2022 and beyond. This may become an exaggerated upward price trend if the global market deleveraging and revaluation events rattle the markets in early 2022.

I expect to see the Gold/Silver ratio fall to levels below 0.75 before July/August 2022 as both Gold and Silver begin to move higher in Q1:2022. Some event will likely shake investor confidence in early 2022, causing precious metals to move 15% to 25% higher initially. After that initial move is complete, further fallout related to the deleveraging throughout the globe, post-COVID, may prompt an even bigger move in metals later on in 2022 and into 2023.

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COVID Disrupted The 8~9 Year Appreciation/Depreciation Cycle Trends

In May 2021, I published an article suggesting the US Dollar may slip below 90 while the US and global markets shift into a Deflationary cycle that lasts until 2028~29 (Source: The Technical Traders). I still believe the markets will enter this longer-term cycle and shift away from the broad reflation trade that has taken place over the past 24+ months – it is just a matter of time.

If my research is correct, the disruption created by the COVID virus may result in a violent reversion event that could alter how the global markets react to the deleveraging and revaluation process that is likely to take place.

I suggest the COVID virus event may have disrupted global market trends because the excess capital poured into the global markets prompted a very strong rise in price levels throughout the world in real estate, commodities, food, technology, and many other everyday products. The opposite type of trend would have likely happened if the COVID event had taken place without the excessive capital deployed into the global markets.

Demand would have diminished. Price levels would have fallen. Demand for commodities and other technology would have fallen too. That didn’t happen. The opposite type of global market trend took place, and prices rose faster than anyone expected.

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Markets Tend To Revert After Extreme Events

As much as we may want to see these trends continue forever, any trader knows that markets tend to revert after extreme market trends or events. In fact, there are a whole set of traders that focus on these “reversion events.” They wait for extreme events to occur, then attempt to trade the “reversion to a mean” event in price action.

My research suggests the COVID virus event may have created a hyper-cycle event between early 2020 and December 2021 (roughly 24 months). My research also suggests a global market deleveraging/revaluation event may be starting in early 2022. If my research is correct, the recent lows in Gold and Silver will continue to be tested in early 2022, but Gold and Silver will start to move much higher as fear and concern start to rattle the markets.

As asset prices revert and continue to search for proper valuation levels, Gold and Silver may continue to rally in various phases through 2028~2030.

Initially, I expect a 50% to 60% rally in Silver, targeting the $33.50 to $36.00 price level. For SILJ, Junior Silver Miners, I expect an initial move above $20 (representing a 60%+ rally), followed by a follow-through rally targeting the $25.00 level (more than 215% from recent lows).

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I believe the lack of focus on precious metals over the past 12+ months may have created a very unusual and efficient dislocation in the price for Silver compared to Gold. This setup may present very real opportunities for Silver to rally much faster than Gold over the next 24+ months – possibly longer. If my research is correct, the Junior Silver Miners ETF, SILJ, presents a very good opportunity for profits.

Want to learn more about the movements of Gold, Silver, and their Miners?

Learn how I use specific tools to help me understand price cycles, set-ups, and price target levels in various sectors to identify strategic entry and exit points for trades. Over the next 12 to 24+ months, I expect very large price swings in the US stock market and other asset classes across the globe. I believe the markets are starting to transition away from the continued central bank support rally phase and may start a revaluation phase as global traders attempt to identify the next big trends. Precious Metals will likely start to act as a proper hedge as caution and concern start to drive traders/investors into Metals.

If you need technically proven trading and investing strategies using ETFs to profit during market rallies and to avoid/profit from market declines, be sure to join me at TEP – Total ETF Portfolio.

Pay particular attention to what is quickly becoming my favorite strategy for income, growth, and retirement – The Technical Index & Bond Trader.

Have a great day!

Chris Vermeulen
Chief Market Strategist

US Federal Reserve Actions 1999 to Present – What’s Next Part III

In Part I and Part II of this research article, I shared my research into the state of past and current US and global economy, Rest Of World Debt, DGP Implicit Price Deflator, Fed Funds Rates, and other technical data charts. The purpose of this article is to share with you two key components of the current US and global market trends; higher inflationary trends and a potentially trapped US Federal Reserve.

I will share more data/charts, and my proprietary US economy/Fed modeling systems results in Part III. My objective is to share my belief that the US Federal Reserve still has room to adjust interest rates (within reason) and how the US/global economy is starting to trend into the highest inflationary levels since 1975~1985. These levels could frighten traders/investors, but given the global economic constraints of the COVID lock-downs, I consider the current economic trends a symptom of the stimulus/solution – not necessarily an inherent economic trend. Allow me to explain my thinking in more detail.

Consumer Price Index (Less Food & Energy) Climbs To Highest Levels Since 2007-08

This Consumer Price Index (Less Food & Energy) paints a powerful picture. As you are well aware, the Energy sector (Oil and Natural Gas) has rallied more than 300% over the past 18+ months. Food, in particular Beef and other staple products, have rallied more than 80% over the past 18+ months. So this Consumer Price Index chart that is excluding two of the highest inflationary consumer components should already be well above the 1999-2000 levels if we consider real consumer price factors.

Take a minute to review all of these charts and consider the current US and global economic environment and where you think these trends may continue into early 2022.

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(Source: Fred Economic Data)

The extreme US and Global market debt levels, which have risen more than 500% over the past 15+ years, complicate the process of combating inflationary trends. The Fed, and many global central banks, risk a broad wave of defaults if they attempt to raise lending rates too fast. They want an orderly deleveraging process to occur, which will prompt a moderate deflationary trend in assets.

Consumer Price Indexes rallying to levels not seen since the 1970s or 1980s when the US Federal Reserve continues stimulus programs and keeps the FFR levels near ZERO seems counterproductive. But what if the US Federal Reserve is trapped behind a wall of debt and a very keen understanding that any aggressive moves may topple the global growth phase we’ve experienced over the past 8+ years? What if the US Fed knows they should be raising interest rates right now but is frightened to take this action because of what may happen to the rest of the world?

Proprietary Modeling Of The US Economy/Fed

Many years ago, I completed some prototype research related to the US debt levels as it related to GDP, Population, and economic activity. At that time, I attempted to model different outcomes over the next 20 to 25+ years. I tested various hypothetical outcomes to see how my modeling system would allow the US Fed to raise or lower rates within an “optimum range.” I’ve organized the results of my theoretical modeling into a table (below).

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I believe this data, and all the charts I’ve shared with you in the whole of this research article, suggests the US Fed is trapped in a very strenuous position right now. The inflationary data suggests the US Fed should be aggressively raising rates. The global markets and the fragility of the global economy based on years of stimulus and easy money policy may prompt a shattering of market trends if the Fed acts too aggressively. What is the Fed most likely to do over the next 4 to 12+ months?

Maybe the US Federal Reserve is willing to push the envelope by:

  • keeping rates low
  • allowing foreign markets to deleverage and devalue in an orderly process
  • allowing the markets to divest of the excess liabilities/debts

At the same time, they continue to support the US economy with easy money policies – thus allowing the foreign markets to shake off the liabilities and debt levels on their own.

Telegraphing The Long-Term, Slow-Motion, Fed Actions Going Forward

It makes sense that the US Federal Reserve may attempt to raise interest rates very slowly in 2022, possibly moving 1/8% or 1/4% at a time while keeping the FFR lending rate below 1.0% to 1.25%. Remember, my research suggests any aggressive moves by the UF Fed could topple the US and global markets fairly quickly at these extended inflationary and consumer price trends.

A prolonged and properly telegraphed US rate rise moving the US interest rates up above 0.50% would be a suitable solution, in my opinion, to attempt to eliminate the excessive leverage that has taken place throughout the developing world. As we see in China, Asia, Africa, the US, and other places, economic functions tend to have a natural process of handling extreme excesses.

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My opinion is the world is experiencing and seeing the symptoms of excessive stimulus, extended easy monetary policy, COVID lock-down supply issues, and the effects of manufacturing globalization through the process of a virus/pandemic event. Almost like a perfect storm, the global markets before COVID in February 2020 were uniquely positioned to be highly dependent on China/Asia for certain medical, chip, and other manufacturing components while shipping and supply trends collapsed.

For the first 4 to 6+ months, the US worked through existing inventory/supplies. But after those supplies were exhausted, the US economy became dependent on new shipments to replenish inventory and to supply much-needed manufacturing components. This perpetual supply-side shortage has continued to prompt higher inflationary trends worldwide.

Slowly changing direction

I expect the US Federal Reserve to very clearly telegraph next year’s expectations with an evident intent to move away from extended stimulus and support programs slowly. A very slow rate increase, possibly moving rates above 0.50% before August 2022, could be in the works. The US Federal Reserve will want to adjust rates and policy to assist the global economy in efficiently transitioning through the current inflationary, deleveraging, and deflating the excessive price trends – not breaking the markets.

Expect the US Federal Reserve to announce very clear longer-term “intentions” and to telegraph their expectations related to inflation and supply issues. Here are my expectations in a nutshell:

  • Potentially cut the bond-buying rates by another 15% to 45% in early 2022 (Q1:2022 through Q3:2022).
  • Announce intentions to raise rates very slowly in late Q1:2022 or late Q2:2022 (possibly raising in tiny increments over many months).
  • Announce the US Fed is watching the global markets and credit markets quite intently – attempting to identify subtle shifts in trends and activity while adjusting future actions/expectations.

The US Federal Reserve has room to raise rates 0.50% or a bit higher. It also has many other tactics to tighten (bond-buying, liquidity features, financial stress-based requirements). I believe the Fed will make very clear “baby steps” known – but not take any immediate actions.

Want to learn more about how I will navigate through what’s to come?

Learn how I use specific tools to help me understand price cycles, set-ups, and price target levels. Over the next 12 to 24+ months, I expect very large price swings in the US stock market and other asset classes across the globe. I believe the markets are starting to transition away from the continued central bank support rally phase and may start a revaluation phase as global traders attempt to identify the next big trends. Precious Metals will likely start to act as a proper hedge as caution and concern start to drive traders/investors into Metals.

In fact, I recently talked about how, if I could trade only one strategy for income, growth, and retirement, this is the one I would choose – The Technical Index & Bond Trader.

If you need technically proven trading and investing strategies using ETFs to profit during market rallies and to avoid/profit from market declines, be sure to join me at TEP – Total ETF Portfolio.

Have a great day!

Chris Vermeulen
Chief Market Strategist

 

Are You an Options Buyer or an Options Seller?

They are a powerful trading “tool” that can be bought, sold, and combined in a seemingly limitless number of ways to achieve a specific objective.

One of the bigger questions for new — and even experienced traders — is whether to be an options buyer or seller. Or both.

QUICK REVIEW

The price of an option is the sum of intrinsic and extrinsic (time) values. Intrinsic value is the mathematical difference between the option strike price and the price of the underlying.  Extrinsic value is variably priced based on the expected volatility of the underlying and remaining time before the option expires.

Let’s go through some of the pros and cons of buying versus selling options.

BUYING OPTIONS

Buying options seems like a simple enough strategy. The trader picks a bullish or bearish direction and goes long (buys) a put or a call corresponding to the stock‘s anticipated directional move. Be sure not to confuse being long an option and being long underlying. For example, if a trader is long a put, due to inverse correlation that is akin to being short the underlying.

But being long an option is not as simple or easy as it appears. The first challenge with a long option is being right about the direction of the stock. The underlying has to move in the expected direction for the option to go up in value and possibly generate a profit.

The option buyer also has to be correct about the magnitude of the underlying move. If a trader buys an option and the amount of the move is not greater than what was spent for the time value, the option won’t be profitable. For example, if $2 is spent for options time value, but the stock only moves $1, it is quite possible to be right about direction but still not profitable.

Time Value

The time value in options is a wasting asset as it will always approach $0 at expiration, so that works in favor of option sellers and against option buyers. Think of time value like an ice cube, melting away slowly at first and then more rapidly.

Since all options have a fixed time when they expire, duration is a significant consideration. A trader could be right about the direction and magnitude of the underlying move, but perhaps that doesn’t materialize sufficiently during the option’s lifetime. So enough time value has to be purchased for the move to happen. And more time value, of course, costs more money.

Implied Volatility (IV)

There’s also the effect of volatility. The time value portion of an option is priced according to the underlying’s anticipated (Implied) volatility. If an option is bought when volatility is low, and there is an increase in volatility, that makes the remaining time value portion of the option price more valuable. That can work in the option buyer’s favor. But there’s also the opposite situation; when an option is purchased when volatility is high, and there is a contraction in volatility.

It’s important to be able to gauge if option premium is underpriced, overpriced, or “average” priced. Technical tools to do that include charting implied volatility itself and some version of IV Rank where current IV is evaluated as a percentile of the range of IV over some time period, typically one year.

So the inherent disadvantages of a long option are the necessity to be correct about direction, magnitude, duration, and possibly implied volatility. These considerations can make the probability of profit with a long option relatively low, often far below 50%.

So why buy an option?

Simple – unlimited profit potential! Long options can generate outsized profits when the trader is right about direction, magnitude, and duration.

When does it make sense to use a long option?

  • When a significant move in a stock is expected.
  • When there’s a trend.
  • When there’s a reversal in a range.
  • When there’s a breakout (up or down).

Solid technical analysis and a keen sense of the specific market are key success factors.

SELLING OPTIONS

For every buyer of an option, there is a seller (counterparty). Option sellers take on an obligation to either buy or sell and stock in return for collecting a premium.

There are a couple of disadvantages to selling options. The premium collected is the maximum profit possible. Selling an option also comes with a possibly substantial obligation to buy or provide stock. There are ways to reduce and manage that obligation risk, such as structuring trades as either vertical or calendar spreads, and these and others will be the subject of many future posts.

So why sell an option?

Probability of profit! Depending on how an option selling trade is structured, it’s possible to have a very high probability of success, sometimes 80% or more. It can be quite a bit easier to generate consistent, albeit smaller, profits with selling options.

So, in summary, buying options come with an inherently low probability of an unlimited profit. Selling options come with a relatively high probability of a modest profit.

What do I do?

Both. But I tend to be an option seller much more often than an option buyer. That better suits my personal style in trying to generate consistent profits for income. Other traders and investors with different objectives may find a different approach works best for them.

Want to learn more about Options Trading?

Every day on Options Trading Signals, we do defined risk trades that protect us from black swan events 24/7. Many may think that is what stop losses are for. Well, remember the markets are only open about 1/3 of the hours in a day. Therefore, a stop loss only protects you for 1/3 of each day. Stocks can gap up or down. With options, you are always protected because we do defined risk in a spread. We cover with multiple legs, which are always on once you own.

If you are new to trading or have been trading stock but are interested in options, you can find more information at The Technical Traders – Options Trading Signals Service. The head Options Trading Specialist Brian Benson, who has been trading options for almost 20 years, sends out real live trade alerts on actual trades, such as TSLA and NVDA, with real money. Ready to check it out, click here: TheTechnicalTraders.com.

Enjoy your day!

Chris Vermeulen
Founder & Chief Market Strategist
TheTechnicalTraders.com

 

US Fed Actions 1999 to Present – What’s Next? Part II

Reading The Data & What To Expect in 2022 And Beyond

In the first part of this research article, I highlighted the past 25 years of US Fed actions related to the DOT COM bubble, the 9/11 terrorist attack, the 2008-09 US Housing/Credit crisis, and the recent COVID-19 virus event. Each time, the US Federal reserve had attempted to raise interest rates before these crisis events – only to be forced to lower interest rates as the US economy contracted with each unique disruption. The US Fed was taking what it believed were necessary steps to protect the US economy and support the global economy into a recovery period.

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The following few charts highlight the results of the US Fed’s actions to keep interest rates extremely low for most of the past 20 years. I want to highlight what I believe is an excessive credit/debt growth process that has taken place throughout most of the developing world (China, Asia, Africa, Europe, South America, and other nations). At the same time, the US has struggled to regain a functioning growth-based economy absent of US Federal Reserve ZERO interest policies and stimulus.

Extreme Growth Of World Debt (excluding the US)

This Rest Of The World; Debt Securities & Loans; Liabilities chart highlights the extreme, almost parabolic, growth in debt and liabilities that have accumulated since 2005-06. If you look closely at this chart, the real increase in debt and leverage related to global growth started to trend higher in 2004-05. During this time, the US housing market was on fire, which likely pushed foreign investors and foreign housing markets to take advantage of this growing trend in US and foreign real estate.

This rally in speculative investments, infrastructure, and personal/corporate debt created a huge liability issue throughout many developing nations. Personal and Corporate debt levels are at their highest levels in decades. A recent Reuters article suggests global debt levels have risen in tandem with real estate price levels and is closing in on $300 Trillion in total debt.

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(Source: fred.stlouisfed.org)

GDP Implicit Price Deflator Rallies To Levels Not Seen Since 1982~83

The rally in the US markets and the incredible rise of inflation over the past 24 months have moved the consumer price levels higher faster than anything we’ve seen over the past 50+ years. We’ve only seen price levels rise at this pace in the 1970s and the early 1980s. These periods reflected a stagflation-like economic period, shortly after the US Fed ended the Gold Standard. This was also a time when the US Federal Reserve moved the Fed Funds Rate up into the 12% to 16% range to combat inflationary trends.

If the GDP Implicit Price Deflator moves above 5.5% over the next few months, the US Fed may be forced to take stronger action to combat these pricing issues and inflationary trends. They have to be cautious not to burst the growth phase of the markets in the process – which could lead to a very large deflationary/deleveraging price trend.

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(Source: fred.stlouisfed.org)

We need to focus on how the markets are reacting to these extreme debt/liability trends and extreme price trends. The markets have a natural way of addressing imbalances in supply/demand/pricing functions. The COVID-19 virus event certainly amplified many of these issues throughout the globe by disrupting labor, supply, shipping, and manufacturing for a little more than 12+ months.

The future decisions of the US Federal Reserve will either lead to a much more orderly deleveraging/devaluation process for the US and global markets – supporting the natural economic functions that help to process and remove these excesses. Or, the US Federal Reserve will push interest rates too high, too fast, and topple the fragile balance that is struggling to process the excesses throughout the global markets.

What does this mean?

I believe this data, and all the charts I’ve shared with you in this research article, suggest the US Fed is trapped in a very strenuous position right now. I’ll share more information with you regarding my predictions for December 2021 and 2022 in the third part of this article.

I will also share my proprietary Fed Rate Modeling System’s results in Part III of this article and tell you what I expect from the US Federal Reserve and US stock markets.

WANT TO LEARN MORE ABOUT HOW I TRADE AND INVEST IN THE MARKETS?

Learn how I use specific tools to help me understand price cycles, set-ups, and price target levels. Over the next 12 to 24+ months, I expect very large price swings in the US stock market and other asset classes across the globe. I believe the markets are starting to transition away from the continued central bank support rally phase and may start a revaluation phase as global traders attempt to identify the next big trends. Precious Metals will likely start to act as a proper hedge as caution and concern start to drive traders/investors into Metals.

If you need technically proven trading and investing strategies using ETFs to profit during market rallies and to avoid/profit from market declines, be sure to join me at TEP – Total ETF Portfolio.

Have a great day!

For a look at all of today’s economic events, check out our economic calendar.

Chris Vermeulen
Chief Market Strategist

 

US Fed Actions 1999 to Present – What’s Next?

In my opinion, the US Federal Reserve has been much more accommodating for the global economy after the 2008-09 US Housing Market crash. The new US Bank Stress Tests and Capital Requirements have allowed the US to move away from risk factors that may currently plague the global markets. What do I mean by this statement?

US Fed Continues To Maintain Extremely Accommodative Monetary Policy

Over the past 12+ years, after the 2008-09 US Housing Market collapse, the US Federal Reserve has acted to support the US and global economy while the US Congress and US Federal Reserve have acted to build a stronger foundation for US banking and financial institutions. The most important aspect of this is the Capital Requirements that require an operating US bank to hold a minimum amount of reserve capital (Source: Federal Reserve). The US Federal Reserve installed this program to prevent US banks from over-leveraging their liabilities based on the 2008-09 Housing Market Crisis lessons.

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There are still risks associated with a complete global economic collapse – where consumers, banking institutions, and economic activity grinds to a halt because of some external or unknown factor. Yet, the risks of a US-based collapse based on excessive Banking or other financial institution liabilities are somewhat limited in today’s US Economy. Although, globally, the risks have accelerated over the past 12+ years while the US Federal Reserve maintained a very accommodative monetary policy.

Historical US Federal Reserve Actions

Let’s review some of the most significant US Federal Reserve actions over the past 25 years.

  • Early/Mid-1990s: The Fed raised the FFR from 3.0% to 6.5% to 7.0% as the DOT COM Rally continued to build strength.
  • 1998/1999: The Fed dropped the FFR to 4.0% as the DOT COM bubble became frothy and started to fracture/burst.
  • Early 2000: The Fed raised the FFR from 4.0% to 6.86% over just five months, pushing the cost of borrowing above 7.5%~8.5% in the open market.
  • Late 2000/Early 2001: The September 2001 Terrorist Attack on the US pushed the Fed to lower the FFR to 1.0% by December 2002. Before the 9/11 attack, the Fed lowered the FFR after the DOT COM bubble burst rattled the US economy and output.
  • 2004/2006: The Fed raised the FFR from 1.0% to 5.5% (more than 550%) while the US Housing Market boom cycle pushed the US economy into overdrive. This was the biggest FFR rate increase since the 1958-1960 rate increase (from 0.25% to 4.0% – more than 1600%) or the 1961-1969 rate increase (from 0.50% to 9.75% – more than 1950%).
  • 2007/2008: The Fed decreased the FFR from 5.5% to 0.05 (Dec 2009), effectively setting up a 0% interest rate while the US attempted to recover from the 2008-09 Housing Market Crisis.
  • 2015/2020: the Fed attempted to raise the FFR from 0.08% to 2.40% as the US economy transitioned into a strong bullish breakout trend. When the US markets collapsed in early 2020 because of the COVID-19 virus, the Fed moved interest rates back to near 0% and have kept them there ever since.

The deep FFR discounts/rates that started after the 1999/2000 DOT COM/9-11 events pushed foreign markets to borrow cheap US Dollars as a disconnect of capital costs and a growing foreign market economy allowed certain economic functions to continue. Borrowing cheap US Dollars while deploying that capital in foreign economies returning 4x to 10x profits allowed many foreign companies, individuals, and governments to build extremely dangerous debt levels – very quickly.

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(Source: ST Louis FED)

Now, let’s get down to the core differences between pre-1990 and post-1990 US Fed actions and global economy functions.

US Fed Added Rocket Fuel To An Already Accelerating Global Economy

Before 1985, foreign markets were struggling to gain their footing in the global economy. Larger global economies, like the US, Japan, Europe, and Canada, could outsource manufacturing, supplies, and labor into foreign nations that provided a strategic cost advantage.

After 1994 or so, after the Asian Currency Crisis settled, the growth of manufacturing and labor in China/Asia started booming at an exponential rate. This prompted a 2x to 5x growth factor in many Asian nations over 10+ years. The 9-11 terrorist attacks briefly disrupted this trend, but it restarted quickly after 1994~1995.

This high-speed growth phase in China/Asia after 1999 created a massive demand for credit and expansion as Asian consumers and economies grew at exponential rates from 1997 to now. The US Fed inadvertently promoted a global growth phase that resulted in the fastest global economic increase in history. Multiple foreign nations were able to take advantage of cheap US Dollars.

At the same time, the US Fed acted to support the recovery of the US economy after 9-11 and the 2008-09 Housing/Credit crisis. Those cheap US Dollars continued after the COVID-19 turmoil in early 2020 and likely pushed already at-risk debtors over the edge as bond rates have started to price extensive risk factors.

The result of these crisis events and the US Federal Reserve’s continued easy monetary policy has been the fastest growth of assets the planet has seen in over 80 years. Not only have global economies grown in a parabolic phase, but the US stock market has also moved higher and higher after the 2010 bottom and the 2015-2016 shift towards higher US corporation earnings/revenues.

Once the COVID-19 virus event hit in early 2020, the US Fed moved rates back to near 0% – supplying a nearly unlimited amount of rocket fuel for the global markets (again).

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The problem this time was the global COVID shutdowns essentially took the spark away from the fuel (capital).

Now, we are waiting for the US Fed statements to close out 2021. I’ll offer this simple hint to help you prepare for what’s next – more volatility, more big trends, and more deleveraging throughout the global markets. In Part II of this research article, I’ll share my thoughts on what I expect from the US Fed and what I hope for in 2022 and beyond.

Want to learn more about how I trade and invest in the markets?

Learn how I use specific tools to help me understand price cycles, set-ups, and price target levels. Over the next 12 to 24+ months, I expect very large price swings in the US stock market and other asset classes across the globe. I believe the markets are starting to transition away from the continued central bank support rally phase and may start a revaluation phase as global traders attempt to identify the next big trends. Precious Metals will likely start to act as a proper hedge as caution and concern start to drive traders/investors into Metals.

If you need technically proven trading and investing strategies using ETFs to profit during market rallies and to avoid/profit from market declines, be sure to join me at TEP – Total ETF Portfolio.

Have a great day!

For a look at all of today’s economic events, check out our economic calendar.

Chris Vermeulen
Chief Market Strategist

 

Financial Sector May Rally 11% – 15% Higher Before End Of January 2022

The US Federal Reserve is keeping interest rates low. At the same time, the US consumer continues to drive home purchases and holiday shopping. Strong economic data should drive Q4 results for the financial sector close to levels we saw in Q3:2021. If that happens, we may see a robust rally in the US Financial sector over the next 45 to 60+ days.

The strength of the recent rally in the US major indexes shows just how powerful the bullish trend bias is right now. Some traders focus on the downside risks associated with the US Federal Reserve actions and/or the concerns related to inflation and global markets. I, however, continue to focus on the strength in the US major indexes and various sector trends that show real opportunities for profits.

Comparing Sector Strength

The following two US market sector charts highlight the performance over the last 12 vs. 24 months. I want readers to pay attention to how flat the Financial Sector has stayed since just before the 2020 COVID event and how the Financial Sector has started to trend higher over the past 12 months. This is because the shock of COVID briefly disrupted consumer activity. Yet, consumers are coming back strong, driving retail sales, home sales, and the continued strong US economic data. Therefore, it makes sense that the Financial sector should continue to show firm revenue and earnings growth while the US consumer is active and spending.

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Over the past two years, Discretionary, Technology, and Materials drove market growth compared to other sectors. Remember, the initial COVID virus event disrupted market sector trends over the last 24+ months.

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(Source: StockChart.com)

Taking a look at this 1 Year US Market Sector chart shows how various sectors have rebounded and how the Discretionary and Materials sectors have flattened/weakened.

Pay attention to how the Energy and Real Estate sectors have been over the past 12 months. Also, pay attention to how the Financial sector is strengthening.

I believe that the continued deflation/deleveraging that is taking place throughout most of the world will continue to drive global central banks to stay relatively neutral regarding rising interest rates. This will likely prompt an easy money policy throughout most of 2022 and drive continued revenues/earnings for sectors associated with consumers’ engagement with the economy.

If inflation weakens into 2022 while wage and jobs data stays strong, we may see more moderate strength in the Financial, Healthcare, Discretionary, and Technology sectors over the next 6 to 12+ months.

Read more about Global Deleveraging Here: Delivering Covid Bubble Possible Volatility Risks In Foreign Markets

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(Source: StockChart.com)

Financials May Pop 11% Or More Over The Next 6+ Months

This Weekly IYG, IShares US Financial Service ETF, highlights the recent sideways price trend in the Financial sector and the potential for a 9% to 13% rally that may take place as the markets shift into focus for the Q4:2021 earnings. Yes, inflation is still a concern, but as long as the US consumer continues spending and engaging in the economy, the Financial Services and US Banks should show strong returns.

If the US markets rally into the end of 2021, possibly reaching new all-time highs again, this trend may carry well into 2022 and drive Q4:2021 and Q1:2022 revenues and earnings for the Financial sector even higher.

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This Weekly XLF chart shows a very similar setup to IYG. I firmly believe the recent fear in the markets related to the US Federal Reserve, the new COVID variants, and the global markets deleveraging process is missing one critical component – the strength of the US markets and the strength of the US Dollar.

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As the rest of the world struggles to find support and economic strength, the US markets continue to rebound on the strength of the US consumer, the recovering economy, and the growth of these sectors. As long as the US Federal Reserve does not disrupt this trend, I believe Q1:2022 could be much more robust than many people consider. I also think the deflation/deleveraging process will work to take the pressures away from recent inflation trends.

What could this mean for 2022?

Early 2022 may well work as a “rebalancing” process for the global markets – possibly taking the pressures away from the strength in energy, commodities, and staple products/materials. This means pricing pressures will decrease while consumers are still earning and spending. The Financial sector should benefit from these trends over the next 6+ months.

Watch for the Financials to start to increase throughout the end of 2021 and into early 2022. There are many ways to consider trading this move, but ideally, I think the rally will take place before the end of February 2022.

Q1 is usually relatively strong, so that this trend may last well into April/May 2022. It all depends on what happens that could disrupt the current market sector trends. If nothing happens to disrupt the strength of the US Dollar and the strength of the US markets, then I believe the Financial Sector has a very strong opportunity for at least 10% to 11% growth.

Want to learn more about the potential for a financial sector rally?

Learn how I use specific tools to help me understand price cycles, set-ups, and price target levels. Over the next 12 to 24+ months, I expect very large price swings in the US stock market and other asset classes across the globe. I believe the markets are starting to transition away from the continued central bank support rally phase and may start a revaluation phase as global traders attempt to identify the next big trends. Precious Metals will likely start to act as a proper hedge as caution and concern start to drive traders/investors into Metals.

If you need technically proven trading and investing strategies using ETFs to profit during market rallies and to avoid/profit from market declines, be sure to join me at TEP – Total ETF Portfolio.

Have a great day!

Chris Vermeulen
Chief Market Strategist

 

Deleveraging COVID Bubble – Possible Volatility Risks In Foreign Markets

I get asked all the time what my opinions are regarding the markets. As much as I could go into really deep details regarding technical analysis and other factors of my research, the simple answer is that we’ve been living through 2~4+ years of incredible market trends and unprecedented global central bank efforts to support and contain market risks. This is something we have not seen at these levels since the end of WWII and after the Great Depression.

Is there a Speculative Bubble Deleveraging Risk In The Global Markets?

The one thing that keeps popping up in my mind is the deleveraging of credit/debt and speculative risk assets over the next 2 to 3+ years. Let me explain what I mean by this statement.

Before the first COVID event (February 2020), the global markets were already within a moderate strengthening phase with relatively stable global trade, economic, and central bank participation. Everyone was still waiting for inflation to rise while employment and economic data continued to strengthen. When COVID hit, things changed very quickly.

  • Global lockdowns disrupted the labor and supply markets.
  • Consumers shifted gears while settling (or moving) into more rural locations attempting to wait out the new COVID threat.
  • Global central banks and governments attempted to navigate the catastrophic COVID event while settling population and finance issues.
  • An unprecedented amount of stimulus, global central bank financing, and speculative capital was unleashed over a very short 3 to 4-year span of time.
  • The success of the global economy prior to 2020 prompted a very deep and efficient speculative market trend in 2020 and beyond.
  • Now, that speculative bubble appears to be bursting – at least in certain areas of the markets.

Let’s explore a bit of data and charts.

This first Monthly chart highlights trends in various global market indexes. ARKK, the ARK Innovation Fund, HSI, the Hang Seng Index, DAX, the DAX Index, SPY, the S&P 500 ETF, and HXC, the Golden Dragon China Index. Each of these represents a unique component of global markets and sectors.

ARKK represents technology, innovation, and a more broad global investment style focused on stronger or more highly volatile price trends.

HSI represents a broad market China Index that includes various markets sectors – including Technology, Medical, Consumer, Real Estate, Finance, and others. These companies are listed in China and do a majority of their business in China.

DAX represents a broad market German Index.

SPY represents a broad market US Index

HXC represents the US-listed Chinese Companies doing a majority of their business in China.

The purpose of showing you this chart is to highlight the deleveraging that is already taking place in ARKK, HXC, and the HSI. The DAX and the SPY are still trending higher, while the ARKK, HSI, and HXC are trending strongly to the downside.

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It is my opinion that the global markets, particularly China/Asia, are already in the midst of a massive speculative deleveraging event – a post-bubble rally phase initial collapse process. Certain technicians sometimes call this an “unwinding” or “unraveling” event. Ultimately, the US has seen two of these types of events over the past 30 years – the 1999-2000 DOT COM bubble burst and the 2008-09 Housing Market collapse.

What I found interesting is the HXC price levels have already fallen to levels near the March 2020 COVID lows. Whereas the HSI price levels have also fallen to very near the March 2020 COVID lows, it has also fallen into negative price trending from 2014-15 price levels.

Could Speculative Deleveraging Stay Localized This Time?

I think global volatility and bigger price trends will be something we need to prepare for in 2022 and 2023 – possibly even longer. Yet, my opinion is the US, and other stronger global economies may be partially immune from this speculative deleveraging event.

Why?

Because not every US corporation or citizen has put themselves in a similar scenario as I believe many in China and Asia possibly have after nearly 30+ years of extreme growth trends.

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The US has experienced the 1999-2000 DOT COM bubble and the 2008-09 Housing Market crisis over the past 30 years. At the same time, China/Asia has grown from moderate obscurity in the 1980s-1990s into extensively powerful economies. Along the way, over a relatively short period of time, a generation or two of the populous has seen assets rise thousands of percent over the past 20 years. This leads to a highly speculative investment class – almost feeling as though anything they touch turns to gold.

But it doesn’t always work out that way – does it?

This HXC chart highlights the incredible rally after the February 2020 COVID event as well as the moderate growth phase from 2005 to 2016. Notice the big growth that took place in 2017. This was a period of very strong economic growth where Chinese companies started listing on US exchanges to tap into a strong US investor class.

After COVID hit in 2020, this speculative investing trend skyrockets over 180%. Then, it collapsed.

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Bitcoin May Follow This Deleveraging Trend If Panic Sets In

The recent rally and peak in Bitcoin have also caught my interest in seeing if this deleveraging event follows through in large Cryptos? Since the initial Bitcoin collapse in early 2021, Bitcoin has rallied strongly as the US markets recovered and inflation started to rise later in 2021. Now, a very strong pullback in Bitcoin has started at the same time large Chinese Real Estate developers and other corporations are beginning to experience severe credit/debt concerns.

Is there a correlation between Chinese/Asian consumer/economic strength and Bitcoin? Has the rise in Bitcoin prices over the past since 2015 been fueled by the rising speculative and investment trends in China/Asia?

We’ll know soon enough.

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If the global markets continue this process of speculative trading deleveraging, we’re going to see an increase in volatility and deeper price trends take place before the process completes. I suspect there is a huge amount of underlying credit/debt that is struggling in certain areas of the world right now. This type of speculation tends to drive a mentality of FOMO (fear of missing out) and YOLO (you only live once). I remember after the DOT COM bubble burst, I would talk to people that were so entrenched in the bubble, and they bought all the way through the collapse – believing it would bounce back.

This deleveraging event should stay somewhat immune from certain larger market economies. Yes, there will likely be more volatility and bigger price swings. But, eventually, the strength of consumers and economic trends will settle most of this process fairly quickly for the largest global economies.

2022 and 2023 are sure to be great years for traders. Sectors will rotate and trend. The world’s strongest economies will rotate and trend. The increased volatility will create risks, but it will also create incredible opportunities for profits.

Get ready; it looks like this deleveraging event is just getting started.

Want to learn more about deleveraging and volatility risks in the markets?

Learn how I use specific tools to help me understand price cycles, set-ups, and price target levels. Over the next 12 to 24+ months, I expect very large price swings in the US stock market and other asset classes across the globe. I believe the markets are starting to transition away from the continued central bank support rally phase and may start a revaluation phase as global traders attempt to identify the next big trends. Precious Metals will likely start to act as a proper hedge as caution and concern start to drive traders/investors into Metals.

If you need technically proven trading and investing strategies using ETFs to profit during market rallies and to avoid/profit from market declines, be sure to join me at TEP – Total ETF Portfolio.

For a look at all of today’s economic events, check out our economic calendar.

Have a great day!

Chris Vermeulen
Chief Market Strategist

 

Omicron COVID Variant-Possible Strong Rally-INDU & TRAN

As we’ve been watching the markets recoil away from risks related to the new Omicron COVID variant and other factors, one simple thought keeps running through my head. What if the markets suddenly shift away from this panic selling and resume a rally/recovery trend – possibly pushing to new all-time highs before the end of the year?

Recently, the Put/Call ratio reached a moderate-high near 0.84. I interpret this as long traders buying protection in the event of an extended breakdown in the US/global markets. In the past, typically, when the Put/Call ratio reaches levels above 0.80 – the markets are very close to a bottom.

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Prior Downside GAPS Setup A Potential Rip-Your-Face-Off Rally

Next, I noticed the GAP in price on the Dow Jones Industrial Average and the Transportation Index. That got me thinking, “a sudden reversal in price, possibly resulting in a series of price squeeze events, may prompt a strong rally phase back above the GAP levels.” If this happens, we may see a 5% to 7% rally in the US markets take place to restart the Santa Rally phase.

INDU Gap Near $35,600 May Become A Clear Upside Target

This Daily INDU chart shows the GAP I’m talking about and shows what I expect may happen if the markets shake off the Omicron fears and get back into bullish trending mode.  It won’t take much to drive the INDU 7% higher from recent lows if fear subsides and traders pile into long positions expecting Q4:2021 to be strong and the Santa Rally to kick in.

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TRAN Gap Near $16,800 May Provide Additional Confirmation Of A Bullish Rally Phase

This Daily TRAN chart shows a similar GAP in price that could also trigger a big rally towards new all-time highs if the markets suddenly shift gears. The fear that settled over the global markets because of the Omicron virus strain may have pushed the markets into a fairly deep pullback. As we’ve seen repeatedly, when these pullbacks end, the US markets shift back into strong bullish price trending and often rally to new all-time highs.

This GAP on the TRAN chart may further confirm that the downside price pressure has ended and a new rally phase is setting up for the US markets.

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Just a few days ago, I posted a research article showing results from a proprietary data mining utility I use that illustrated the typical bullish market strength in November and December. You can read that article here: Thetechnicaltraders.com.

I believe the global markets will attempt to move past the fear we’ve seen related to the Omicron virus strain. It is becoming more evident that many nations are already somewhat prepared to deal with it throughout December/January. If there is sudden news that it, or any new virus strain, is far more dangerous, things could change very quickly. But I believe the US markets are searching for support and are very likely to end 2021 at or near new all-time highs – supporting a very strong Santa Rally.

Watch for end-of-day SQUEEZE events to push price levels higher and higher over the next few days – possibly targeting these GAP areas or higher.

Want to learn more about what affects the markets?

Learn how I use specific tools to help me understand price cycles, set-ups, and price target levels. Over the next 12 to 24+ months, I expect very large price swings in the US stock market and other asset classes across the globe. I believe the markets are starting to transition away from the continued central bank support rally phase and may start a revaluation phase as global traders attempt to identify the next big trends. Precious Metals will likely start to act as a proper hedge as caution and concern start to drive traders/investors into Metals.

If you need technically proven trading and investing strategies using ETFs to profit during market rallies and to avoid/profit from market declines, be sure to join me at TEP – Total ETF Portfolio.

Have a great day!

For a look at all of today’s economic events, check out our economic calendar.

Chris Vermeulen
Chief Market Strategist

 

Global Markets-It’s Do-Or-Die Time

Even though economic data continues to show a strengthening US economy and jobs market, the news of the Omicron COVID variant has spooked the global markets. I’m going to illustrate how the markets are nearing critical support levels that are a “Do-Or-Die” level for the market, in my opinion.

Let’s get right into the charts – shall we?

NASDAQ Support Near $15,721 Should Act As A Solid Floor

This NASDAQ chart highlights the orange support level near $15,271 that I believe will act as a HARD FLOOR/SUPPORT for the US markets. We may see $14,750 become the next downside target level if the NQ falls below this level on strong selling. If this support level holds, then I expect the US markets to resume a rally trend and attempt to target $17,000 or higher before the end of 2021.

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Custom US Stock Market Index Confirms Support Near $15,721

This Custom US Stock Market Weekly Chart highlights the key support channel that originates in early 2021 and spans across recent lows (the DARK BLUE LINE). My opinion is that the alignment of the $15,721 support level from the chart above and this key support channel on the Custom US Stock Market Index chart creates a confluence of critical support. This level becomes a “Do-Or-Die” level for the markets to attempt to bottom and recover going forward.

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Custom Volatility Index Sets Up A Deep Potential Bottom Level

Lastly, this Weekly Custom Volatility Index chart highlights the multiple deep downside support ranges that have continued to drive future price rallies since the original COVID collapse. The current Custom Volatility Index level is below the last two pullbacks in the US markets and well within the support channel from late 2020 and early 2021.

This Custom Volatility Index would clearly show a breakdown in the US markets by moving below the 6.0 to 6.50 level on strong selling pressure. That is currently not happening, and I suspect the lack of real selling pressure reflects a panic selling mode – not a change in true price trend.

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My opinion is the US markets will struggle to hold near recent lows – attempting to hammer out a bottom/base over the next few days. If these critical support levels fail to prompt a bottom in price, we’ll know soon enough. The markets can stay irrational far longer than many people expect.

The next 2 to 5+ trading days should clearly show us if these support levels and channels are solid or not. If the global markets are going to continue to move lower, we should find out soon enough.

If I’m correct and the markets do hold up near these support channels, we may begin to see a new “Rip-Your-Face-Off” rally phase to start a powerful Santa Rally closing out 2021. That would be incredible to witness and experience.

Watch for support near $15,721 to $15,750 on the NQ over the next 5+ trading days. I believe that level is the “Do-Or-Die” level for the markets going forward.

Curious to Learn More about global markets?

Learn how I use specific tools to help me understand price cycles, set-ups, and price target levels. Over the next 12 to 24+ months, I expect very large price swings in the US stock market and other asset classes across the globe. I believe the markets are beginning to transition away from the continued central bank support rally phase and may start a revaluation phase as global traders attempt to identify the next big trends. Precious Metals will likely begin to act as a proper hedge as caution and concern start to drive traders/investors into Metals.

If you need technically proven trading and investing strategies using ETFs to profit during market rallies and to avoid/profit from market declines, be sure to join me at TEP – Total ETF Portfolio.

Have a great day!

For a look at all of today’s economic events, check out our economic calendar.

Chris Vermeulen
Chief Market Strategist