Gold-to-Silver Ratio Heading Lower – Setup Like 1989-03

Fear is starting to become an issue. Traders are starting to realize inflation, CPI, PPI, and global currencies are reacting to the sudden policy shift by the US Fed and global central banks. This fear is showing up in the Gold-to-Silver ratio as well.

My research suggests the closest comparison to the current Gold/Silver setup may be found by looking at the early 2000~2003 US markets. Let’s investigate this setup a bit further.

Gold-To-Silver Ratio Peaks Above 1.2 During COVID crisis

Over the past 5 years, Gold consolidated from 2017 through the COVID Virus event. This consolidation is prompting an extreme high in the Gold-to-Silver Ratio to levels above 1.2. The only other time in history when the Gold-to-Silver Ratio reached levels above 1.2 was in 1991~92. This is aligning with the fall of the Soviet Union.

This extreme peak in the Gold-to-Silver ratio marks a very weak Silver price compared to Gold. Psychologically, this represents a very real lack of fear related to global currencies/economies. The threat of extreme inflation trends.

Now, as inflation suddenly became a topic near the end of 2021, the Gold-to-Silver ratio has moved decided downward. This illustrates Silver is rallying compared to the price of Gold as fear begins to elevate across the globe. Traders, consumers, and others are moving assets into precious metals near recent price lows to hedge against uncertainty, inflation, and currency devaluation.

Chart Description automatically generated

The Fall Of The Soviet Union Was A Global Catalyst Event – Just Like COVID

The collapse of the Soviet Union prompted a global shift in how global currencies, threats, and opportunities were perceived. It also ushered in a new wave of capitalism throughout Russia that prompted a massive credit/economic expansion phase aligned with the birth of the Internet in the early 1990s. This is why we see Gold price levels stay rather muted from 1989 through 2002-03. It was a time of very little fear when global traders chased deals, DOT COM stocks, and Real Estate instead of precious metals.

After the DOT COM bubble burst, and the 9/11 terrorist attacks rattled global financial markets, fear and precious metals suddenly came into focus again. The rally that took place after 2001 in Gold prompted a nearly 600% increase (from $260 to $1923). The biggest portion of this rally took place after the 2007-08 Global Financial Crisis.

Is today any different than 2000~2002 in reality?

Diagram Description automatically generated

The similarities seem too obvious to ignore…

Table Description automatically generated

I believe a continued decline in Crude Oil, as well as a continued strengthening of the US Dollar, will likely take place throughout the end of 2022. In the meantime, Gold attempts to climb back toward recent highs. The catalyst for the breakout rally in Gold and Silver will likely be some extended breakdown in the US/Global financial markets and stocks or some new War/Aggression that pulls the US/EU into a conflict.

Overall, I believe global currencies will continue to recoil because of risk/devaluation factors related to inflation and disruptions within the global economy; very similar to the end of the Soviet Union in 1991.

My thinking is that Gold will attempt to hold above $1700 as a base support level while Silver attempts to hold above $19.00 as base support. Any major crisis event, war, or global financial meltdown may prompt a retest of these base support levels within the next 12+ months.

If Gold/Silver Are Repeating A 2002-03 Setup, What Can We Expect In The Future?

Then the breakout trend starts in Gold, which could happen as early as 2023 or 2024, I believe the next rally target for Gold will be somewhere above $3100. Then, we start a dedicated climb to levels above $4500 and beyond.

It is difficult to predict any date targets for this type of rally, but I’m trying to illustrate what I see related to the similarities of the 1989~2003 market conditions with what I’m seeing right now. If you were around to live through this incredibly exciting time, you may remember many of these events. I’m suggesting we may be starting to move through similar events right now and I suspect we are somewhere near August 2000 right now.

HOW CAN WE HELP YOU LEARN TO INVEST CONSERVATIVELY?

At TheTechnicalTraders, my team and I can do these things:

  • Safely navigate the commodity and crude oil trend.
  • Reduce your FOMO and manage your emotions.
  • Have proven trading strategies for bull and bear markets.
  • Provide quality trades for investing conservatively.
  • Tell you when to take profits and exit trades.
  • Save you time with our research.
  • Proved above-average returns/growth over the long run.
  • Have consistent growth with low volatility/risks.
  • Make trading and investing safer, more profitable, and educational.

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

We invite you to join our group of active traders who invest conservatively together. They learn and profit from our three ETF Technical Trading Strategies. We can help you protect and grow your wealth in any type of market condition. Click on the following link to learn how: www.TheTechnicalTraders.com.

Chris Vermeulen
Founder & Chief Market Strategist

Should We Be Prepared For An Aggressive U.S. Fed In The Future?

The US stock markets started an upward trend after the last 75bp rate increase – expecting the U.S. Fed to move toward a more data-driven rate adjustment.

My research suggests the U.S. Federal Reserve has a much more difficult battle ahead related to inflation, global market concerns, and underlying global monetary function. Simply put, global central banks have printed too much money over the past 7+ years, and the eventual unwinding of this excess capital may take aggressive controls to tame.

Real Estate Data Shows A Sudden Shift In Forward Expectations

The US housing market is one of the first things I look at in terms of consumer demand, home-building expectations, and overall confidence for consumers to engage in Big Ticket spending. Look at how the US Real Estate sector has changed over the past five years.

The data comparison chart below, originating from September 2017, shows how the US Real Estate sector went from moderately hot in late 2017 to early 2018; stalled from July 2018 to May 2019; then got super-heated in late 2019 as extremely low-interest rates drove buyers into a feeding frenzy.

As the COVID-19 virus initiated the US lockdowns in March/April 2020, you can see the buying frenzy ground to a halt. Between March 2020 and July 2020, Average Days On Market shot up from -8 to +17 (YoY) – showing people stopped buying homes. At this same time, home prices continued to rise, moving from +3.3% to +14% (YoY) by the end of 2020.

The buying frenzy then kicked back into full gear and continued at unimaginable levels throughout 2021 as interest rates stayed near lows and FOMO increased. Over the past 7+ years, the excess capital meant buyers could sell their existing homes, relocate to a cheaper area, avoid COVID risks, and reduce their mortgage costs with almost no risks. This “great relocation” event likely sparked the high inflation/CPI trends we are battling right now.

US Real Estate Conditions chart

(Source: Realtor)

Extreme Easy Monetary Policies May Prompt A Harsh U.S. Fed Action In The Future

Traders expect the U.S. Federal Reserve to softly pivot away from rate increases after reaching a “normal level.” I believe the U.S. Federal Reserve will have to continue aggressively raising rates to battle ongoing inflation and global concerns. I don’t believe traders have even considered what may be necessary to break this cycle – or are simply hoping they never see 14% FFR rates again (like we saw in the 1980s).

The harsh reality is the excess capital floating around the globe has anchored an inflationary trend that may be unstoppable without central banks taking interest rates to extremes. There was only one other period where I see similarities between what is taking place now and the recent past – 1970~2003.

Throughout that span of time, the U.S. Federal Reserve moved away from the Gold Standard and entered an extended period of money creation. This prompted a big increase in CPI and Inflation, leading to extreme FFR rates above 15% in 1982 to battle inflationary trends (see the charts below). CPI continued above 5% for another 15+ years after 1982 – finally bottoming in 2010.

What if the extended money printing that started after the 2007-08 Global Financial Crisis sparked another excess capital/inflation phase just like the 1970 to 2003 phase? What’s next?

Sticky Consumer Price Index Chart

Effective Federal Funds Rate Chart

M2 - Money Stocks chart

Excess Money Must Unwind Over Time To Prompt A New Growth Phase

My thinking is the 2000~2019 unwinding phase, prompted by the DOT COM bubble, 911 Attacks, and the eventual 2008-09 Global Financial Crisis, pushed the devaluation of assets/excess toward extreme lows. This prompted the U.S. Federal Reserve to adopt an extended easy money policy.

COVID-19 pushed those extremes beyond anyone’s expectations – driving asset prices and the stock market into a frenzy. As inflation trends seem unstoppable, the Fed may need to take aggressive actions to thwart the global destruction of capital, currencies, and economies and avoid a massive humanitarian crisis. Run-away inflation will harm billions of people who can’t afford to buy a slice of bread if it goes unchallenged.

The U.S. Federal Reserve may be forced to raise FFR rates above 6.5~10% very quickly to avoid rampant inflation’s destructive effects. And that means traders are mistakenly assuming the U.S. Federal Reserve will pivot to a softer stance.

Real Estate Will Be The Canary In The Mine If Fed Stays Aggressive

I believe Real Estate could see an aggressive unwinding in valuation and future expectations if the U.S. Fed continues to raise rates over the next 12+ months aggressively. Once mortgage rates reach 8% or higher, home buyers and traders are suddenly going to question, “where is this going?” and “where will it end?”.

The Fed may have to break a few things to battle inflation trends. This same thing happened in the early 1980s, and real asset growth didn’t start to accelerate until the last 1990s (amid the DOT COM Bubble).

Real Estate & Financials May Show The First Signs Of Stress

I believe IYR and XLF are excellent early warning ETFs for a sudden shift in consumer/economic activity related to future Fed rate decisions. Once the Fed moves away from expected rates/trends, the Real Estate and Financial sectors will begin to react to economic contractions and weakening consumer demand/defaults.

IYR - US Real Estate ETF Daily Chart

This potential trend is still very early in the longer-term cycle, but I believe traders are falsely focused on a possible U.S. Fed pivot, thinking the Fed will shift away from continued rate increases. I believe the U.S. Federal Reserve must raise rates above 5.5% FFR in order to start breaking inflationary trends. That means FFR rates need to rise 125% or more from current levels (250 bp+) – which may be higher.

HOW CAN WE HELP YOU LEARN TO INVEST CONSERVATIVELY?

At TheTechnicalTraders, my team and I can do these things:

  • Safely navigate the commodity and crude oil trend.
  • Reduce your FOMO and manage your emotions.
  • Have proven trading strategies for bull and bear markets.
  • Provide quality trades for investing conservatively.
  • Tell you when to take profits and exit trades.
  • Save you time with our research.
  • Proved above-average returns/growth over the long run.
  • Have consistent growth with low volatility/risks.
  • Make trading and investing safer, more profitable, and educational.

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

We invite you to join our group of active traders who invest conservatively together. They learn and profit from our three ETF Technical Trading Strategies. We can help you protect and grow your wealth in any type of market condition. Click on the following link to learn more.

US Fed – The Battle Against Excess Global Captial Continues

US Fed is Battling Excess Global Capital – Which is Creating Inflation

The US Fed continues to bring the big guns, raising rates another 75 bp (0.75%) on July 27, 2022. Even though they stated the economy is softening, current Inflation and CPI data suggest otherwise. The US Fed may be forced into another 75~100 bp rate increase next month if the US economy continues to show strong CPI and Inflation trends. There is only one other time in recent history like the current market environment – 1998~2004.

The DOT COM Bubble was unique in the sense that excess capital flowed into technology/internet companies’ hand-over-fist. It seemed all you had to do was register a URL, come up with some crazy business plan, and go talk to investors/VC. It was not a crisis like the 2008-09 Global Financial Crisis event. The DOT COM Bubble was a process of unwinding/consolidating excess capital away from a euphoric speculative phase in the markets.

I believe the current Pre & Post COVID market rallies are, again, very similar to the DOT COM rally phase – although this time, the focus is on foreign/global economies.

SPY - SPDR S&P 500 weekly chart

Fed May Have To Disrupt Global Currencies/Economies In Order To Tame US Inflation

There are some similarities to the 1998~2004 DOT COM bubble scenario in the current US markets. First is the rise in CPI and the huge increase in Inflation. CPI continued to rise throughout 1998~2008 – all through the DOC COM bubble disruption and up to the peak in 2007. The same type of thing is happening in CPI right now.

The reason why I believe the US Fed will continue to aggressively raise rates is because US Inflation is RED HOT, and the past few rate increases have done little to disrupt US economic trends.  Yes, housing, retail sales, and manufacturing are starting to see a shift in demand/activity. But the Fed is trapped in a very difficult situation where they must attempt to unwind the capital excesses throughout the world by adjusting rates and capacity here in the US.

That means the global markets will react to what the US Fed is doing and attempt to chase opportunities in a stronger US Dollar until the US Fed is able to break this cycle (see the change of direction in currencies near 2003 below).

US Dollar Currency Index chart

The Big Bang Event For Global Currencies Should Be Less Than 12 Months Away

I’m not going to try to predict when global currencies/economies will relent to the extreme pressures inching forward by the US Fed, Inflation, and other trends. But I will state that the GBP & JPY are already at a combined lowest ratio level compared to the US Dollar over the past 25+ years. I can only imagine the intense economic/valuation pressures that are stressing many foreign global economies/currencies as the US Dollar continues to strengthen. Debts, liabilities, ongoing expenditures, and essential services all need to continue for the people affected.

It may be just a matter of time before bigger cracks start to appear. We may see more uprisings and riots as we saw recently in Sri Lanka. We may see additional regional economic collapse events as at-risk nations strain to maintain their debts/liabilities. We’ll possibly see various aggressions ramp up as currency valuations get pushed toward the extremes.

Look at the US Dollar Rally in 1998~99 on the chart (above). Even though we had the DOT COM bubble burst in 1999~2000 and the 9/11 terrorist attacks in 2001, the US Dollar continue to strengthen until it broke down in late 2002 – nearly two years after the peak in the US stock markets.

If the US Dollar were to rally above 110 and potentially peak above 115, that would represent an additional +7% rally in the US Dollar – and possibly represent another -10%~-15% collapse in the JPY and GBP.

Let the currency wars begin. The Fed must continue to try to break US Inflation. To do that, it may have to break multiple foreign currency capital functions and push global capital functions from one extreme (speculation) to another (contraction).

Learn From Our Team of Seasoned Traders

In today’s market environment, it’s imperative to assess our trading plans, portfolio holdings, and cash reserves. As professional technical traders, we always follow the price. At first glance, this seems very straightforward and simple. But emotions can interfere with a trader’s success when they buck the trend (price). Remember, our ego aside, protecting our hard-earned capital is essential to our survival and success.

Successfully managing our drawdowns ensures our trading success. The larger the loss, the more difficult it will be to make up. Consider the following:

  • A loss of 10% requires an 11% gain to recover.
  • A 50% loss requires a 100% gain to recover.
  • A 60% loss requires an even more daunting 150% gain to simply break even.

Recovery time also varies significantly depending upon the magnitude of the drawdown:

  • A 10% drawdown can typically be recovered in weeks to a few months.
  • A 50% drawdown may take many years to recover.

Depending on a trader’s age, they may not have the time to wait nor the patience for a market recovery. Successful traders know it’s critical to keep drawdowns with reason, as most have learned this principle the hard way.

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

We invite you to join our group of active traders who invest conservatively together. They learn and profit from our three ETF Technical Trading Strategies. We can help you protect and grow your wealth in any type of market condition. Click on the following link to learn how: www.TheTechnicalTraders.com.

Chris Vermeulen
Founder & Chief Market Strategist

Fundamental Vs. Technical Analysis – What’s Your Style?

They are not the same by any stretch, so it’s not a debate over one “apple” vs. another.  It’s a comparison of two completely different approaches, and the comparison is more of the “apples vs. oranges” variety.

Trading vs. Investing

Before we get into the fundamental vs technical analysis, there are important distinctions to be made between investors and traders.  Investors are more long-term growth-oriented, while traders focus on immediate income or aggressive account growth.  Market participants tend to be focused on one approach or the other.  But many are a mix of both.

Investing and trading are different worlds, and it can be challenging to master either domain, much less both.  The key is to know what style is best for your timeframe, to what extent, and why.

Technicals vs. Fundamentals

The Technical Approach

Technicians are students of price patterns.  Technical analysis looks at the price movement of a security and uses these data to predict future price movements.  In general, the more liquid the product, the more reliable the price patterns on the chart.   A high-volume index product like the SPY ETF will more reliably chart investor and trader sentiment than a thinly traded penny stock.

Technicians focus on chart price action, often supplemented by choosing among literally thousands of “indicators” and combinations thereof.   I can’t tell you how often I’ve heard from hardcore nerd technicians something like, “This indicator (or set of indicators) works in all markets and all timeframes.”

Uh, no.  I haven’t seen that yet in over 30 years of trading. Beware of too much chasing of a holy grail set of indicators.  That “forest” is vast, and you may never find your way out.  A relatively small group of indicators and patterns can serve technicians well.  The key is to know under which conditions to apply them and how.

The Fundamental Approach

The fundamental approach looks at economic and financial factors that influence a business over the longer term.  Fundamentalists study financial statements, analysts’ reports and ratings, earnings reports, and forecasts.

If a company has earnings “X” that are expected to grow at “Y%”, it is still up to market participants to decide what value to place on their assessment.  And they can be a moody bunch.

Why I Lean Toward The Technicals

My opinion of a “correct” valuation is essentially meaningless.  But as a technician, I care about what the big money thinks and how they move their capital.  The price action from the chart is a reflection of what the big money thinks.  That’s our edge as technicians.  We’re following the money rather than our opinions on valuation.

Technicians are all about picking high-probability entries and exits.   As a technical trader, do I even care about fundamentals? Perhaps not. The charts can tell me what I need to know about what the big money is doing.

Can technicians safely ignore fundamental analysis?  There’s a case to be made based on the assumption that everything currently known about fundamentals is baked-in into price.  Efficient market theory, as it were.  Technicians can be quite successful by focusing just on price action.  But chart patterns and indicators can and do unexpectedly fail.   So good risk management is always a requirement.

A hybrid approach for Buy-and-Hold?

A herd mentality often drives markets.  One of the classic texts about market behavior is “Extraordinary Popular Delusions and the Madness of Crowds,” written by Charles Mackay and initially published in 1841.  It’s been commented on and analyzed ever since, and it seems not much has changed about human behavior.  History rarely repeats precisely, but it does tend to rhyme.

If you’re a long-term investor of the “buy and hold” variety, you could dismiss technical analysis.  But you’d be doing yourself a disservice.  Why?  Because the economy and markets are cyclical and there are times when it is best to move to the sidelines to avoid large drawdowns.  Fundamentals can be far out of sync with price action when fear and greed take over.  “The Market can be irrational for longer than you can be solvent.”

Staying fully invested through major economic and price corrections can be costly to long-term results.  At other times, technical analysis can help buy-and-hold investors to see when a security is oversold, bottomed out, and may have a high-probability re-entry.   Again, good risk management is essential to protect our capital.

Fundamental vs. Technical analysis – summary

Which is better for you?  It depends not just on your time horizon but also on what suits your personality better.   I doubt I can do fundamental analysis on a public company and gain some insight that few others see.  That would make me a first-order participant with no edge vs. an army of institutional professionals.  As a technician, I’m a second-order participant.  My goal is simply to assess the price action as accurately as I can and make decisions accordingly.

HOW WE CAN HELP YOU LEARN TO INVEST CONSERVATIVELY

At TheTechnicalTraders, my team and I can do these things:

  • Safely navigate the commodities trend.
  • Reduce your FOMO and manage your emotions.
  • Have proven trading strategies for bull and bear markets.
  • Provide quality trades for investing conservatively.
  • Tell you when to take profits and exit trades.
  • Save you time with our research.
  • Proved above-average returns/growth over the long run.
  • Have consistent growth with low volatility/risks.
  • Make trading and investing safer, more profitable, and educational.

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

We invite you to join our group of active traders who invest conservatively together. They learn and profit from our three ETF Technical Trading Strategies. We can help you protect and grow your wealth in any type of market condition. Click on the following link to learn how: www.TheTechnicalTraders.com.

Chris Vermeulen
Founder & Chief Market Strategist

Do Fed Rate Decisions Affect The Price Patterns For Gold?

Many traders are focused on Gold as price has contracted over the past 5+ weeks, and the $1700 level is being retested. This prompted my team and I to do some research related to the US Federal Reserve’s recent rate increases and how Gold has previously reacted to rising and falling interest rates.

Exploring Price Patterns Between Gold and Fed Rate Decisions

I knew from the 2008-09 Global Financial Crisis and the 2020 COVID-19 event that Gold initially moves downward as extreme selling pressures drive almost all assets lower. Yet, in both cases, Gold quickly rebounded and began to move higher within 5+ weeks after setting up a bottom.

I started my research by outlining “Normal Fed Activity” and “Extended QE Fed Activity” to see if I could identify any difference in how Gold reacted to fear and uncertainty in these phases. My thinking was that Gold would react more muted in a price range in Normal Fed Activity phases because crisis events and economic uncertainty are more muted overall. When the Fed enters an expansive QE phase, this activity is associated with a US/Global economy that requires extraordinary measures to prompt expected normal capital functions.

I quickly learned that Gold tends to stay fairly muted through Fed rate increases and decreases in the absence of Fed QE functions. Yet, I learned something even more extraordinary about how Gold trends within extended Fed QE Functions: The Two-Stage Capitulation Bottom.

The Two-Stage Gold Setup In QE Fed Activities

This unique pattern seems to be associated with extended fear related to the US Fed (and global central banks) decisions to print extended capital and provide extraordinary capital support for global equity markets and the economy.  It does not appear to happen in credit contraction phases. So keep this in mind as we continue to watch global central banks navigate future economic concerns.

My belief is that extended central bank QE functions are already baked into the current Gold price pattern and will continue to drive the two-stage pattern over the next 24+ months.

Defining The Two-Stage Gold Pattern

This pattern is relatively simple to understand when one considered the psychology behind the price moves. It starts with a Fed Funds Rate Increase after an extended period of lower Fed Funds Rate levels. When the Fed starts to raise rates, Gold tends to experience an almost immediate rally. Here are some recent examples:

Dates FFR Rate Increase Gold Increase
Oct-93 ~ Feb-96 3% ~ 6% +22%
Apr-99 ~ Jul-99 4.75% ~ 6.5% +33%
Apr-04 ~ Jul-06 1.0% ~ 5.25% +95%
Oct-15 ~ Aug-19 0.13% ~ 2.42% +46%
Mar-21 ~ Now 0.07% ~ 1.21% +24%

Each of these Gold rally phases was accompanied by a second-stage Gold rally when the US Fed suddenly reversed direction and started lowering Fed Funds Rates. It appears this panic by the Fed sends a jolt of fear into the markets – driving Gold & Silver into a potential parabolic price trend if the conditions are right. Here are some examples.

Dates FFR Rate Increase Gold Increase
Oct-93 ~ Feb-96 ~ Dec-98 3% ~ 6% ~ 4.63% +22% ~ -28%
Apr-99 ~ Jul-99 ~ Dec-03 4.75% ~ 6.5% ~ 1.0% +33% ~ +67%
Apr-04 ~ Jul-06 ~ Sept-11 1.0% ~ 5.25% ~ 0.08% +95% ~ +245%
Oct-15 ~ Aug-19 ~ Apr-20 0.13% ~ 2.42% ~ 0.10% +46% ~ +49%
Mar-21 ~ Now 0.07% ~ 1.21% ~ Unknown +24% ~ Unknown

Examples Of This Two-Stage Precious Metals Rally Pattern

The most recent examples of this two-stage precious metals rally pattern happened in 2008-09 and 1999-2001. The COVID-19 example is still a valid example, yet that setup/cycle concluded very quickly as an anomaly event.

Global Financial Crisis

In 2008-09, after the initial rally phase prompted by raising rates from Apr-04 to July-06, Gold collapsed as the 2008-09 GFC crisis unfolded. Gold quickly recovered back to near previous highs over an 18-week span after establishing a bottom. Then, Gold consolidated for 33 weeks before launching into an incredible parabolic rally phase – close to 10 months after Gold bottomed in October 2008 (see the Green Arrow Rally on the Gold Chart Below).

Recession

From 1999-2001, a similar price pattern unfolded in Gold. This time, the bottom in Gold setup in February 2001, and it took an additional 67 weeks for Gold to rally back to near recent highs before stalling and rallying further upward as the US Fed reacted to the 9/11 attacks.

Gold/Fed Funds Rate/Dow Jones weekly chart

Current Gold Price Action

Currently, Gold has collapsed to price levels near $1700 after trading above $2000 just a few months ago as the US Fed aggressively raised interest rates attempting to combat inflation. I’m not trying to guess if/when the Fed will change course, but I do believe Gold is poised for a very significant rally from any bottom set up by the current two-phase price pattern.

If history is any example, this current contraction in Gold and Silver is very likely a reaction to the sudden inflation crisis event and may prompt future price rally anyone’s imagination.

Some global central banks around the world, Japan for example, are continuing to push QE in some form while the US Fed is attempting to raise rates. If the US Fed suddenly shifts towards more Dovish policies, I believe a new wave of fear will drive Gold higher – starting the second phase of the rally.

If the Fed raises rates one or two more times before changing policy, that would simply build more momentum for any future breakout in precious metals.

Gold/Fed Funds Rate/Dow Jones weekly chart

Concluding Thoughts

As long as some quantifiable measure of stimulus or QE exists throughout the US/EU/Chinese economies, I believe this expansionary two-stage cycle in Gold & Silver will continue to play out.

We have already experienced the early rally phase associated with the initial Fed rate increase. Now, we are in the contraction price phase where a bottom will set up – which may take many weeks or months still. We are waiting for the Fed to “flinch” and begin to decrease rates. That will start the new bullish price phase for Gold and Silver – and possibly send us into another parabolic price phase.

HOW WE CAN HELP YOU LEARN TO INVEST CONSERVATIVELY

At TheTechnicalTraders, my team and I can do these things:

  • Safely navigate the commodity and crude oil trend.
  • Reduce your FOMO and manage your emotions.
  • Have proven trading strategies for bull and bear markets.
  • Provide quality trades for investing conservatively.
  • Tell you when to take profits and exit trades.
  • Save you time with our research.
  • Proved above-average returns/growth over the long run.
  • Have consistent growth with low volatility/risks.
  • Make trading and investing safer, more profitable, and educational.

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

We invite you to join our group of active traders who invest conservatively together. They learn and profit from our three ETF Technical Trading Strategies. We can help you protect and grow your wealth in any type of market condition. Click on the following link to learn how: www.TheTechnicalTraders.com.

Chris Vermeulen
Founder & Chief Market Strategist
TheTechnicalTraders.com

Will U.S. Dollar Uptrend Slow Foreign Real Estate Investment In The US?

The U.S. Dollar uptrend has been going on since January 6th, 2021:

  • U.S. Dollar is at a 14-year high
  • 2020-2022 U.S. Presidential Cycle: USD appreciated +18.33% to date
  • 2016-2020 U.S. Presidential Cycle: USD depreciated – 12.80%
  • 2012-2016 U.S. Presidential Cycle: USD appreciated +37.20%

International investors interested in buying U.S. real estate are having issues as converting their country’s currency into the USD significantly reduces the amount of real estate they can purchase.

According to an article by Patrick Clark of Bloomberg on July 11, 2022, “Across the country, nearly 60,000 homes sales fell through according to an analysis by Redfin Corp.” “That was equal to 15% of transactions that went into a contract that month, the highest share of cancellations since April 2020, when early Covid lockdowns froze the housing market.”

Redfin NASDAQ RDFN, which offers a full-service real estate brokerage discounted service, has suffered a staggering loss of -92.80% in its stock price after putting in its February 2021 high.

D.R. Horton NYSE DHI, America’s largest homebuilder as of January 20, 2022, responsible for 71,292 home closings totaling $21.5 billion in revenue for 2021, has dropped -46.44% from its high.

Other housing-related commodity markets such as copper -38.09% and lumber -70.24% are also signaling a recession.

U.S. DOLLAR +18.33%

  • UUP +18.33% U.S. Dollar ETF
  • FXC -3.14% Canadian Dollar ETF; Spread CAD to the USD 21.47%
  • FXA -10.73% Australian Dollar ETF; Spread AUD to the USD 29.06%
  • FXF -11.06% Swiss Franc ETF; Spread CHF to the USD 29.39%
  • FXB -12.33% British Pound ETF; Spread GBP to the USD 30.66%
  • FXE -18.42% Eurodollar ETF; Spread EUD to the USD 36.75%
  • FXY -25.86% Japanese Yen ETF; Spread JPY to the USD 44.18%

INVESCO DB USD INDEX BULLISH FUND ETF • UUP • ARCA • DAILY

UUP Invesco DB USD Bullish Fund ETF chart

REDFIN -92.80%

  • February 2021 to present
  • -$91.84 per share or -92.80%
  • 68 weeks down; 476 days down

REDFIN CORPORATION • RDFN • NASDAQ • WEEKLY

Redfin chart

DR HORTON -46.44%

  • December 2021 to present
  • -$51.42 per share or -46.44%
  • 26 weeks down; 182 days down

D.R. HORTON INC. • DHI • NYSE • WEEKLY

DR Horton chart

COPPER -38.09%

  • March 2022 to present
  • -$1.91 per pound or -38.09%
  • 18 weeks down; 126 days down

CFDS ON COPPER (US$/LB) • XCUUSD • WEEKLY

CFDS on Copper chart

LUMBER -70.24%

  • May 2021 to present
  • -$1218.50 per board foot or -70.24%
  • 57 weeks down; 399 days down

RANDOM LENGTH LUMBER FUTURES (US$/BOARD FOOT) • LBS1 • CME • WEEKLY

Random length lumber futures chart

LEARN FROM OUR TEAM OF SEASONED TRADERS

In today’s market environment, it’s imperative to assess our trading plans, portfolio holdings, and cash reserves. As professional technical traders, we always follow the price. At first glance, this seems very straightforward and simple. But emotions can interfere with a trader’s success when they buck the trend (price). Remember, our ego aside, protecting our hard-earned capital is essential to our survival and success.

Successfully managing our drawdowns ensures our trading success. The larger the loss, the more difficult it will be to make up. Consider the following:

  • A loss of 10% requires an 11% gain to recover.
  • A 50% loss requires a 100% gain to recover.
  • A 60% loss requires an even more daunting 150% gain to simply break even.

Recovery time also varies significantly depending upon the magnitude of the drawdown:

  • A 10% drawdown can typically be recovered in weeks to a few months.
  • A 50% drawdown may take many years to recover.

Depending on a trader’s age, they may not have the time to wait nor the patience for a market recovery. Successful traders know it’s critical to keep drawdowns with reason, as most have learned this principle the hard way.

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

We invite you to join our group of active traders who invest conservatively together. They learn and profit from our three ETF Technical Trading Strategies. We can help you protect and grow your wealth in any type of market condition. Click on the following link to learn how: www.TheTechnicalTraders.com.

Chris Vermeulen
Founder & Chief Market Strategist
TheTechnicalTraders

What Are The Driving Forces Behind The Shift In Global Market Risks?

It almost seems as though the global markets turned 180 degrees overnight, generally going from moderately soft monetary policies to very extreme monetary policies and conditions. This sudden shift caught many traders and investors off guard and resulted in -20% to -25% losses for many.

The driving forces behind this sudden shift are inflation and excess capital (M2) because of nearly a decade of near-zero US interest rates. Much of the excess capital created over the past decade has been deployed into global equities, infrastructure, and various speculative instruments (art, homes, cryptos, collectibles, and others).

However, without a doubt, the recent burst of inflation is also a result of COVID restrictions. Such restrictions reduced supply capabilities and the resulting interruptions of manufacturing/supply have been felt throughout the post-COVID global recovery.

Deleveraging Capital Excesses Causing Global Assets To Unwind Faster Than US Assets

The US & Global markets have contracted by more than 25%~35%. The following Custom Global Market Index highlights the extensive devaluation in global assets compared to US assets. US assets have fallen -23% from recent highs. Global assets have fallen -32% from recent highs – and are breaking downward again.

US and Global Index weekly chart

If this overall trend continues, it is very likely that Chinese & Asian markets could lead to a global contagion event related to extended credit/debt liabilities, economic expectations (GDP/Consumers), and real asset valuations. Over the past 5+ years, I’ve published many articles showing how China/Asia was uniquely positioned to take advantage of the US easy money policies. Results from this could extend credit/debt risks far beyond reasonable expectations. Is this global inflation event driving a global devaluation of assets?

Excess Phase Peak Consumption Can Lead To Extreme Risk Events

This excess phase consumption of cheap credit prompted many nations to engage in very high-risk multi-billion dollar infrastructure projects and other excesses.  The Belt-Road project is a perfect example of one nation extending billions of credit to at-risk nations to leverage cheap credit into future opportunities. As evidenced near every market peak, optimism near the peak of excess phases can be very addictive and dangerous.

Global debt levels have skyrocketed over the past 5+ years. With the US prompting extreme easy money policies, many foreign nations extended debt levels far beyond reasonable expectations when COVID hit. The following chart from the IMF shows consumers and corporations increased debt levels at an excessively higher rate in 2020. The excessive global debt levels are now evidently working as a liability for many Asian & Emerging markets.

Global debt chart

(Source: https://www.imf.org/)

Protecting & Growing Wealth When Markets Are In Chaos

I receive many questions from investors and traders every week. Generally, the most common question is “what can I do to profit right now from what is happening throughout the world?”. The simple answer to that question is to not extend any greater risk within your portfolio than necessary.

This chart from Bank of America Investment Strategies shows how aggressively World Government Bonds are reacting to inflation and global central bank rate increases. The short story of this chart is that Bonds are pricing in very unfavorable growth and capital function conditions over the next 3 to 5+ years. World Government bonds have reached risk levels we’ve not seen since post-WWI (1918+) or the Great Depression (1930+).

Government bonds chart

(Source: BankofAmerica.com)

Research & Technology Highlighted Risks & Opportunities

My research team and I have posted articles over the past 5+ years highlighting how global markets were taking advantage of the US monetary policy and inadvertently gorging themselves on cheap credit to address infrastructure, industrial, and consumer demand.  We’ve been warning of this moment and have strategies/technology to help you protect and grow your wealth as this chaos continues. For example:

This Bloomberg Gold vs. Global Bonds chart highlights how aggressively global Bonds have adjusted to extreme risk factors. What this is telling traders/investors is that global central banks appear to have very few tools to efficiently manage inflationary trends – and these reflect in extreme risk factors in global bonds.

Quickly raising rates to combat inflation trends may aggressively compound risk factors at this point. This chart is clearly showing us that global risk factors have never been this extreme, or disconnected, over the past 8+ years.

Gold vs Global Bonds chart

(Source: Bloomberg.com)

I suggest taking immediate action while this market chaos continues. Even though it may seem frightening, this is one of the best opportunities for you to take control of your assets, and also learn how to better protect and grow your wealth while the markets deleverage and resettle.

Eventually, a market bottom will confirm, and global assets will begin another rally phase. Before this happens, though, all traders/investors need to begin taking immediate actions/steps to manage, protect and grow their wealth as efficiently as possible.

WHAT STRATEGIES CAN HELP YOU NAVIGATE THE CURRENT MARKET TRENDS?

Learn how we use specific tools to help us understand price cycles, set-ups, and price target levels in various sectors. Also, learn how we identify strategic entry and exit points for trades. Over the next 12 to 24+ months, we expect very large price swings in the US stock market.

The markets have begun to transition away from the continued central bank support rally phase. A revaluation phase has started as global traders attempt to identify the next big trends. Precious Metals may start to act as a proper hedge as caution and concern begin to drive traders/investors into safe havens.

Historically, bonds have served as one of these safe havens.

HOW WE CAN HELP YOU LEARN TO INVEST CONSERVATIVELY

At TheTechnicalTraders, my team and I can do these things:

  • Safely navigate the commodity and crude oil trend.
  • Reduce your FOMO and manage your emotions.
  • Have proven trading strategies for bull and bear markets.
  • Provide quality trades for investing conservatively.
  • Tell you when to take profits and exit trades.
  • Save you time with our research.
  • Proved above-average returns/growth over the long run.
  • Have consistent growth with low volatility/risks.
  • Make trading and investing safer, more profitable, and educational.

We invite you to join our group of active traders who invest conservatively together. They learn and profit from our three ETF Technical Trading Strategies. We can help you protect and grow your wealth in any type of market condition. Click on the following link to learn how: www.TheTechnicalTraders.com.

Chris Vermeulen
Founder & Chief Market Strategist
TheTechnicalTraders.com

Compared To The USD, Auto Company Stocks Are On A Summer Vacation

Summer is here, and it’s time for a vacation. But this year, flight schedules are anything but reliable, and that new car for the road trip is probably not available at the local Toyota, Honda, Tesla, General Motors, Ford, etc dealership. Due to chip shortages and other issues, most car dealerships have little to no inventory to sell.

High inflation and rising interest rates combined with high gasoline prices are causing people to rethink or pay more attention to their monthly budget expenditures.

Furthermore, if you do decide to buy a used car, be prepared to pay top dollar. In some cases, a 3-year-old model may cost you as much as a new one. Historically autos almost always depreciate, but we are in an unusual market phenomenon where many used cars have appreciated significantly.

What about the auto company stocks themselves? Cash is looking great versus owning one of these auto brands.

Before we motor into the auto company stocks, let’s take a quick look at cash (the U.S. Dollar).

U.S. DOLLAR +18.81%

  • U.S. Dollar making a new 14-year high
  • 2020-2022 U.S. Presidential Cycle: USD appreciated +18.74% to date
  • 2016-2020 U.S. Presidential Cycle: USD depreciated – 12.80%
  • 2012-2016 U.S. Presidential Cycle: USD appreciated +37.20%

US DOLLAR INDEX • DXY • WEEKLY

US Dollar Index Weekly Chart

TOYOTA -26.93%

  • January 2022 to present
  • -$56.77 or -26.93%
  • 22 weeks or 154 days down
  • The bear market has more room to drop; if you own it consider selling on rallies and going to cash

TOYOTA MOTOR CORPORATION • TM • NYSE • WEEKLY

Toyota Motor Corporation Weekly Chart

HONDA -27.57%

  • August 2021 to present
  • -$9.19 or -27.57%
  • 47 weeks or 329 days down
  • The bear market has more room to drop; if you own it consider selling on rallies and going to cash

HONDA MOTOR COMPANY, LTD. • HMC • NYSE • WEEKLY

Hondo Motor Company Weekly Chart

TESLA -47.38%

  • November 2021 to present
  • -$582.69 or -47.38%
  • 32 weeks or 224 days down
  • The bear market has more room to drop; if you own it consider selling on rallies and going to cash

TESLA, INC. • TSLA • NASDAQ • WEEKLY

Tesla Inc Weekly Chart

GENERAL MOTORS -50.18%

  • December 2021 to present
  • -$31.91 or -50.18%
  • 27 weeks or 189 days down
  • The bear market has more room to drop; if you own it consider selling on rallies and going to cash

GENERAL MOTORS COMPANY • GM • NYSE • WEEKLY

General Motors Weekly Chart

FORD -55.71%

  • January 2022 to present
  • -$14.11 or -55.71%
  • 22 weeks or 154 days down
  • The bear market has more room to drop; if you own it consider selling on rallies and going to cash

FORD MOTOR COMPANY • F • NYSE • WEEKLY

Ford Motor Company Weekly Chart

HOW WE CAN HELP YOU LEARN TO INVEST CONSERVATIVELY

At TheTechnicalTraders, my team and I can do these things:

  • Reduce your FOMO and manage your emotions.
  • Have proven trading strategies for bull and bear markets.
  • Provide quality trades for investing conservatively.
  • Tell you when to take profits and exit trades.
  • Save you time with our research.
  • Proved above-average returns/growth over the long run.
  • Have consistent growth with low volatility/risks.
  • Make trading and investing safer, more profitable, and educational.

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

We invite you to join our group of active traders who invest conservatively together. They learn and profit from our three ETF Technical Trading Strategies. We can help you protect and grow your wealth in any type of market condition by clicking on the following link: www.TheTechnicalTraders.com

Chris Vermeulen
Chief Market Strategist
Founder of TheTechnicalTraders.com

Does Selling Put Options During A Market Downturn Provide A Safety Net?

When the market is in a sustained selling mood, there can be a substantial disconnect between the long-term fundamentals and the technical price action we see on the chart.

The Temptation to Bottom Fish

What can we do when good companies are trading at what appear to be bargain prices?  We could “stick our toe in the water” and buy shares.  But what if we’re wrong about whether a bottom in the share price is in place?  Or what if the stock takes a very long time to build a base and goes nowhere for an extended period?

Selling Puts

Rather than buying shares, we could sell put options instead.  It’s a strategy famously used by Warren Buffett to acquire shares at a discount.

First, a quick review of put options.  Someone who owns or is “long” a put has paid a premium to have the right, but not the obligation, to sell shares to the counterparty at the strike price.  But that right exists only until the option expires.

The counterparty who has sold, or is “short” a put, has an obligation to buy shares at the strike price.  That obligation is eliminated when the option expires, and the put seller gets to keep the premium collected whether they have shares “put to them” or not.

Although selling puts can be a way to acquire shares at a discount, traders (as opposed to investors) may just be interested in collecting the put premium as an income strategy.

Rules to Remember

We must like the stock at or around the strike price and believe it will recover over time.  Even if we’re just selling puts to collect premiums, keep in mind that we could end up owning shares.

Of course, there must be options available on the stock.  The options should have good liquidity – decent volume, open interest, and bid/ask spreads that aren’t too wide. The strike prices near the current share price should have hundreds, if not thousands, of open interest contracts.  The bid/ask spreads on the options should be just a few pennies wide.  It’s usually a good sign of option liquidity if weekly, not just monthly, options are available.

What Makes a Good Candidate?

Look for companies with a long history of good earnings that have rebounded after many economic cycles.   The company sells a product or service that will likely remain in demand for the foreseeable future.  (No “buggy whip” manufacturers.)  A good candidate will likely weather the current storm and come out okay when the economy recovers.

Ideally, the share price is under $25, preferably under $20.   At that price level and below, the option premiums relative to the share price make for efficient use of capital and an attractive return on risk.

Example Setup

Say company “ABC” was trading for $34 a share before the general market selloff but now is trading for roughly half that at $15.60.   There is “blood in the streets,” but overall sentiment may be improving.

The price action on the chart shows some tentative signs of bottoming.  A gap up with increased volume is a good sign.  A recent earnings report that wasn’t as “bad” as expected is another good sign.

In this example, the premium for the $15 put is $1.20 for an expiration 42 days away.  While the $15 strike is currently out-of-the-money (OTM), if we had shares put to us at $15, our cost basis would be $15 – $1.20, or $13.80.

If the shares were trading at $14 at expiration, we’d have shares put to us.  But we would still be ahead on the trade with a profit.  We could turn around and sell those shares at $14 and have a profit of $0.20.

As options sellers, we’re selling time value that decays as the expiration date approaches.  We know that regardless of what happens with the share price, the time value we sold will be $0 at expiration.

As an alternative to risking assignment, we could roll the trade forward rather than wait for shares to be put for us.  We could buy back the option on or near the expiration date and sell another option further out in time.  We can typically do that for a net credit.  In this example, we might be able to collect another $1 in premium.  So now our risk in the trade is reduced to $15 – $1.20 – $1.00 = $12.80.

Summary

Put selling can be a savvy way to go “bottom-fishing” for good stocks, either to acquire shares at a discount or just collect option premiums.   Selling puts gives us a way to get “paid” while we wait for the share price to recover.  We can make a profit if the share price goes up, sideways, or even down a bit.

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. Brian, 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

 

Crude Oil Collapsed Recently Below $100PPB – Has The US FED Broken Inflation?

On Tuesday, July 5th, Crude Oil collapsed very sharply, down over 10% near the lows, in an aggressive breakdown of the price. The $97.43 lows reached that day were more than -14% from recent highs (set on June 29, 2022) and more than -21% from highs set on June 14, 2022.

Consumer Discretionary Spending Likely To Fall Further

In a recent research article (published June 9, 2022: CRUDE OIL PRICE AND CONSUMER SPENDING – HOW THEY ARE RELATED), we shared a similar breakdown that took place in Crude Oil in 2009 and how tightening consumer spending often correlates with peaks in Crude Oil when crisis events happen.

Within that research article, I shared this chart highlighting the collapse in the Consumer Discretionary sector that preceded the downward collapse in Crude Oil. The interesting facet of this chart is we can see the inflationary price pressure in Crude Oil (and the general economy) countered by pressures put on consumers in the lower IYC price chart.

Consumers Lead The Global Economy – Watch IYC Closely

As prices rise, consumers are put under extreme pressure to keep their normal standard of living. As inflationary pressures continue, consumers make necessary sacrifices to manage their budgets – often going into debt in the process.

Eventually, this cycle breaks, and inflationary trends end. This is clearly evident on the chart below in July 2008 – as IYC, the Consumer Discretionary sector, collapsed by more than 27% before Crude Oil finally peaked and broke downward.

Crude oil daily chart

Since November 2021, IYC Has Fallen More Than -37%

This current Weekly Crude Oil & IYC Chart shows IYC has collapsed by more than -37% from the November 2021 highs – well beyond the -27% collapse in 2008 that preceded the 2008-09 Global Financial Crisis event. Is the current collapse in IYC a sign that a broad global crisis event has already begun to unfold beneath all the news and hype? Will Crude Oil collapse below $75ppb as the global economy shifts away from inflationary price trends and bubbles burst?

Crude oil weekly futures chart

The Deflationary Price Cycle Is Not Over Yet

If IYC falls below $55 in an aggressive downward price move, I would state the risks of a global deflationary price cycle (or extended recession) are still quite elevated. Currently, the $55 price level in IYC aligns with early 2019 price highs and reflects an extended price advance from the $12~$15 IYC price levels in 2008-09.

If the $55 IYC price level is breached to the downside, I expect the $37.50~$40.00 price level to become future support – as that price level reflects the COVID-19 event lows.

Still, these lower price targets represent an additional -32% decline in IYC and reflect a total of a -57% collapse in the Consumer Discretionary sector from the November 2021 peak levels. The potential target range of $37.50~$40.00 correlates with the 2008-09 GFC collapse range when IYC fell from $18 to lows near $8 (nearly -57%).

We are still very early in the shifting deflationary cycle phase after the US Fed started raising interest rates. Learn to protect and profit from this global event with my specialized investment solutions.

LEARN FROM OUR TEAM OF SEASONED TRADERS

In today’s market environment, it’s imperative to assess our trading plans, portfolio holdings, and cash reserves. As professional technical traders, we always follow the price. At first glance, this seems very straightforward and simple. But emotions can interfere with a trader’s success when they buck the trend (price). Remember, our ego aside protecting our hard-earned capital is essential to our survival and success.

Successfully managing our drawdowns ensures our trading success. The larger the loss, the more difficult it will be to make up. Consider the following:

  • A loss of 10% requires an 11% gain to recover.
  • A 50% loss requires a 100% gain to recover.
  • A 60% loss requires an even more daunting 150% gain to simply break even.

Recovery time also varies significantly depending upon the magnitude of the drawdown:

  • A 10% drawdown can typically be recovered in weeks to a few months.
  • A 50% drawdown may take many years to recover.

Depending on a trader’s age, they may not have the time to wait nor the patience for a market recovery. Successful traders know it’s critical to keep drawdowns with reason, as most have learned this principle the hard way.

We invite you to join our group of active traders who invest conservatively together. They learn and profit from our three ETF Technical Trading Strategies. We can help you protect and grow your wealth in any type of market condition. Click on the following link: www.TheTechnicalTraders.com to learn how.

Chris Vermeulen

U.S. Dollar Trending Higher as Primary Global Reserve Currency

As we move into the summer, the stock indices have not only been choppy but continue to trend lower.

Commodities, metals, and energy appear to be topping and experiencing distribution.

U.S. Dollar 1 year relative performance
Source: finviz

Cash is King as traders are now placing a value on liquidity. As losses mount and capital evaporates, traders are liquidating many different assets to meet margin calls and raise needed cash.

Going to cash and salvaging what is left is a survivalist strategy. It has many benefits providing peace of mind as well as the future potential to generate significant returns down the road. If a trader does nothing and their capital continues to evaporate, it can be fatal to a trader’s overall attitude and hinder their ability to generate future profits.

Markets go up, and markets go down. What makes the big difference is how we manage risk and how well we do in following the direction of price. Knowing and controlling one’s emotions dictates how long we can play the game or how successful we will be.

Now is not a good time for traders to become complacent or ignore their basic money management and risk principles.

U.S. DOLLAR 14-YEAR UP TREND

  • U.S. Dollar has been up 14.28 years from 2008 to 2022.
  • 2012-2016 U.S. Presidential Cycle: USD appreciated +37.20%
  • 2016-2020 U.S. Presidential Cycle: USD depreciated – 12.80%
  • 2020-2022 U.S. Presidential Cycle: USD appreciated +17.35% to date
  • U.S. Dollar New 14-year high

US DOLLAR INDEX • DXY  • WEEKLY

U.S. Dollar 14 year chart

U.S. DOLLAR ‘UUP’ ETF +16.96%

  • January 6, 2021, to present USD ETF UUP + 16.96%
  • Pullbacks or corrections have typically been 3-4%
  • Pullbacks or corrections have typically lasted 20-50 days
  • Price target extensions for potential resistance are at $36, $42, & $48

INVESCO DB USD INDEX BULLISH FUND ETF • UUP • ARCA • DAILY

U.S. Dollar UUP chart

U.S. DOLLAR VS U.S. EQUITY INDICES

  • Comparative Percentage Chart: U.S. Dollar ETF VS U.S. Equity Indices ETFs
  • Timeframe: January 6, 2021, to present
  • 372 bars, 539 days, 77 weeks, 17.9 months, or 1.47 years
  • +10.65% USDU ETF: Wisdom Tree Bloomberg U.S. Dollar Bullish Fund
  • +2.75% SPY ETF: S&P 500
  • +2.61% DIA ETF: Dow Jones Industrial Average
  • -8.15% QQQ ETF: Nasdaq 100
  • -12.01% IWM ETF: Russell 2000
  • Maximum spread equals 22.66% (+10.65% USDU vs -12.01% IWM)
  • Forecast is that the spread will continue to expand

WISDOMTREE BLOOMBERG U.S. DOLLAR BULLISH FUND • USDU • ARCA • DAILY

U.S. Dollar vs Equity chart

LEARN FROM OUR TEAM OF SEASONED TRADERS

In today’s market environment, it’s imperative to assess our trading plans, portfolio holdings, and cash reserves. As professional technical traders, we always follow price. At first glance, this seems very straightforward and simple. But emotions can interfere with a trader’s success when they buck the trend (price). Remember, our ego aside protecting our hard-earned capital is essential to our survival and success.

Successfully managing our drawdowns ensures our trading success. The larger the loss, the more difficult it will be to make up. Consider the following:

  • A loss of 10% requires an 11% gain to recover.
  • A 50% loss requires a 100% gain to recover.
  • A 60% loss requires an even more daunting 150% gain to simply break even.

Recovery time also varies significantly depending upon the magnitude of the drawdown:

  • A 10% drawdown can typically be recovered in weeks to a few months.
  • A 50% drawdown may take many years to recover.

Depending on a trader’s age, they may not have the time to wait nor the patience for a market recovery. Successful traders know it’s critical to keep drawdowns with reason, as most have learned this principle the hard way.

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

We invite you to join our group of active traders who invest conservatively together. They learn and profit from our three ETF Technical Trading Strategies. We can help you protect and grow your wealth in any type of market condition. Click on the following link: www.TheTechnicalTraders.com to learn how.

Chris Vermeulen
Chief Market Strategist

Consumer Confidence Dips Low In The Face Of Inflation

As the Fed continues to posture future rate increases to battle inflation, recent economic data shows Consumers are in a state of shock as price factors continue to skyrocket. Food, gas, materials, etc have shot up in price over the past 24 months – with no end in sight.

Consumers Are Recoiling Away From Traditional Spending Habits

The natural reactions of consumers fall into two categories: Grow or Survive. This is similar to how plants and trees operate. In healthy environments, plants and trees enter a growth phase – flowering and prospering. In an unhealthy environment, plants and trees enter a survival phase – directing resources toward anything essential for survival.

Global inflation is putting pressure on central banks to thwart excesses in the markets after 8+ years of easy money policies and nearly 2+ years of COVID stimulus. Consumers thus seemed to have switched into Survival mode very quickly over the last 6+ months. This reaction could have very telling outcomes for global GDP and regional economies over the next 24+ months.

In August 2021, we published an article highlighting the shift in consumer activity. It brings attention to how important Consumers are to the overall health of the global economy.

Consumer Confidence Dips Below 100

After the 2008-09 GFC, Consumer Confidence took more than 5 years to rally back above the 100 level (in 2015). The 2015-16 range was a US Presidential election year cycle – which usually disrupts US economic activities a bit.

In early 2017, Consumer Confidence started to rally higher – eventually reaching a peak in October 2018 near 137.90. Historically, the only other time Consumer Confidence reached higher levels was in 1998-99 (DOT COM Peak).

Consumer confidence chart

(Source: Investing)

IYC May Start A Wave-5 Downtrend – Targeting $45-47 As A Base

Traders should consider the broader scope of the market trends while attempting to understand the opportunities that will come by waiting out the risks of trying to buy into a falling market. The Fed has clearly stated they intend to continue raising rates to break the inflationary cycle. Consumers will reflect these new risks by moving further away from traditional spending habits (Survival Mode) while attempting to wait out the risks to the environment.

It appears IYC has formed a moderate Wave-4 peak, which is below the Wave-1 bottom. From a technical perspective, it appears IYC will attempt to move below the $47 level over the next few weeks – attempting to establish a new base/bottom.

IYC price formation chart

US Real Estate Showing Signs Of A Top

No matter how you slice the data, more homes are flooding the US markets right now. Sellers are trying to “cash-out” at sky-high prices. Yet, buyers are staying very cautious because of rising interest rates and borrowing costs. Price Reductions on listed homes have risen to the highest levels over the past 8+ years. Sellers with homes on the market longer are aiming to tempt buyers with a discount. The race to the bottom has started. The Fed is going to add more fuel to the declines with another rate increase.

Recent Mortgage Refinance Index data shows the current 726.1 print is the lowest level since July 2000. This means the purchase and refinance are the most unfavorable for buyers over the past 22+ years (not since the peak of the DOT COM bubble).

Mortgage refinance index chart

(Source: Investing)

A reversion of home prices is almost a certainty at this point. I suspect a surge of new foreclosures and slowing sales will compound with layoffs and other economic contraction trends to present a “perfect storm” type of reversion event.

IYR Targeting $70 to $75 As Assets Unwind

IYR is likely to continue trending lower, targeting $70 to $75, before finding any real support. The reversion of asset valuation levels is still very early in the process of the Fed attempting to battle inflation. Depending on how the global markets react to the overall economic environmental change, we could see an extended contraction in assets lasting well into 2023 – possibly into 2024.

Traders should stay cautious of trying to chase the falling market trends. Real opportunity for profits exits when the reversion event is complete and when opportunities for less volatile extended trends resume.

IYR real estate weekly chart

Protective Patience May Be The Best Trader/Investor Attitude Right Now

The US markets are already down by more than -25% overall. Any extended decline from current levels could push many traders/investors into a crisis. When the bottom sets up and is confirmed, we’ll begin to allocate capital back into sector trends. In the meantime, we avoid this massive drawdown event by waiting on the sidelines and being ready to deploy capital.

My strategies pulled capital out of the markets very early in 2022. Since then we have been sitting in CASH as a protective market stance while the global markets continued to decline. Protecting capital is the first rule for any trader/investor. Learning when to trade and when to be patient should be rule #2.

As Consumer Confidence continues to decline, Consumers have moved into a protective/patient (Survival) mode. Traders and Investors should consider the longer-term risks of not adopting a similar stance right now.

WHAT STRATEGIES CAN HELP YOU NAVIGATE THE CURRENT MARKET TRENDS?

Learn how we use specific tools to help us understand price cycles, set-ups, and price target levels in various sectors. Also, learn how we identify strategic entry and exit points for trades. Over the next 12 to 24+ months, we expect very large price swings in the US stock market. The markets have begun to transition away from the continued central bank support rally phase. A revaluation phase has started as global traders attempt to identify the next big trends. Precious Metals may start to act as a proper hedge as caution and concern begin to drive traders/investors into safe-havens.

HOW WE CAN HELP YOU LEARN TO INVEST CONSERVATIVELY?

At TheTechnicalTraders.com, my team and I can do these things:

  • Safely navigate the commodity and crude oil trend.
  • Reduce your FOMO and manage your emotions.
  • Have proven trading strategies for bull and bear markets.
  • Provide quality trades for investing conservatively.
  • Tell you when to take profits and exit trades.
  • Save you time with our research.
  • Proved above-average returns/growth over the long run.
  • Have consistent growth with low volatility/risks.
  • Make trading and investing safer, more profitable, and educational.

We invite you to join our group of active traders who invest conservatively together. They learn and profit from our three ETF Technical Trading Strategies. We can help you protect and grow your wealth in any type of market condition. Click on the following link: www.TheTechnicalTraders.com to learn how.

Chris Vermeulen
Chief Market Strategist

Is The Inflation Boom Quickly Turning To An Inflation Bust?

The last few months have been very interesting as we see traders (rotating) moving out of one investment or market and into another. But as losses mount and capital diminishes, traders are eventually forced to liquidate even their favorite holdings to meet margin calls and raise needed cash.

As followers of pricing, our opinions or forecasts are not of much value. What is important is price, as price directly determines our trading profits or losses.

When market conditions change or at times when our trading begins to rack up losses, the best thing we can do as a professional is to go to cash. Going to cash allows us to get our perspective back. It allows us the possibility to enter the markets once more and provides the potential to make a lot of money.

Markets go up, and markets go down. What makes the big difference is how we manage risk and how well we do in following the direction of price. Knowing and controlling one’s emotions dictates how long we can play the game or how successful we will be at it.

As we review a few interesting and relevant long-term weekly charts, we realize that for many of us, the best option is simply to go to cash, watch, and wait.

FOOD: WHEAT -23.74%

  • Wheat had a 5-year run gaining more than $8 a bushel.
  • From December 2021 to March 2022, it gained more than $4 a bushel.
  • In March 2022, it made a 14-year double top at $12.
  • From its peak, it has now been trending lower for 31 weeks.
  • Wheat is a good indicator of the level of consumer food inflation.

WHEAT CFD • WHEATUSD • WEEKLY

Wheat CFD weekly chart

HOUSING: LUMBER -67.14%

  • Random length lumber futures experienced a 14-month exponential rally.
  • From its March 2020 Covid low it has rallied $1403 for a 500%+ gain.
  • It is now down $1125 or -67.14% from its May 2022 peak.
  • Lumber is a good indicator of the health of the new housing construction market.

RANDOM LENGTH LUMBER FUTURES • CONTINUOUS • LBS1! • WEEKLY

Random Length Lumber Futures Chart

AUTOS: PLATINUM -29.15%

  • Platinum experienced an 11-month rally that now has fizzled rather quickly.
  • From its Covid 2020 low its price had more than doubled.
  • It is now down -$376 per ounce or -29.15% from its February 2021 peak.
  • Platinum is a good indicator of the health of the new automotive sales market where most auto manufacturer stocks have also lost more than -30% from their price peaks.

PLATINUM USD • XPTUSD • WEEKLY

Platinum USD Weekly Chart

WHAT STRATEGIES CAN HELP YOU NAVIGATE THE CURRENT MARKET TRENDS?

Learn how we use specific tools to help us understand price cycles, set-ups, and price target levels in various sectors. Also, learn how we identify strategic entry and exit points for trades. Over the next 12 to 24+ months, we expect very large price swings in the US stock market. The markets have begun to transition away from the continued central bank support rally phase and have started 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 begin to drive traders/investors into Metals and other safe-havens.

HOW WE CAN HELP YOU LEARN TO INVEST CONSERVATIVELY?

At TheTechnicalTraders, my team and I can do these things:

  • Safely navigate the commodity and crude oil trend.
  • Reduce your FOMO and manage your emotions.
  • Have proven trading strategies for bull and bear markets.
  • Provide quality trades for investing conservatively.
  • Tell you when to take profits and exit trades.
  • Save you time with our research.
  • Proved above-average returns/growth over the long run.
  • Have consistent growth with low volatility/risks.
  • Make trading and investing safer, more profitable, and educational.

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

We invite you to join our group of active traders who invest conservatively together. They learn and profit from our three ETF Technical Trading Strategies. We can help you protect and grow your wealth in any type of market condition by clicking on the following link: www.TheTechnicalTraders.com

Chris Vermeulen
Chief Market Strategist
Founder of TheTechnicalTraders.com

 

Crude Oil Breaks Downward – Rejecting The $120 Price Level

Just before the US Fed raised interest rates on June 15, 2022, Crude oil was trading above $120ppb. Less than 5 days later, it collapsed -12% and has continued to trend lower. Currently, Crude Oil is near -17% lower than recent highs.

It appears Crude Oil has confirmed resistance near $120 and is devaluing as consumers pull away from traditional driving/spending habits while the Fed aggressively attempts to burst the inflation bubble. This type of contraction in Crude Oil is very similar to what happened in 2008-09 when the Global Financial Crisis (GFC) hit – Crude Oil collapsed more than -70% after IYC started trending lower in 2007.

Consumer Discretionary Spending May Be Leading Crude Oil Downward

On June 9, 2022, I published a research article (CRUDE OIL PRICE AND CONSUMER SPENDING – HOW THEY ARE RELATED) highlighting the correlation between Crude Oil and the Consumer Discretionary ETF (IYC). In this article, I suggested any breakdown in IYC, below $60, may prompt a broad downward price trend in Crude Oil – possibly targeting the $75 to $85 price level.

Looking at this chart from our June 9, 2022 article, we can see IYC has already fallen more than -34% from recent highs. In 2007, peak oil prices were reached well before IYC declined more than -22%. So, in this case, the recent decline in IYC may already be predicting a downward price trend in Crude Oil – possibly targeting levels below $80 eventually.

Crude Oil and IYC Chart

(Our Crude Oil/IYC Chart from the June 9, 2022 article)

Aggressive Fed Action May Prompt Extreme Consumer Actions

In an oddly similar way, the 2008-09 GFC represented an extreme excess/speculative phase in the US Credit/Housing markets. Today, we see many similar facets after the COVID-19 event – where house prices skyrocketed from +25% to +45% in some areas. Additionally, prior to 2007-08, we saw moderately high inflation levels, Crude Oil was trading above $100 ppb, certain commodities were in very high demand, and consumers were spending aggressively on almost everything.

Today, we see a combination of some factors from the GFC as well as the DOT COM bubbles. Not only have house prices and raw commodities seen incredible rallies over the past 5+ years, but the Technology and Innovation sectors have also been leading market gains as well. Bitcoin rallied from under $1000 to a high of nearly $70,000 over the past 5+ years. The excessive speculation in the global markets recently is clearly evident in many various sectors and assets.

Global Central Banks Are Running The Show (Again)

I believe the US Federal Reserve will continue to raise rates aggressively in an attempt to tame inflationary trends. At the same time, we are likely to see many Global Central banks attempt to follow the US Fed in raising rates. This creates an economic environment many traders are unprepared for – an extended stagflation/recession period.

The downward trend in Crude Oil and IYC may be the “canary” for the global economy and what to expect going forward. When consumers pull away from traditional pending habits, we are likely to see a broad contraction in global GDP and other economic factors.

Graphical user interface, chart Description automatically generated

Traders and investors need to stay cautious of various global market trends and move back towards a more traditional method of managing their capital. The global markets are still 3x to 5x more volatile than at any time in recent history. Any aggressive trading style could lead to massive losses – as we are likely to see in many global Hedge Funds and managed accounts.

LEARN FROM OUR TEAM OF SEASONED TRADERS

In today’s market trend environment, it’s imperative to assess our trading plans, portfolio holdings, and cash reserves. As professional technical traders, we always follow price. At first glance, this seems very straightforward and simple. But emotions can interfere with a trader’s success when they buck the trend (price). Remember, our ego aside, protecting our hard-earned capital is essential to our survival and success.

Successfully managing our drawdowns ensures our trading success. The larger the loss, the more difficult it will be to make up. Consider the following:

  • A loss of 10% requires an 11% gain to recover.
  • A 50% loss requires a 100% gain to recover.
  • A 60% loss requires an even more daunting 150% gain to simply break even.

Recovery time also varies significantly depending upon the magnitude of the drawdown:

  • A 10% drawdown can typically be recovered in weeks to a few months.
  • A 50% drawdown may take many years to recover.

Depending on a trader’s age, they may not have the time to wait nor the patience for a market recovery. Successful traders know it’s critical to keep drawdowns with reason, as most have learned this principle the hard way.

HOW WE CAN HELP YOU LEARN TO INVEST CONSERVATIVELY

At TheTechnicalTraders, my team and I can do these things:

  • Reduce your FOMO and manage your emotions.
  • Have proven trading strategies for bull and bear markets.
  • Provide quality trades for investing conservatively.
  • Tell you when to take profits and exit trades.
  • Save you time with our research.
  • Proved above-average returns/growth over the long run.
  • Have consistent growth with low volatility/risks.
  • Make trading and investing safer, more profitable, and educational.

We invite you to join our group of active traders who invest conservatively together. They learn and profit from our three ETF Technical Trading Strategies. We can help you protect and grow your wealth in any type of market condition by clicking on the following link: www.TheTechnicalTraders.com

Chris Vermeulen
Chief Market Strategist
Founder of TheTechnicalTraders.com

As Market Trends Continue To Drop – Where Is A Good Place To Invest?

Market trends continue to drop due to investor concerns about geopolitical events, record inflation, rising interest rates, slowing housing, plummeting auto sales, increasing retail inventories, expanding consumer credit, and pending layoffs.

Even stocks that had previously held up or remained strong now seem to be showing signs of topping and breaking down. This is normal behavior for a bear market trend where the initial wave of vulnerable markets takes a hit which then causes traders to shelter their remaining cash in more robust markets. But as losses mount and their capital diminishes, traders eventually are forced to liquidate even their strong market assets to meet margin calls and raise needed cash.

As we review the following market trends, we quickly realize that the best option for most traders is to simply go to cash, watch, and wait.

BERKSHIRE HATHAWAY -25.34%

  • BRK was one of the few companies in the early part of Q1 2022 that bucked the downtrend and had remained strong.
  • By the end of Q1 2022, BRK had put in a top that was greater than 200% of its Covid 2020 low.
  • Now, as we approach the end of Q2 2022, BRK has lost -25.34% and is down -10.34% year-to-date.

BERKSHIRE HATHAWAY INC • BRK.A • NYSE • DAILY

Berkshire Hathaway Trend Chart

QQQ NASDAQ 100 ETF -33.16%

  • QQQ put in its top at the very end of Q4 2021 primarily due to rising inflation and the strong US dollar.
  • After its initial Q1 2022 drop of -21.6%, QQQ had a rally back up, which was a 61.8% correction to put in a lower top.
  • Now, as we approach the end of Q2 2022, QQQ has lost -33.16% and is down -30.98% year-to-date.

INVESCO QQQ TRUST SERIES 1 ETF • ARCA • DAILY

QQQ Nasdaq Trend Chart

RUSSELL 2000 INDEX -32.23%

  • The Russell 2000 index (comprised of 2,000 small-cap companies) put in its top at the very end of Q4 2021 due to rising inflation and the strong US dollar.
  • After its initial Q1 2022 drop of -20.93%, the Russell had a rally back up, which was a 38.2% correction to put in a lower secondary top.
  • Now, as we approach the end of Q2 2022, the Russell has lost -32.23% and is down -25.81% year-to-date.

US RUSSELL 2000 STOCK INDEX • DAILY

Russell 2000 Index Trend Chart

BITCOIN -71-87%

  • Bitcoin put in its final top at the very end of Q4 2021.
  • Bitcoin had a 68-day rally back up, which only corrected about 35% of its initial down move to put in a lower secondary top.
  • Now, as we approach the end of Q2 2022, Bitcoin has lost -71.87%.

BITCOIN / US DOLLAR • BTCUSD • DAILY

Bitcoin Trend Chart

LEARN FROM OUR TEAM OF SEASONED TRADERS

In today’s market trend environment, it’s imperative to assess our trading plans, portfolio holdings, and cash reserves. As professional technical traders, we always follow price. At first glance, this seems very straightforward and simple. But emotions can interfere with a trader’s success when they buck the trend (price). Remember, our ego aside, protecting our hard-earned capital is essential to our survival and success.

Successfully managing our drawdowns ensures our trading success. The larger the loss, the more difficult it will be to make up. Consider the following:

  • A loss of 10% requires an 11% gain to recover.
  • A 50% loss requires a 100% gain to recover.
  • A 60% loss requires an even more daunting 150% gain to simply break even.

Recovery time also varies significantly depending upon the magnitude of the drawdown:

  • A 10% drawdown can typically be recovered in weeks to a few months.
  • A 50% drawdown may take many years to recover.

Depending on a trader’s age, they may not have the time to wait nor the patience for a market recovery. Successful traders know it’s critical to keep drawdowns with reason, as most have learned this principle the hard way.

HOW WE CAN HELP YOU LEARN TO INVEST CONSERVATIVELY?

At TheTechnicalTraders, my team and I can do these things:

  • Reduce your FOMO and manage your emotions.
  • Have proven trading strategies for bull and bear markets.
  • Provide quality trades for investing conservatively.
  • Tell you when to take profits and exit trades.
  • Save you time with our research.
  • Proved above-average returns/growth over the long run.
  • Have consistent growth with low volatility/risks.
  • Make trading and investing safer, more profitable, and educational.

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

We invite you to join our group of active traders who invest conservatively together. They learn and profit from our three ETF Technical Trading Strategies. We can help you protect and grow your wealth in any type of market condition by clicking on the following link: www.TheTechnicalTraders.com

Chris Vermeulen
Chief Market Strategist
Founder of TheTechnicalTraders.com

Will Global Markets Be Pushed Deeper Into Crisis Event By The US Fed

US and Global markets recoiled from the higher inflation/CPI data last week. The US Fed raised interest rates by 75pb on June 15. The Fed also warned that other, more aggressive rate increases might be necessary later this year. Before the Fed decision, global markets opened on Sunday, June 12, and quickly started selling downward. US Indexes sold off on Monday, June 13, by more than 2.5% almost across the board. A brief rally after the Fed decision seems to have evaporated in early trading on Thursday, June 16.

It is clear that global markets expected inflation to stay elevated but were hoping for some moderately lower data showing the recent Fed moves had already dented some inflation concerns. Now, it appears the US Fed has its backs against a wall and moved rates aggressively higher to stall inflation (and possibly destroy global asset values). From my perspective, this is unknown territory for the US Fed and Global Central banks. That means traders should expect increased volatility and the possibility of a very determined reversion of price over time.

Another Global Financial Crisis May Be Unfolding

The research conducted by my team and I shows some interesting new data. In particular that the US Current Account data is very near to the levels reached just before the Global Financial Crisis (GFC) in 2006 (near -$218B). I consider this a very clear sign that the US economy, inflation, consumer engagement, and asset values have continued to hyper-inflate since the COVID-19 virus event.

The chart below highlights the US Current Account data and the Dow Jones Industrial (DJI) Average price data. Notice how the lowest level of the US Current Account data reached a deep trough (September 2006) about 12 months before the absolute peak in the DJI (September 2007). This time, the US Current Account trough formed in September 2021, and the peak in the DJI happened in December 2021 – only 3~4 months later.

US current account data and Dow Jones Daily chart

The global markets have continued to consume cheap US Dollar liabilities over the past 10+ years as the US Fed kept interest rates very low for an extended period. Not only did this feed an extreme global speculative phase, but it also created an extreme credit/debt liability issue throughout the globe as rates increased. Debt holders are forced to roll debt forward at higher rates if they cannot pay off these liabilities completely – being over-leveraged. This same scenario is very similar to how the Global Financial Crisis started. Over-leveraged speculative trading in Mortgage-Backed Securities and other global assets.

Skilled Traders Saw This Problem Many Years in Advance

I’ve been informing my subscribers that an event like this was starting to take place throughout 2020 and 2021. Below, I show one example posted in our blog warning traders that the global markets were transitioning away from the endless bullish price trends from 2011 through 2021

November 25, 2020: HOW TO SPOT THE END OF AN EXCESS PHASE – PART I

NASDAQ May Fall To $9,750 Before Attempting To Find Any Support

The Technology Sector is leading the downward price trend in the US major indexes. The NASDAQ could fall to levels close to $9,750~10,750 before attempting to find any real support.

Ultimately, the NASDAQ may fall to levels near the COVID-19 lows, near $6,500. But right now, the most logical support level exists just above the COVID-19 2020 highs.

NASDAQ E-Mini Futures Weekly Chart

I expect this new global price revaluation may last throughout the rest of 2022 and possibly carry into early 2023. It depends on what the US Fed does and how this event unfolds. If there is an orderly unwinding of excesses in the markets, we may see an extended decline as global expectations transition to new normal economic expectations. If a new crisis event blows a massive hole in the global economy, like in 2008-09, a very sudden decline may occur – shocking the global markets.

My research suggests the US Fed is far behind the curve and has allowed the excess speculative rally to carry on for too long. Global Central Banks should have been raising rates to moderate levels near the end of 2020 and in early 2021. Now, we have an excess phase bubble similar to the DOT COM and GFC events merged. We have an extreme Technology Bubble and an excess global credit/liability bubble.

If you have not already adjusted your assets to protect from downside risks, it’s time. When doing so, please consider the long-term risks of trying to ride out any extended downtrend in price. Are you willing to risk another -25% to -40% of your assets, hoping the global markets find a bottom soon?

What Strategies Can Help You Navigate the Current Market Trends?

Learn how we use specific tools to help us understand price cycles, set-ups, and price target levels in various sectors. Also, learn how we identify strategic entry and exit points for trades. Over the next 12 to 24+ months, we expect very large price swings in the US stock market. The markets have begun to transition away from the continued central bank support rally phase and have started 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 begin to drive traders/investors into Metals and other safe-havens.

We invite you to join our group of active traders who invest conservatively together. They learn and profit from our three ETF Technical Trading Strategies which include a real estate ETF. We can help you protect and grow your wealth in any type of market condition. Click the following link to learn more: www.TheTechnicalTraders.com

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

Chris Vermeulen
Chief Market Strategist
Founder of TheTechnicalTraders.com

Investors Who Are Liquidating To A Cash Position – What To Do Next?

Bank of America, Michael Hartnett, Chief Investment Strategist recently stated, “The bear-market rally for stocks has disappeared as investor concerns about inflation and interest rates linger.” “We’re in a technical recession but just don’t realize it.”

Freight Waves, Henry Byers reported, “US import demand is dropping off a cliff as inbound container volumes to the US are reverting to pre-pandemic levels.” Byers went on to say that “The consumer is getting crushed as conditions for the consumer seem to be getting worse and worse as inflation takes hold and prices get more and more expensive.”

We have quickly moved from seeing the dark clouds on the horizon to the start of entering the initial storm wall. The USD put in a major low on January 6th, 2021. Since then it has been in a strong uptrend as global investors seek safety with the uncertainties about geopolitical events, record inflation, rising interest rates, slowing housing, plummeting auto sales, increasing retail inventories, expanding consumer credit, and pending layoffs.

Relative performance USD

Source: finviz

US DOLLAR ETF: UUP +16.69%

UUP remains in its uptrend as the price continues to move up from its base of accumulation.

After having a brief 2-week pullback of -3.45% UUP has found support and is now looking to extend its bull market trend.

Investors who are liquidating stocks and moving to a cash position could consider UUP to capitalize on the strengthening US Dollar.

INVESCO DB USD INDEX BULLISH FUND ETF • UUP • ARCA • DAILY

USD index for UUP

20+ YEAR TREASURY INVERTED ETF: TBF +38.89%

TBF remains in its uptrend as the price continues to move up from its base of accumulation.

After having a 3-week pullback of -6.21% TBF has found support and is now looking to extend its bull market trend.

Investors who are liquidating stocks and moving to a cash position could consider TBF to capitalize on the FED raising interest rates to try and curb inflation.

PROSHARES SHORT 1X 20+ YEAR TREASURY ETF • TBF • ARCA • DAILY

20+ year treasury ETF TBF

S&P 500 SHORT INVERTED ETF: SH +19.33%

SH remains in its uptrend as the price continues to move up from its base of accumulation.

After having a 2+-week pullback of -7.19% SH has found support and is now looking to extend its bull market trend.

Investors who are liquidating stocks and moving to a cash position could consider SH to capitalize on the falling stock market.

PROSHARES SHORT 1X S&P 500 ETF • SH • ARCA • DAILY

S&P 500 short inverted ETF SH

Valuable Insights From Successful Traders

Market Wizards by Jack D Schwager is packed with insights from successful traders who have shared their wisdom based on firsthand trading experiences. Here are a few of our favorites:

Paul Tudor Jones:

  • “If you have a losing position that is making you uncomfortable, the solution is very simple; get out, because you can always get back in.”
  • “There is nothing better than a fresh start.”

Ed Seykota:

  • “There are old traders and there are bold traders, but there are very few old, bold traders.”
  • “Losing a position is aggravating, whereas losing your nerve is devastating.”
  • “Good traders; Many are called, and few are chosen.”

Larry Hite:

  • “We always follow the trends, and we never deviate from our methods.”
  • “I have two basic rules about winning in trading as well as in life; If you don’t bet, you can’t win.”
  • “If you lose all your chips you can’t bet.”

What Strategies Can Help You Navigate the Current Market Trends?

Learn how we use specific tools to help us 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, we expect very large price swings in the US stock market and other asset classes across the globe. We believe the markets have begun to transition away from the continued central bank support rally phase and have started 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 begin to drive traders/investors into Metals and other safe-havens.

Historically, bonds have served as one of these safe-havens. This is not proving to be the case this time around. So if bonds are off the table, what bond alternatives are there? How can they be deployed in a bond replacement strategy?

We invite you to join our group of active traders who invest conservatively together. They learn and profit from our three ETF Technical Trading Strategies which include a real estate ETF. We can help you protect and grow your wealth in any type of market condition. Click the following link to learn more: www.TheTechnicalTraders.com

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

Chris Vermeulen

Crude Oil Price And Consumer Spending – How They Are Related

Crude Oil & Gasoline prices have been a hot topic for almost everyone recently. As inflation surges, consumers are feeling the increased pricing pressures from all sides right now. It is starting to reflect in the use of credit cards, discretionary spending habits, and summer holiday travel plans.

As the US Fed adjusts rates to burst inflation trends, consumers are left trying to navigate a minefield of unknowns. How far will the Fed have to raise rates – and how quickly? Will this affect the jobs/housing markets? How will this affect credit/borrowing costs? Will a US recession risk a bigger collapse in US jobs/economy – creating broader issues for consumers?

The natural reaction of consumers at times like these is twofold. First, they pull away from making huge purchases. Second, they watch every penny being spent. Therefore, we are seeing consumer discretionary spending, auto sales, vacation rentals, and other types of spending sharply falling right now.

IYC Collapsed In 2007-08 – Just Before Peak Oil Prices

I remember watching the Consumer Discretionary ETF (IYC) collapse throughout most of 2007-08, just before the Global Financial Crisis (GFC) hit. As the US Fed continued to raise rates in 2005-06, and as the US economy started to weaken, Consumers acted like a “canary in a coal mine” – pulling away from normal spending habits as fear and uncertainty levels rose.

What I found interesting about the rising Crude Oil prices at that time, was that they appeared to compound the speed at which consumers pulled away from the economy. This resulted in a much more aggressive collapse eventually.

As you can see from the Crude Oil/IYC chart below, is that Crude Oil rallied more than 100% (from $70 to above $140) at the same time consumers were pulling away from the economy. The speed of the rally seemed to push consumers further away from normal activities. In a way, this is like a self-fulfilling price event.

Are we seeing the same thing happen right now?

Crude oil daily chart

IYC Collapsed More Than -34% Already – Are We At Peak Oil Now?

When the GFC finally hit, IYC collapsed another -55%, and Crude Oil fell from $147 to $33 ppb, more than -77%. The GFC resulted in one of the biggest market declines since the Great Depression.

The increased volatility and peak in oil prices seemed to take place as the end of an excess phase bubble was starting to unwind. Consumers were already pulling away from the economy at that time.

More recently, IYC has been falling since early November 2021 (for over 7 months). Crude Oil has already risen from $62 to $130.50 (more than 100%). This begs the question: have we already reached peak oil prices while the consumer discretionary sector is nearing a major breakdown event (see chart below)?

Crude oil daily chart

The Three Factors At Play: Consumers, Refiners, US Fed

In 2008, when the GFC crisis started, the factors that initiated the collapse were related to consumer/institutional/global finance and credit markets. The US Fed played a role by raising interest rates above 5% while the excess of the housing market boom (an excess phase bubble) started to unwind.

Now, we have different factors at play. The US Fed is still a major player in this equation – attempting to raise interest rates to combat inflation. Consumers are still doing what they do – reacting to the fear and uncertainties of a changing economic future while trying to provide for their families.  This time, COVID and supply-side issues drive some aspects of Oil/Gas price levels. Yet we have to also understand the excessive stimulus and capital creation that has taken place over the past 3+ years.

In some unique way, the current global economic situation is not that different than what was taking place in 2006-08 throughout the globe. The primary difference this time is the COVID virus event and the disruption of supply across the globe.

$120 Peak Oil Appears Likely – Watch IYC For A Breakdown

Watch IYC for any continued breakdown below $60 as a sign the US/Global economy, and Oil may start to breakdown as well. Remember, Consumers are the “canary in the coal mine”. We will likely see a big shift in consumer spending, and how much credit they are using to pay their bills before we see a big breakdown in Crude Oil.

Watching IYC move lower over the past 7+ months and seeing the -34% price decline recently suggests the $120 Crude Oil price level may be the critical resistance level going forward. Watch for Oil to retest and fail near $120 as confirmation of this potential peak level.

What Strategies Can Help You Navigate the Current Market Trends?

Learn how we use specific tools to help us 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, we expect very large price swings in the US stock market and other asset classes across the globe. We believe the markets have begun to transition away from the continued central bank support rally phase and have started 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 begin to drive traders/investors into Metals and other safe-havens.

Historically, bonds have served as one of these safe-havens. This is not proving to be the case this time around. So if bonds are off the table, what bond alternatives are there? How can they be deployed in a bond replacement strategy?

We invite you to join our group of active traders who invest conservatively together. They learn and profit from our three ETF Technical Trading Strategies which include a real estate ETF. We can help you protect and grow your wealth in any type of market condition. Click the following link to learn more: www.TheTechnicalTraders.com

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

Chris Vermeulen
Chief Market Strategist
Founder of TheTechnicalTraders.com

Strong U.S. Dollar Biting Into Multinationals

“A hawkish Federal Reserve and heightened geopolitical tensions have driven a 14% gain in the U.S. dollar against a basket of currencies over the last year, forcing companies such as Cocoa-Cola Co (KO.N) and Procter & Gamble (PG.N) to temper expectations for the rest of the year.”

Microsoft is one of the latest companies to warn of a fourth-quarter currency headwind.

The following was reported by Reuters on June 2, 2022: “Microsoft warns of forex hit; cuts forecast”

Microsoft Corp (MSFT.O) on Thursday cut its fourth-quarter forecast for profit and revenue, making it the latest U.S. company to warn of a hit from a stronger greenback.”

1 year performance of U.S. Dollar

Source: Finviz

U.S. DOLLAR PAIRS • FOREX • DAILY

U.S. Dollar Pairs

USD ETF UP +16.31%

Over the course of the last year, the U.S. dollar Bullish ETF (UUP) has gained +$3.94 or +16.31%. This is at a time when the U.S. stock indices have a current year-to-date loss of DJIA 30 -9.46%, S&P 500 -13.80%, and Nasdaq 100 -23.11%.

Since the U.S. Dollar was put at a major low on January 6, 2021, the trend has been solidly up.

INVESCO DB USD INDEX BULLISH FUND ETF • UUP • ARCA • DAILY

UUP Daily Chart Up Trend

USD RETRACEMENTS ARE IN THE 2-4% RANGE

As professional traders who study prices, we see that the maximum pullback in the U.S. dollar has been 57 days and -4.4%. The recent pullback in the UUP (US Dollar Bullish ETF) has only been 15 days, or -3.24%. This 3-week pullback or more importantly the retracement of -3.24% is safely within the previous retracement data sets.

UUP (USD) remains in an uptrend and until the price confirms otherwise we should consider this trend will continue. There are significant headwinds ahead for stocks and especially multinational companies whose revenues and earnings are being diminished by the strong USD.

INVESCO DB USD INDEX BULLISH FUND ETF • UUP • ARCA • DAILY

UUP Daily Chart Retracement

USD HEADWINDS CAUSING PROBLEMS FOR NASDAQ COMPANIES

The NASDAQ QQQ ETF remains solidly in a bear market as the U.S. dollar continues to batter revenue and earnings for these global companies.

It should come as no surprise that the recent bounce in the QQQ occurred at 50% of the post-Covid bull market rally. This bull rally was +$235.83 and 50% of this is $117.91. The QQQ found temporary support about -$1.00 below the 50% level with its drop of -$118.90.

Due to globalization, most if not all of the NASDAQ 100 QQQ companies will feel the effect of the USD headwinds. Most of the group is a true multinational but for those whose business solely focuses on the U.S. market, their revenues and earnings will still be impacted by the non-USD origin of their products and or support services (manufacturing, cost of goods, etc.).

Note: Inflation is causing increases in company product/service increased pricing resulting in consumer cutbacks that may cause “The Perfect Storm” in the fourth quarter.

INVESCO QQQ TRUST ETF • QQQ • NASDAQ • DAILY

QQQ Daily Chart Down Trend

LEARN FROM OUR TEAM OF SEASONED TRADERS

In today’s market environment, it’s imperative to assess your trading plan, portfolio holdings, and cash reserves. Experienced traders know what their downside risk is and adapt as necessary. Successful traders manage risk by utilizing stop-loss orders, rebalancing existing positions, reducing portfolio holdings, liquidating investments, and moving into cash.

Successfully managing our drawdowns ensures our trading success. The larger the loss, the more difficult it will be to make up. Consider the following:

  • A loss of 10% requires an 11% gain to recover.
  • A 50% loss requires a 100% gain to recover.
  • A 60% loss requires an even more daunting 150% gain to simply break even.

Recovery time also varies significantly depending upon the magnitude of the drawdown:

  • A 10% drawdown can typically be recovered in weeks to a few months.
  • A 50% drawdown may take many years to recover.

Depending on a trader’s age, they may not have the time to wait nor the patience for a market recovery. Successful traders know it’s critical to keep drawdowns with reason, as most have learned this principle the hard way.

HOW WE CAN HELP YOU LEARN TO INVEST CONSERVATIVELY?

At TheTechnicalTraders, my team and I can do these things:

  • Reduce your FOMO and manage your emotions.
  • Have proven trading strategies for bull and bear markets.
  • Provide quality trades for investing conservatively.
  • Tell you when to take profits and exit trades.
  • Save you time with our research.
  • Proved above-average returns/growth over the long run.
  • Have consistent growth with low volatility/risks.
  • Make trading and investing safer, more profitable, and educational.

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

We invite you to join our group of active traders who invest conservatively together. They learn and profit from our three ETF Technical Trading Strategies which include a real estate ETF. We can help you protect and grow your wealth in any type of market condition. Click the following link to learn more: www.TheTechnicalTraders.com

Chris Vermeulen
Chief Market Strategist
Founder of TheTechnicalTraders.com

Where Is Gold Going From Here?

Interpretation Of The Current Consolidation In Gold

My team and I see the recent lows in Gold as similar to the April/May 2009 consolidation after the Global Financial Crisis. Also similar to the January 2013 consolidation before an extended -34% price decline took place – ending in December 2015.

The primary difference between now and then is that the US Federal Reserve is currently initiating a new round of Quantitative Tightening (QT), raising rates, while battling Inflation. In both the previous examples, the US Federal Reserve was moving aggressively into Quantitative Easing, attempting to aid in the recovery of the US & the global economy.

It seems to me, that the underlying factors driving the price of Gold have drastically changed. All it would take for Gold to break into a new trend, up or down, would be to see some new catalyst or contagion event come to life.

Gold Weekly Chart

Gold weekly chart

Gold Establishes An New Momentum Base While USD Rallied +15.75%

The strength of Gold over the past 15+ months while combating the strength of the US Dollar has been impressive. I’ve shared my thoughts in many interviews over the past year suggesting Gold was in a consolidation range (moving downward) while still holding up impressively as the US Dollar continued to skyrocket higher.

Trends in the US Dollar and Gold, I believe, are directly related to underlying global economic factors. These factors are prompting a shift away from traditional Growth sectors and pushing traders to reconsider the safety of precious metals. Another factor is that the US Federal Reserve has been actively telegraphing rate increases for nearly 12+ months as Inflation started to surge in early 2021.

I see the extended consolidation in Gold over the past 15+ months, above $1700, as a new momentum base for the price – similar to what happened in 2009 and 2013. The next question is “will it break upward or downward?”.

US Dollar chart

As time progresses, we’ll have to see how the US Dollar and Gold react to the Long-Term Resistance area I’ve highlighted on the chart above.

Plan A vs. Plan B For Gold Throughout 2022

I like to consider trading to take high probability opportunities within confirmed/defined trends. The smartest move for Gold traders right now is to wait for any future price confirmation before trying to guess which direction Gold will move.

Plan A Plan B
Watch the $1775 level as critical support Watch the $1735 level as critical support
Consider the current bullish price trend as Neutral
if any daily close breaks below $1775
Consider the current bullish trend as continued
Bearish if any daily close breaks below $1680
If the price recovers above $1775 after moving lower,
adjust to a potential bullish price trend for gold.
If the price breaks to below $1735, do not attempt
to ‘bottom-pick’.

These Plan A and Plan B constructs are how I think of trading in general.  It is not worth trying to guess where the price may go or if I’m missing out on some opportunity.  Risking 5% or 10% of my capital on a guess is just not worth it to me. I could be wrong in my guess multiple times trying to chase an emotional belief that a bottom or top is setting up. This, in turn, could destroy 25% to 40% of my trading capital in the process.

If I’m patient and wait for the market price to confirm a trend, then I’ll be able to execute a high probability trade with limited risk.

Falling Back To Long-Term Technical Analysis As A Guide

I created this chart in early 2021 highlighting my cycle expectations for Gold over the next 3+ years. Throughout most of 2021 and into early 2022, I expected Gold to trend downward – reaching a low price near $1625 sometime near February-May 2022. The recent low in Gold on May 16, 2022, was $1785. Prior to that, Gold reached a low of $1676.70 on March 8, 2021.

Although my $1625 level has not been reached yet, I am eagerly waiting for the next phase of my prediction – the potential rally wave that should start in June 2022 or soon after. This next rally phase may target $2000~2050, then stall for many months before continuing to trend higher, targeting $2400+.

Patience is the key to all trading and long-term success. Knowing there are opportunities for very short-term trades every day is fantastic if that is your style. I prefer to trade longer-term swing trades, protecting my capital and trading the most efficient setups.

In my opinion, the best opportunity for Gold traders is to wait for price confirmation of my predicted cycles. Once this happens, then look for opportunities when we know Gold has exited this consolidation phase.

What Strategies Can Help You Navigate the Current Market Trends?

Learn how we use specific tools to help us 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, we expect very large price swings in the US stock market and other asset classes across the globe. We believe the markets have begun to transition away from the continued central bank support rally phase and have started 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 begin to drive traders/investors into Metals and other safe-havens.

Historically, bonds have served as one of these safe-havens. This is not proving to be the case this time around. So if bonds are off the table, what bond alternatives are there? How can they be deployed in a bond replacement strategy?

We invite you to join our group of active traders who invest conservatively together. They learn and profit from our three ETF Technical Trading Strategies which include a real estate ETF. We can help you protect and grow your wealth in any type of market condition. Click the following link to learn more: www.TheTechnicalTraders.com

Chris Vermeulen
Chief Market Strategist
Founder of TheTechnicalTraders.com