Did The Global Markets Rollover In April/May 2021? What Next? Part I

This research article is designed to answer a few questions related to the current market contraction and the news related to the potential US Fed tightening of monetary policy while it appears China may be experiencing a credit/debt crisis in the early stages. Many traders/investors are contacting us asking our opinions of the current market situation and what we expect in the near future. This article should help answer a lot of your questions and help you to understand what may come next.

Broad Market Cycles Transitioned Near The End Of 2019 – Were You Paying Attention?

First, let’s discuss the broader market cycles that have changed over the past 24+ months. My research team published these articles suggesting the US and Global markets had recently transitioned away from an Appreciation price cycle and into a new Depreciation price cycle. This is very important to understand because the new Depreciation price cycle will likely change how investors perceive opportunities and how currencies fluctuate in an attempt to revalue after an extensive Appreciation price phase. The US Federal Reserve and global central banks have pushed the reflation trade (pre and post-COVID) well beyond a traditional Supply/Demand Equilibrium.

Most importantly, this research article highlights the transition into the new Depreciation Price Cycle and the fact that it should last until 2029 to 2031…

  • November 27, 2020: HOW TO SPOT THE END OF AN EXCESS PHASE – PART II
  • May 20, 2021: BITCOIN COMPLETES PHASE #3 OF EXCESS PHASE TOP PATTERN – WHAT NEXT?
  • May 23, 2021: US DOLLAR BREAKS BELOW 90 – CONTINUE TO CONFIRM DEPRECIATION CYCLE PHASE

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What is important to understand about this transition between cycle phases is that it is usually associated with an “Excess Phase Price Event”. This is most commonly seen as a euphoric price rally phase, or a bubble rally phase, that drives incredible price advances in various asset types. We’ve seen these excess phase rallies in Cryptos, various stock symbols, Lumber, Copper, and other commodity prices recently. Currently, Natural Gas, Uranium, and a host of others are experiencing these types of Excess Phase “Blow-Off” peaks.

The transition into a new Depreciation Price Cycle will likely prompt the US Dollar to weaken below $87~88 eventually, prompting a very strong rally in Precious Metals. But before that happens, the “Blow-Off” peaks must complete and burst. We need to see some type of anti-climax event that changes trader/investor sentiment and restores more normal price relationships to assets. We may be experiencing that right now – the end of the “Blow-Off” euphoric price cycle phase as the next few charts will attempt to illustrate.

NYSE New Highs Collapse As US/Global Markets Rollover

This Weekly chart of the NYSE New Highs clearly illustrates the incredible rally after the March/April 2020 COVID collapse and the extreme new highs that were generated after the November 2020 US elections. In an incredible display of exuberance and euphoria, the NYSE New Highs level reached a massive 531 level on May 10, 2021. Since that time, the NYSE New Highs level has continued to consolidate below the 200 level and has recently moved below 100 as global equities continue to show weakness across the board.

I believe part of this cycle is related to the transition to the new Depreciation Price Cycle and another part of this is related to the Excess Phase “Blow-Off” peaking we’ve seen in price trends recently. Fundamentally, the markets must ramp up in activity and leverage for these excess phase processes to take place, and they must scale back and deleverage as these processes unwind. I still believe the US Federal Reserve will support the US markets and credit cycles throughout this transition, but as traders and investors move towards scaling back and unwinding leveraged trading positions near these peaks, we may see some aspects of overvalued market assets continue to contract over time.

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S&P 500 Stocks Above 150 DMA Is About To Break Below 50 – Possibly Moving

Into Bearish Trending

This Weekly chart of the S&P 500 stocks above the 150 DMA shows quite a bit of history (originating near the start of 2018). Over this time frame, we can highlight two extended downtrends in price: the first happened in August/September 2018, and the second was the COVID-19 virus event. Every major downward price cycle over the past 3 to 4+ years has seen a decline below the 50 levels as the impulse downside price trend. Then, if the trends continue lower, we usually see a move below 20~30 and many weeks of extended downward trending before support is found by the markets.

Since COVID, the US Federal Reserve, and the US Government have enacted a number of support measures to take the pressures off consumers, banks, and many retailers and corporations.

Now that these support systems are ending and the US/Global economy must transition back to more normal aspects of economic function, we may see a moderate sideways/downward price contraction in the US/Global markets if this level breaks below 40~50. Remember, we are not suggesting an all-out bearish market collapse at this phase of the market trend, but we are suggesting that traders/investors need to be aware that this current trend is not the “endless bull market trend” many are used to seeing since the COVID lows (March 2020). That trend ended in April/May 2021 and it looks like we may be in for a bit of a wild ride over the next 12+ months.

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Still, at this point, we don’t have any real technical confirmation that the US market trends have broken into any new Bearish price trends. The transition from the Appreciation cycle to the new Depreciation cycle does not guarantee or suggest the US stock market will enter a big bearish price trend. What it does suggest is that volatility will increase while the US Dollar trends below $87 to $88 (eventually) and that Precious Metals will start to move dramatically higher. We are at the early stages of what appears to be the end of the “Blow-Off” rally phase that is complicated by the end of COVID policy, changes in US Fed plans, resumption of more normal economic functions, and an excessive credit/debt rally phase which is contracting.

All of this suggests the markets are about to become very volatile and big trends are going to roil through the global markets as a revaluation process takes place. This will present incredible opportunities for traders and investors who are capable of profiting from these huge trends and price rotations. It could also be very dangerous for those who continue to chase the rally trends with extended leverage.

In Part II of this research article, I’ll explore even more data and charts that support my conclusions and better illustrate what we should expect from the markets over the next 12 to 24+ months.

Please take a minute to learn about my BAN Trader Pro newsletter service and how it can help you identify and trade better sector setups.  My team and I have built this strategy to help us identify the strongest and best trade setups in any market sector.  Every day, we deliver these setups to our subscribers along with the BAN Trader Pro system trades.  You owe it to yourself to see how simple it is to trade 30% to 40% of the time to generate incredible results.

As something entirely new, check out my initiative URLYstart to learn more about the youth entrepreneurship program I am developing. This is an online program of gamified entrepreneurship designed to introduce and inspire youth to start their own businesses. Click-by-click, each student will be guided from their initial idea, through the startup process all the way to their first sale and beyond. Along the way, our students will learn life lessons such as communication, perseverance, goal setting, teamwork, and more. My team and I are passionate about this project and want to reach as many people as possible!

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

Have a great day!

Chris Vermeulen
Chief Market Strategist

 

After Moderate Selling US Stock Markets Rebound Higher – How Long Will This Trend Continue?

But our interpretation of this rotation was consistent with moderate price rotation that we’ve seen nearly every 20 to 30 days, on average, for almost the past year or longer.  The markets need to really break away from this upward price trend in order to initiate some new correction or downward price phase.  Otherwise, we continue to see moderate price rotation in an upward sloping market.

The economic data and investor expectations may change at some point in the future, but we have not seen the S&P500, NASDAQ or Dow Jones break away from any major trending recently.  One could argue that the Dow Jones, the big Blue Chip Index, and the Russell 2000, the Mid Cap Index, have actually broken away from upward trending.  But one could also argue that investor capital has shifted over the past 6+ months away from Blue Chips and Mid Cap, and more towards Technology, Healthcare, Biotech, Home Builders, and Real Estate.  This shift in how capital is being deployed may account for the somewhat sideways price trend in the Dow Jones and Russell 2000 recently.

S&P Riding The 50 DMA Higher

This Daily ES, S&P 500 E-Mini Futures chart, highlights the continued upward price trend and the continued rebounding off the 20 & 50 DMA Averages over the past 8+ months.  I’ve drawn MAGENTA arcs below each time the S&P has pulled back to the 50 DMA and initiated a strong rebound/recovery attempt.

Until this cycle of moderate rotation, then a strong rebound in price trending is broken and we see some decidedly downward price trending, traders should expect more of this type of pattern in the future.  Of course, the US Federal Reserve’s continued support and buying of assets assist in supporting this type of trending higher.  Traders look at these pullbacks as very strong buying opportunities for instant profits in many cases. Let’s take a look at some current price charts to see how this trend is setting up right now.

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The NASDAQ Shows More Bullish Bias Than The S&P 500

The NASDAQ has been ripping higher over the past 6+ months.  This is mostly because of how the US economy has transitioned into a remote/work-from-home economy and how technology services, Healthcare, Biotech, Real Estate, and Home Building sectors have been performing over the past 6+ months.  The NASDAQ is uniquely positioned to take advantage of the current shift in how the economy is performing and where consumers/traders are taking advantage of trends.

We are seeing the NASDAQ trending within a very defined and tightening price channel, highlighted by the CYAN trend lines.  Recently, near the end of August and into early September, we saw the NASDAQ rally above the upper CYAN trend line and recently fall back into the trend line range.  As the NASDAQ nears the apex level of this very broad Pennant/Flag formation, traders should expect increased volatility in price and the potential for some very big price swings in the near future.

The current bottom in price is setting up near the 20 DMA Average, which has happened many times over the past 6+ months.  It would take a much deeper price pullback to reach the 50 DMA average (the LIGHT GREEN line).  We don’t believe that is likely as we move into Q3:2021 earnings over the next few weeks and into the Christmas Rally phase of the markets.

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Changing Markets Push Global Investors Into US Assets

Certainly, we will agree the markets have extended to what some consider extreme highs and are showing signs of extreme overbought conditions.  But, we also have to consider how the markets have changed over the past 24 months.  COVID pushed the markets away from a more traditional Brick-n-Mortar type of economy and shoved us into a new type of economic process.  Where services, technology, essential supplies/components, and rampant inflation are changing how consumers spend their time/money.

The US stock market, and the continued strength of the US Dollar, has continued to attract capital from all corners of the world. The US stock market is more than 8x more capitalized than any other foreign market exchange.  Take a look at this graphic from Statista.com highlighting the incredible amount of capital deployed in the US stock market compared to other foreign markets.

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(Source: https://www.statista.com/statistics/710680/global-stock-markets-by-country/)

It seems the world is running on US Fuel related to the strength of the US economy and the support of the US Federal Reserve.  While the US Dollar continues to stay above $88~$89, it is very likely that the upward trending in the US stock market will continue.  Traders/Investors simply can’t move away from the US market and miss the opportunities it creates.

Get ready for more trending as we shift into Q4:2021 and the start of the 2021 Christmas Rally Phase in the US Stock markets.

Please take a minute to learn about my BAN Trader Pro newsletter service and how it can help you identify and trade better sector setups.  My team and I have built this strategy to help us identify the strongest and best trade setups in any market sector.  Every day, we deliver these setups to our subscribers along with the BAN Trader Pro system trades.  You owe it to yourself to see how simple it is to trade 30% to 40% of the time to generate incredible results.

As something entirely new, check out my initiative URLYstart to learn more about the youth entrepreneurship program I am developing. This is an online program of gamified entrepreneurship designed to introduce and inspire youth to start their own businesses. Click-by-click, each student will be guided from their initial idea, through the startup process all the way to their first sale and beyond. Along the way, our students will learn life lessons such as communication, perseverance, goal setting, teamwork, and more. My team and I are passionate about this project and want to reach as many people as possible!

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

Have a great day!

Chris Vermeulen
Chief Market Strategist

 

Gold Inverted Head-n-Shoulders Suggests $2000+ Is Next Upside Target

The recent weakness in the US Dollar suggests any breakdown in the US Dollar below $91.70 will likely prompt a new bullish price advance in Gold targeting highs above $1900 and likely attempt to reach $2100 or higher.

Watch $91.70 On The US Dollar For Next Gold Rally

Currently, the US Dollar is experiencing a few days of upward price trending after breaking downwards from highs near $93.70. Recent lows in the US Dollar, near $91.93 suggest a peak in the US Dollar may have set up. We believe the $91.70 level on the US Dollar is critical to the setup of the Inverted Head-and-Shoulders pattern in Gold and that Gold may trail downward to levels near $1775 before finding real support for the next upside price rally.

Once that Right Shoulder has completed, likely near $1775 or higher, the next phase for Gold is a very solid upside price rally that should rally above $1845 fairly quickly and attempt to reach the $1920 to $1950 level before the end of 2021. Many of you are familiar with a Head-n-Shoulders pattern and understand the end of this pattern usually prompts a rally equal to the Left Shoulder or Head breakdown range. This means the next rally phase for Gold will likely be a minimum of +$150 to $+165 from the Right Shoulder level.

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Strong Upward Support Near $1765 Suggests Rally In Gold Is Pending

Additionally, we wanted to highlight this Gold Monthly chart pattern that suggests a strong upside price channel and a Double-Bottom continue to confirm a very strong potential for an upside price rally in Gold. The CYAN upward sloping price channel suggests Gold will find a strong support near $1765 and the Double-Bottom suggests Gold has already confirmed a strong support level near $1695.

We believe the transition of the US Dollar throughout the end of this year will be key to understanding the type of rally we should expect in Gold and Precious metals. Once the US Dollar falls below the $91.70 level, the upside price pressure in Precious Metals should begin to accelerate. We believe the $91.70 level in the US Dollar is the key catalyst for Gold to break out of this Inverted Head-and-Shoulders pattern.

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Additionally, a weaker US Dollar will begin to shift how capital is deployed in the US equities markets and foreign markets. If the US Dollar breaks downward, below $88 or $89, then we may begin to see a shift of capital into foreign or emerging markets. But as long as the US Dollar stays above these key levels, the US Equities markets are likely to continue to attract foreign capital and continue to attempt to trend higher.

As this Inverted Head-and-Shoulders pattern continues to trend through the Right Shoulder, Miners may begin to rally ahead of the upward price trend in Gold. It will be interesting to see if traders are anticipating this Right Shoulder breakout ahead of it actually completing. If so, Miners may begin to rally two to three weeks before Gold really starts to rally away from the Right Shoulder.

Please take a minute to learn about my BAN Trader Pro newsletter service and how it can help you identify and trade better sector setups.  My team and I have built this strategy to help us identify the strongest and best trade setups in any market sector.  Every day, we deliver these setups to our subscribers along with the BAN Trader Pro system trades.  You owe it to yourself to see how simple it is to trade 30% to 40% of the time to generate incredible results.

As something entirely new, check out my initiative URLYstart to learn more about the youth entrepreneurship program I am developing. This is an online program of gamified entrepreneurship designed to introduce and inspire youth to start their own businesses. Click-by-click, each student will be guided from their initial idea, through the startup process all the way to their first sale and beyond. Along the way, our students will learn life lessons such as communication, perseverance, goal setting, teamwork, and more. My team and I are passionate about this project and want to reach as many people as possible!

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

Have a great day!

Chris Vermeulen
Chief Market Strategist

 

Fed Statements Drive New Rally Momentum In The Stock Markets

Additionally, Jerome Powell made a statement suggesting tightening too early could be much more damaging than waiting until sufficient headwinds are behind us.  I interpret this as stating the current inflationary concerns are less important than the current global market expectations.  We can likely weather moderate inflationary concerns if the economy continues to strengthen – whereas tightening right now may not reduce inflationary concerns and may prompt a broad market slowdown within the US and globally.

In short, traders and investors perceived these comments as “Here we go – off to the races again” and the US markets rallied sharply on Friday and in early trading on Monday, August 30, 2021.

NASDAQ/Technology Leading The Rally Charge

This Daily QLD, ProShares Ultra QQQ ETF, chart highlights the extended rally phase of the NASDAQ/QQQ.  With the current Fed statements, we expect $80 to be broken as this new rally phase attempts to target $82 to $84 – another 5% higher (or more).

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IWM Breaks Above Dual-Pennant/Flag Formations

This IWM Daily, Ishares Russell 2000 ETF, and the chart clearly illustrate a very strong Dual-Pennant/Flag breakout that has taken place with Friday’s rally attempt.  The move above $222.50 is very clearly an attempt to break above the Dual-Pennant/Flag channels and to break into a new Bullish price trend.

Once resistance near $227.50 is broken, the Russell 2000 ETF, IWM, should attempt a bigger rally attempt targeting $233 to $235.

https://www.thetechnicaltraders.com/wp-content/uploads/2021/08/Chart_21-08-27_IWM_D.png

We need to see this momentum carry forward through the end of September as the end of Q3:2021 should continue to trend higher with the US Federal Reserve’s recent statements.  Additionally, traders should be positioning capital ahead of the end of Q3:2021 expecting another round of strong earnings and profits in October/November – pushing the Christmas Rally into high gear.

Don’t miss these incredible opportunities and be sure to take advantage of the strongest performing market sectors – that’s where the real opportunity lies for traders.

Please take a minute to learn about my BAN Trader Pro newsletter service and how it can help you identify and trade better sector setups.  My team and I have built this strategy to help us identify the strongest and best trade setups in any market sector.  Every day, we deliver these setups to our subscribers along with the BAN Trader Pro system trades.  You owe it to yourself to see how simple it is to trade 30% to 40% of the time to generate incredible results.

As something entirely new, check out my initiative URLYstart to learn more about the youth entrepreneurship program I am developing. This is an online program of gamified entrepreneurship designed to introduce and inspire youth to start their own businesses. Click-by-click, each student will be guided from their initial idea, through the startup process all the way to their first sale and beyond. Along the way, our students will learn life lessons such as communication, perseverance, goal setting, teamwork, and more. My team and I are passionate about this project and want to reach as many people as possible!

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

Have a great day!

Chris Vermeulen
Chief Market Strategist

 

IWM Sets Up Dual Pennant/Flag Formation – Suggesting Very Volatile Apex Event

The peak price level on the IWM, the Ishares Russell 2000 ETF, reached $234.29 and has consolidated in a sideways price range for more than five months now.  In mid-July, IWM broke lower and established a fresh new price low of $209.05 – setting up a second Pennant/Flagging price formation (in YELLOW).  We believe this extended sideways Pennant/Flagging price channel is setting up a major volatility event (breakout or breakdown) as the price continues to near the Apex.

Dual Pennant/Flag Setups Suggest Big Volatility On The Horizon For Traders

We’ve drawn the longer-term Pennant/Flagging channel in CYAN and the more recent Pennant/Flagging channel in YELLOW.  What we find interesting is that price is certainly attempting to break free of this channel recently but has continued to be constrained by a lack of directional momentum.

The extended price consolidation shown on this Daily IWM chart highlights the lack of upward price momentum in the Russell 2000 compared to the continued bullish trending of the NASDAQ, S&P500, and DOW JONES.  Historically, the Russell 2000 tends to react to market strength and weakness a bit earlier than the other major indexes.  The current sideways price channeling suggests the reflation trade momentum may have already stalled out, while the NASDAQ and other major indexes continue to trend higher in a very late stage rally.

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As price continues to channel toward the dual-Apex level, we believe a major volatility event will take place in late August 2021 or early September 2021 – possibly very similar to what happened in 2018 when the US Fed prompted a major downtrend in the US markets after raising rates in September 2018.  This prompted a broad market decline totaling more than -20% in most major US indexes.

Weekly IWM Chart Highlights Pending Flag Apex (Near Early September)

This Weekly IWM chart highlights the continued consolidation and recent increase in price volatility related to the extended Pennant/Flag formation setting up.  Notice how volume has continued to weaken while the recently extended price range has broadened to create the new YELLOW Pennant/Flag price channel.  We believe this is increased price volatility starting to build as price attempts to break free of the Apex channels.  Ultimately, some bigger volatility events will unfold causing the price to either break upward or downward from the $220 Apex level.

https://www.thetechnicaltraders.com/wp-content/uploads/2021/08/Chart_21-08-25_IWM_DualFlag_W-1.png

If IWM holds above $207, there is a moderately strong potential for a new bullish price trend to set up prompting another wave of upward price trending.  If that $207 level is breached to the downside, then we will have broken a recent “new price low” and that action will confirm a new price downtrend.

There are a number of factors at play in the markets right now, Precious Metals, Energy, Consumer activities, extended price peaks/trends, and various global market events.  Traders need tools and resources that help them navigate these crazy trends and help them find the best opportunities for trades.  This is where we can help you to focus on the hidden gems of various market sectors.

Please take a minute to learn about my BAN Trader Pro newsletter service and how it can help you identify and trade better sector setups.  My team and I have built this strategy to help us identify the strongest and best trade setups in any market sector.  Every day, we deliver these setups to our subscribers along with the BAN Trader Pro system trades.  You owe it to yourself to see how simple it is to trade 30% to 40% of the time to generate incredible results.

For those of you who are interested in Options Trading, our resident specialist Neil Szczepanski will be hosting a LIVE two-part Intermediate Course beginning on Wednesday, August 25, 2021. Neil will dive deep into the different strategies and outline what are the best trade setups and what to avoid – helping you to become a more knowledgable, confident, and advanced options trader.

Have a great day!

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

Chris Vermeulen
Chief Market Strategist

 

Rally On – Price Range Continues To Narrow As Reflation Trade Flags Out

This suggests traders continue to buy the dips in expectation of a never-ending rally trend.

Bucking Consumer Sentiment Trends

While the US markets continue to trend higher, some of our custom indicators and modeling systems have recently warned of market weakness setting up in cross-market sectors.  Additionally, last week, the foreign markets took a bit of a beating while general commodities moved decidedly lower.  Overall, it is tough to argue with this upward price trend – even while other indicators suggest intermediate market strength may be weakening.

As we are starting to move into the end of August and closing in on the end of Q3:2021, we should start to determine how traders and investors will perceive the opportunities of the reflation rally trend carrying into Q4:2021 – possibly leading the Christmas Rally into the biggest market rally we’ve seen in decades.

2021 has already seen more upward price trending and more Federal Reserve support for the US stock market at any time in history.  I believe the US Federal Reserve has poured more than $4 Trillion into the US and global markets over the past 15+ months (since COVID).  This is well more than double the amount of capital poured into the US economy after the 2008-09 Housing Market Crash.

When and How does it end?  It’s anyone’s guess at this point.  But we are confident the extended flagging formation on these charts suggests the US markets are nearing an Apex level that may prompt very big volatility ranges in price.

NASDAQ Rallies Above $15,300 On Strong Momentum

The rally in the NASDAQ on August 23, 2021, was quite a sight to see.  After moderate price volatility the week before and with the foreign markets under some pressure, it appears the focus on the US market strength, and particularly the Technology/Biotech Sector strength, pushed the NASDAQ even higher.

Our researchers believe we are very near to an Apex in this Pennant/Flag formation that may lead to extended volatility over the September/October months. We need to see how the consumer engages in the economy as the extended COVID restrictions kick in.  We believe the US economic environment is very fluid right now – and possibly moving very quickly as expectations change.

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SPY Parties Onto New Highs Again

One interesting component of this rally is that we are seeing a combination of Housing market strength as well as Technology/Biotech strength.  Streaming services and the transition to work-from-home seems to have shifted how people are spending their incomes.

I was mentioning to a friend how we saw what happened in the late 1990s with the DOT COM/Technology bubble.  Then we saw what happened in 2008-09 with easy money policies driving a housing/credit boom cycle that burst.  Now, we have both of these events driving the current bubble in the markets.  Both Housing and Technology are sparking an incredible rally phase after COVID that may still continue for many months – possibly through the end of 2021 and into 2022.

This SPY Daily Chart highlights the incredible strength and building OBV that seems to be supporting the upward trends.  It appears more and more traders are pouring into the long side of this trend – building bigger and bigger positions over time.  If a big volatility event does take place, many of these traders/investors will be scrambling for protection.

https://www.thetechnicaltraders.com/wp-content/uploads/2021/08/Chart_21-08-23_SPY_D.png

Many months ago I wrote about how the $440 (SPY) and $4400 (S&P500) may become major resistance.  As price has rallied above these levels now, these levels may turn into support.

I’m still expecting volatility in the markets as we transition into the new post COVID world and as consumers address shifting targets related to work, community, activities, and the pending winter season.  The tightening range of these Pennant/Flag formations suggests the markets are nearing an Apex level.  Traders and investors should stay keenly aware of how this price range (Flag) continues to extend.  At some point in the very near future, a big breakout/breakdown event is very likely to take place.

More than ever, right now, traders need to move away from risk functions and start using common sense.  There will still be endless opportunities for profits from these extended price rotations, but the volatility and leverage factors will increase risk levels for traders that are not prepared or don’t have solid strategies.  Don’t let yourself get caught in these next cycle phases unprepared.

Please take a minute to learn about my BAN Trader Pro newsletter service and how it can help you identify and trade better sector setups.  My team and I have built this strategy to help us identify the strongest and best trade setups in any market sector.  Every day, we deliver these setups to our subscribers along with the BAN Trader Pro system trades.  You owe it to yourself to see how simple it is to trade 30% to 40% of the time to generate incredible results.

For those of you who are interested in Options Trading, our resident specialist Neil Szczepanski will be hosting a LIVE two-part Intermediate Course beginning on Wednesday, August 25, 2021. Neil will dive deep into the different strategies and outline what are the best trade setups and what to avoid – helping you to become a more knowledgable, confident, and advanced options trader.

Have a great day!

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

Chris Vermeulen
Chief Market Strategist

 

Surprising Consumer Activity May Suggest A Deeper Shift In The Markets, Part IV

In our opinion, the reflation trade/rally is complete, and consumers have already run the course with regards to stimulus spending, hyper-speculation of assets (cryptos, commodities, equities/stocks, and others).  What happens next is we shift into the real-world future where post-reflation valuations, consumer activities, and corporate earnings will drive expectations.

There was a time, shortly after the November 2020 elections, that was very opportunistic for traders/speculators.  The US Fed was prompting very easy monetary policy while multiple stimulus programs were still taking place.  Additionally, the US economy was still early into the post-COVID reflation attempts.  This created a real opportunity for traders and speculators to ride a hyper-speculative rally phase in late 2020 and into early 2021 as the Month-over-Month and Year-over-Year economic output data ramped up from the extreme COVID lows.

At this time, commodities, housing, stocks, and various sectors all seemed to rally 20~30% or more over a very short 5 to a 6-month span of time.  Most of these peaked out in February through April 2021.  Now, nearly 5+ months after these peaks, we are starting to see very clear downward trends in China, Asia, Europe, and other commodities, equity sectors that suggest we are shifting away from the rally phase.  What happens now that price levels, valuations, and expectations have been pushed toward extreme levels?

August 2021 Case/Shiller House Price Index May Break 2004 Highs – Setting New Record High

One simple measure of extreme consumer and pricing is the Case-Shiller House Price Index.  Even though we’ve seen multiple waves of recovery over the past 10+ years regarding home prices, the extended and very aggressive rally in home prices over the past 12+ months is staggering.  The CS HPI prior to COVID was averaging near 3% – suggesting moderate price appreciation in home values.  Currently, July 27, 2021, CS HPI value came in at 17% – suggesting home prices across 20 major US cities have risen 17% on a Year-over-Year basis.

The next Case-Shiller update should happen near August 27, 2021.  If this data pushes above 17.10%, that would represent the highest CS HPI rate since September 2004 – breaking to a new high and also representing a potential extreme speculative peak in home prices.

https://www.thetechnicaltraders.com/wp-content/uploads/2021/08/2021-08-21_CS20C_YoY.jpg

Consumers are keenly aware of these pricing dynamics – even with extremely low-interest rates.  And with the US Fed talking about tightening monetary policy possibly earlier than expected, many consumers are starting to pull away from making big purchases while expecting continued price appreciation.  Consumers know that rising interest rates may prompt a 15% to 25% decrease in house price values from these extreme highs.  Even if the US Federal Reserve moves the FFR to 1% or 1.25%, the likelihood that mortgage rates will climb to levels near 4.50% or higher is very reasonable.

Home price values are a reflection of consumer confidence, consumer earning capabilities, and ease of purchase (entry) related to interest rates.  When consumers feel the opportunity is right and interest rates are low, while they have strong earning capabilities, consumers will spend more for homes.  But when any of these factors diminish substantially, particularly rising interest rates and/or lack of consumer confidence in the economy, consumers tend to pull away from making big purchases on homes.

Core Consumer Costs Are Still More Than Double Average Historical Rates

Another factor in our belief that Consumers have already started to pull away from this rally peak in the stock market and economy is that Core Consumer CPI levels have skyrocketed over the past 4+ months – which suggests consumers are straining to deal with rising inflation costs at all levels.

Consumer CPI is a measure of pricing for goods and services (excluding food and energy).  If you understand the rally in Core Consumer CPI does not include rising food and energy costs, yet still rallied to more than 200% average levels over the past 4+ months, then sit back and let me try to explain.

Energy prices are more than 200% higher than they were 14+ months ago.  Crude Oil was trading below $30 ppb in April 2020 and recently reached a high price level above $76 ppb.  For the average consumer, energy costs have more than doubled over the past 10+ months and that will present a real problem as the economy starts to open back up.

Additionally, the cost of food items has risen over the past 14+ months to near the highest levels on record going back to 2011 or 2007-08.  The interesting facet about this bit of information is that rising food costs in 2007-08 also coincided with a massive housing price bubble that imploded in early 2009 (Source: https://www.usinflationcalculator.com/inflation/food-inflation-in-the-united-states/)

https://www.thetechnicaltraders.com/wp-content/uploads/2021/08/2021-08-21_USCoreCPI_YoY.jpg

In an eerily similar setup to 2007, food prices started to rally higher in the first quarter of 2007 by about 30%, then peaked out at +6.1% in October 2008 – just a few months before the housing market collapse really destroyed the global markets.  Currently, food prices have already gone through a similar type rally phase, starting in April 2020 with a big 40% price increase.  Food price inflation peaked near the middle of 2020 near 4% to 4.5% and has continued to moderately weaken in early 2021.  This same type of moderate food price inflation happened in Q2 and Q3 of 2009 – during the height of the housing/credit market collapse.

US Consumers Will Continue To Drive Future Market/Economic Trends in 2021 & Beyond

The one thing we are trying to impart to you with this research article is that the US consumer is the main driving force behind the market price and activity trends.  If the consumer stays actively engaged in the economy throughout the end of 2021 (through the Christmas season and beyond), we may see a more moderate recovery in the stock market and asset value price levels over time.  But if the consumers pull away from engaging in the economy because of this recent extremely high CPI and other asset/inflation data, we may see some type of price reversion event take place which many people may be unprepared for.

The US consumer & consumer services make up more than 70% of total US GDP.  Government policy, US Federal Reserve actions, and Business spending/engagement are all components of how well the US economy operates going forward.  Like a high-performance engine, everything has to work, everything needs proper lubrication, and there is a very small tolerance for error.

Consumer Sentiment Falls To The Lowest Levels Since December 2011

After this extremely high CPI, asset value, and other reflationary economic levels, while we are seeing Consumer Sentiment declined dramatically (from 81.2 to 70.2: falling -14.5% to the lowest levels since December 2011), it appears consumers have already started to head for the exits.

We need to stay cautious of what may happen over the next few months and be headed into the end of 2021 in terms of valuation levels and volatility.  If the consumer side of the economy suddenly vanishes, because of inflationary, economic, or other concerns, we may see a very sudden collapse in home prices, economic activity, GDP, and other asset values.  If consumers re-engage in the economy after these massive inflationary and economic rallies, then we may see continued support for stock market valuation levels near current values.

https://www.thetechnicaltraders.com/wp-content/uploads/2021/08/2021-08-16_GDPComponents-2.jpg

(Source: https://www.thebalance.com/components-of-gdp-explanation-formula-and-chart-3306015#:~:text=Components%20of%20Real%20GDP%20%282019%29%20%20%20,%20%2016%25%20%2017%20more%20rows%20)

Again, consumers drive economic activity and without consumer engagement, the US and global economy may slip into a Recession.  The post-COVID world has experienced a very strange and explosive economic explosion in terms of price appreciation, economic data output, inflation, and other factors.  History has shown that once we reach these extreme levels, consumers typically react by pulling away from speculation and waiting for new opportunities in the markets.

The current Consumer Sentiment levels are already suggesting that consumers have started to pull away from economic optimism.  We need to stay very cautious of what happens over the next few months as we see how the end of 2021 and early 2022 play out.

More than ever, right now, traders need to move away from risk functions and start using common sense.  There will still be endless opportunities for profits from these extended price rotations, but the volatility and leverage factors will increase risk levels for traders that are not prepared or don’t have solid strategies.  Don’t let yourself get caught in these next cycle phases unprepared.

Please take a minute to learn about my BAN Trader Pro newsletter service and how it can help you identify and trade better sector setups.  My team and I have built this strategy to help us identify the strongest and best trade setups in any market sector.  Every day, we deliver these setups to our subscribers along with the BAN Trader Pro system trades.  You owe it to yourself to see how simple it is to trade 30% to 40% of the time to generate incredible results.

For those of you who are interested in Options Trading, our resident specialist Neil Szczepanski will be hosting a LIVE two-part Intermediate Course beginning on Wednesday, August 25, 2021. Neil will dive deep into the different strategies and outline what are the best trade setups and what to avoid – helping you to become a more knowledgable, confident, and advanced options trader. To learn more, or to register for the course, kindly click on the following link: INTERMEDIATE OPTIONS MENTORING COURSE.

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

Have a great day!

Chris Vermeulen
Chief Market Strategist

 

Top Three Biggest Mistakes Made By Options Traders

I have been trading options and coaching / mentoring new options traders for years.  I have seen new traders who were blindly successful and others who were so frustrated on the verge of giving up,  I have seen it all.  Over the years, I have seen some very common themes among all traders, especially with options.  Options trading can be very rewarding but it is not as easy as buying and selling stocks.  There are many more factors and variables you must take into consideration when trading options especially if you are swing trading them or holding them for an extended period of time.

There is a certain skill it requires that is a mix of technical, statistical, and fundamental analysis.  These are not skills everyone has and you have to master all three if you want to be a really successful trader.  I have noticed stock traders tend to have a good amount of fundamental and technical skills but usually lack in the statistical area.  This can cause a problem when it comes to their success.  While trading stocks, this might be a great formula that works but when switching to options it could be a losing formula.  Many traders don’t know where they went wrong.

So below are the top three most common mistakes I see new options traders are making on a regular basis that prevents them from being profitable in trading stock options:

1. Understanding Historical and Implied Volatility

Volatility plays a huge part in determining the price and value of an option.  You have to remember these assets are priced based on expected fair value usually by the Black-Scholes Merton (BSM) model.  Below is the formula:

https://www.thetechnicaltraders.com/wp-content/uploads/2021/08/graphics-1.jpg

But let’s face it, not many people can really understand that.  All you need to know is depending on when volatility moves how the price moves with it.  The easiest way to do this is to use an options trading platform like ThinkorSwim or TradeStation and let the platform do the heavy lifting to determine what-if scenarios if volatility goes up or down on price.

2. Calculating The Cost of Buying Options

Often, I have seen traders buy options way out of the money hoping for a big move.  Many times, that big move does not happen, then these traders lose.  Even if you buy an option at the money (ATM) you still are expected that underlying stock to move greater than the overall cost of the option.  For example, let’s assume there is a stock called XYZ trading at $100.  You buy a call option that expires one month out for $10.  You are assuming that XYZ will move up $10 to $110 just to break even in that month.  So, your real “intrinsic” cost is $110.  But wait, there is more, you are expecting this to happen within one month.  There is a timer on this event.  So, you need a relatively big move of 10% in less than one month.

3. A Belief They Can Buy Options And Make Millions In A Short Time

It is 100% possible to buy huge positions in options and make millions in a very short time but it is not practical nor is it probable.  It is really just gambling.  Gambling is not a good investing or trading strategy.  Sure, people have won big but for every big winner you hear about, there are thousands blowing up their account.

Usually what I see is people who are successful will keep trading and just like in the casino world they will give it all back and then some.  It is pretty tragic to watch this, and I actually feel more sorry for the ones that have beginner’s luck because they are the ones that end up in the worst spot.  As a person who lived this myself and I have blown up my account 3 times it is not fun and it can break a person both mentally and sometimes physically.  RIP to the Robinhood options trader who killed himself after not understanding how TSLA option position.  Slow and steady is what wins here.  Base hits and not home runs. It’s okay to go for the occasional home run but that should be a VERY small percentage of what you trade.  Look for consistent income and returns from your options trades.  The bottom line is trading options is not a get rich quick ideology and if anyone tells you that they are not telling the whole story.

Every day on OTS – The Technical Traders we do define risk trades that protect us from black swan events 24/7.  Many may think that is what stop losses are for.  Remember the markets are only over 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 define risk in an option spread.  We cover with multiple legs which are always on once you own.

For those of you who are interested in Options Trading, our resident specialist Neil Szczepanski will be hosting a LIVE two-part Intermediate Course beginning on Wednesday, August 25, 2021. Neil will dive deep into the different strategies and outline what are the best trade setups and what to avoid – helping you to become a more knowledgable, confident, and advanced options trader. To learn more, or to register for the course, kindly click on the following link: INTERMEDIATE OPTIONS MENTORING COURSE.

Have a great day!

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

Chris Vermeulen
Chief Market Strategist

 

Surprising Consumer Activity May Suggest A Deeper Shift In The Markets, Part II

Continuing our research into shifting Consumer Sentiment and other economic data recently posted. Part II of our research article will focus on the components of US GDP and how shifting consumer sentiment and activities may result in lower GDP data for a period of time.

GDP is one of the biggest measures of total economic activity and the health of the US economy.  Rising GDP suggests overall strength in the economy while falling GDP suggests one, or more, of the GDP components are weakening.  If the current downturn in Consumer Sentiments and NY Manufacturing activity is any real indication of a shift in how consumers are engaging in economic activity, then we’ll likely see a continued downward shift in these economic data points for a period of time.

Consumers Have An Innate Skill In Understanding Opportunities & Risks

As we suggested in the first part of this research article, we’ve seen very few major declines in US consumer sentiment over the past 15+ years.  The only time we’ve seen a big decline in consumer sentiment over the past 10 years was near the bottom of the COVID-19 economic collapse.  On April 9, 2020 (-20.31%) and April 24, 2020 (-19.42%), the Consumer Sentiment levels collapsed by nearly -20%.  These broad collapse levels came after the COVID peak in late February 2020 and were preceded by more moderate downward trends in Consumer Sentiment; March 13, 2020 (-5.05%), and March 27, 2020 (-7.09%).

The current collapse in Consumer Sentiment represents a -13.55% decline preceded by July 16, 2021 (-5.50%), and July 30, 2021 (-5.03%).  Overall, the current weakening of Consumer Sentiment is somewhat similar to the March/April 2020 collapse.  Although, this time we are seeing a downward swing in Consumer Sentiment while the US economy is still moderately active, and not entering another extended shutdown period related to the COVID virus.

https://www.thetechnicaltraders.com/wp-content/uploads/2021/08/2021-08-16_ConsSentiment-2.jpg

We believe this current Consumer Sentiment decline is more related to the extended rally phase in the US stock market and other assets – which have been pushed well beyond the traditional supply/demand equilibrium by the US Federal Reserve and extended COVID-19 relief packages and policies.  Price has been unable to engage in a proper “price exploration” process because the US Federal Reserve and US Government have been stomping on the easy money gas pedal while engaging in policy that distorts true valuation levels.

Consumers are not blind to these facts.  In fact, Consumers are often keenly aware of opportunities and risks and have an innate skill of sensing and understanding when price levels reach well beyond upper or lower extremes.  It may be that Consumers are starting to react to the reality of the situation before them and starting to pull away from these extremely hyper-inflated price levels of assets.

GDP Components May Be At Risk If Sentiment Continues To Shift

This leads us back to the question before all of us right now.  Are the consumers shifting away from growth expectations related to the post-COVID-19 recovery – and how could that shift reflect in future economic and GDP outputs?

We found this information related to the components of US GDP and how the GDP data is constructed.  We thought it might be useful to share this data with you.

Notice how Consumers, Retail, and Services are the largest components of GDP.  This suggests that a broad consumer shift away from chasing rising price levels may prompt a very big shift in how the US markets may react to what may become a contraction in the US and global economies.  Remember, the US economy and stock market is the single largest economic driving component in the world.  The US stock market consists of over $48 trillion in assets, whereas the next 8 largest global stock exchanges (China, Japan, Hong Kong, Euronext, London, Toronto, and India) consist of a total of $39.2T.

This means, where the US markets trend, foreign markets are likely to follow in some form simply because of the massive amount of assets allocated into the US equities markets.

https://www.thetechnicaltraders.com/wp-content/uploads/2021/08/2021-08-16_GDPComponents-1.jpg

(Source: https://www.thebalance.com/)

Production, Net Trade Balances, and Consumer & Services spending make up the core components of US GDP.  Yet, Consumer Spending and Services make up nearly 70% of total GDP.

If the Dampening Sine Wave Process continues to unfold and shifts consumer sentiment away from chasing the rally trends, then it is very logical that we could see broad US and global trends decline over the next 6+ months and possibly lasting well beyond 2022.  All it would take for this to happen would be some external world event to increase the Amplitude of the Dampening Sine Wave process – such as another new COVID variant, global wars, another global credit crisis, or broad consumer disengagement as asset prices fall.

https://www.thetechnicaltraders.com/wp-content/uploads/2021/08/2021-08-16_GDP4Components.jpg

(Source: https://www.thebalance.com/)

The Consumer Protectionism Process & How It Completes the Cycle

If the US Consumer continues to pull away from perceived risks associated with the hyper-inflated market and asset trends, then a bigger economic shift will continue to unfold.  This process of “consumer protectionism” is a cycle that continued to strengthen until price levels revert away from hyper-inflated risk levels and fall to levels representative of under-inflated opportunity levels.  Historically, this type of price reversion events has prompted new waves of growth and wealth for many as well as presented some real challenges for those that are unprepared for this type of event.

Once consumers start this process of pulling away from making big purchases and/or considering current price levels to be excessive. It is very likely this process will continue to build until one of two things happen; consumer confidence is restored (over time) and consumers believe a real opportunity exists in buying assets, or price levels actually move lower (creating the reversion process) where assets/stocks fall to levels where Consumers believe an opportunity exists to re-invest capital into the markets.

We need to watch how the next Consumer Sentiment level shows either strengthening consumer belief in the economy or weakening belief that the economy is properly balanced at this time.  On August 27, 2021, we’ll get the next Consumer Confidence report.  Until then, we need to stay cautious of what the markets report to us related to these shifts in US consumer expectations.

In Part III of this research article, we’ll try to pull all of this together onto major index price charts to better illustrate how the markets are starting to react to this shift in how Consumers engage in the US economy.

More than ever, right now, traders need to move away from risk functions and start using common-sense.  There will still be endless opportunities for profits from these extended price rotations, but the volatility and leverage factors will increase risk levels for traders that are not prepared or don’t have solid strategies.  Don’t let yourself get caught in these next cycle phases unprepared.

Please take a minute to learn about my BAN Trader Pro newsletter service and how it can help you identify and trade better sector setups.  My team and I have built this strategy to help us identify the strongest and best trade setups in any market sector.  Every day, we deliver these setups to our subscribers along with the BAN Trader Pro system trades.  You owe it to yourself to see how simple it is to trade 30% to 40% of the time to generate incredible results.

As something entirely new, check out my initiative URLYstart to learn more about the youth entrepreneurship program I am developing. This is an online program of gamified entrepreneurship designed to introduce and inspire youth to start their own businesses. Click-by-click, each student will be guided from their initial idea, through the startup process all the way to their first sale and beyond. Along the way, our students will learn life lessons such as communication, perseverance, goal setting, teamwork, and more. My team and I are passionate about this project and want to reach as many people as possible!

Have a great day!

For a look at all of today’s economic events, check out our economic calendar95

Chris Vermeulen
Chief Market Strategist

 

Surprising Consumer Activity May Suggest A Deeper Shift In The Markets

Recent economic data suggests that US consumers are starting to pull away from the types of buying/spending activities we saw after the COVID virus event that shifted the US economy away from travel/office and towards work-from-home solutions.  The deep decline in the US and global economic indicators, as a result of the COVID-19 shutdown, prompted an incredible recovery rally phase in the markets that had everyone chasing the uptrend in stocks, housing prices, and other assets.  Now that we are beyond 15+ months after the March 2020 COVID lows, a new dynamic may be setting up in the markets.

Consumers & Trends May Shift Expectations Over The Next 6+ Months

Consumers & Services make up nearly 70% of GDP activity.  Any shift in how consumers feel about the US/Global economy may translate into extended market trends and reflect in other economic data going forward.  In recent research articles, we’ve highlighted how the extended rally phase in the markets continues to push higher in a “melt-up” type of trend – yet current data is starting to show a shift in how consumers are reacting to this extended trend.  The US/Global markets may be setting up for a big shift away from this continued rally phase.

One concept I want to remind traders of is the continuing normalization of market trends/indicators as the post-COVID-19 recovery continues. The extreme rally phase that has taken place, after the extreme lows resulting from the COVID-19 global shutdowns, is likely to transition into more normalized trending through a process called a “Dampening Sine Wave”.  This process may prompt a fairly big downward economic trend resulting from Month-over-Month and Year-over-Year data trending lower for the next 6 to 12+ months as the data shifts throughout the Sine Wave process.

https://www.thetechnicaltraders.com/wp-content/uploads/2021/08/CovidSineStructre-1.png

As time progresses forward, we will see the trends roll over the June/July peak in this Sine Wave process and begin to move downward.  This will shift how consumers perceive global market trends and will shift how economic data is being reported.  What was very strong growth, inflation, and economic data will shift into weaker trends and an eventual downtrend as the Month-over-Month and Year-over-Year data shifts forward.

Consumers Have Already Started Reacting To These Extreme Highs

Consumers, and consumer activity, should always be one of the top economic indicators traders/investors follow.  Additionally, the Transportation Index is another key indicator that leads the US/Global markets by 3 to 6+ months in most cases.  Consumers and consumer activity make up nearly 70% of the US GDP and account for a very large portion of the US/Global economy.

If consumers constrict spending and economic engagement activity over the next few months because of new COVID restrictions, perceptions that the economy has become super-heated, and/or any other issues related to US/World affairs, it is likely that the shifting Dampening Sine Wave process may see an accelerated Amplitude range related to the normal Dampening process compounded by the shifting Consumer sentiment.

Currently, the Michigan Consumer Sentiment data has collapsed -13.55% based on the August 13, 2021 posting – from a level of 81.2 to 70.2.  This comes after Consumer Sentiment has been above 71 since January 2012.  This new low data point for Consumer Sentiment may represent a big shift in how consumers are reacting to the global market trends and the US Federal Reserve pushing the envelope related to interest rates and economic activities.

https://www.thetechnicaltraders.com/wp-content/uploads/2021/08/2021-08-16_ConsSentiment.jpg

(Source: https://www.investing.com/economic-calendar/michigan-consumer-sentiment-320)

If we stop to consider how important the consumer is and the psychological aspects of a shifting economy as we have described above, one must stop and ask two simple questions –  “what happened the last time consumers pulled away from economic activities and how long did it take them to re-engage in normal spending activities?”.

The answer to that question is that this type of consumer reaction has only happened once in the past 10 years, based on data sourced from Investing.com using the Michigan Consumer Sentiment data.

April 9, 2020 (-20.31%) and April 24, 2020 (-19.42%) – right at the peak of the COVID-19 global shutdown crisis.

Prior to those dates, we have to go all the way back to 2010 & 2011, just after the Housing Market crash where the markets were struggling to regain upward momentum, and the Consumer Sentiment levels bottomed out at 56.2.

In Part II of this research article, we’ll continue to explore the shifting tides of the US and global markets in relation to our belief that the Dampening Sine Wave process is continuing to unfold.  This means traders and investors need to be prepared for extreme volatility events over the next 12 to 24+ months and be ever cautious of any new external economic crisis events.  These external events may prompt an increase in the Amplitude and structure of the Dampening Sine wave process and could completely disrupt the global market recovery process taking place right now.

More than ever, right now, traders need to move away from risk functions and start using common sense.  There will still be endless opportunities for profits from these extended price rotations, but the volatility and leverage factors will increase risk levels for traders that are not prepared or don’t have solid strategies.  Don’t let yourself get caught in these next cycle phases unprepared.

Please take a minute to learn about my BAN Trader Pro newsletter service and how it can help you identify and trade better sector setups.  My team and I have built this strategy to help us identify the strongest and best trade setups in any market sector.  Every day, we deliver these setups to our subscribers along with the BAN Trader Pro system trades.  You owe it to yourself to see how simple it is to trade 30% to 40% of the time to generate incredible results.

Have a great day!

Chris Vermeulen
Chief Market Strategist

 

How Options Are Fueling The Markets

First, let’s look at the covid crisis and how it played a role. As a result of the shutdowns, the FED took a really aggressive stance with its quantitative easing measures.  Lots of money printing to pay for massive stimulus payouts.  The worse news we hear historically is that the markets will react sharply to the downside.

In this market, they did the opposite because many in the market viewed the bad news as a sign the FED will keep its foot on the gas with their aggressive quantitative easing.  The markets love this as they see it as huge economic growth with less risk, even when things were shut down.  Many people were at home and had nothing to do but spend their stimulus money.  The markets loved this.  That is why we saw massive growth in AMZN, FB, GOOGL, and MSFT.  Other stocks favored from staying at home were ZM, NFLX, and TTD.

Now how do options fuel the markets?  Well, when an underlying stock has options there is a secondary derivative market that has its own supply and demand outside of the stock.  This can cause market makers to balance those demands.  How do they do this?

They do this by taking the difference of the total contracts bought and sold and adjust accordingly.  So for example let’s look at SPX.  In the below picture you can see Put volume is roughly half the call volume.  In this case, the market maker would engage in an activity called delta hedging where they would buy shares of stock to offset the difference between the Put and Call contract volume.  Since the market maker is only interested in the arbitrage between the bid and ask of these contracts, they want to stay delta neutral or, in other words, not be affected by stock price movement.

When they buy to offset, this can drive the price of an underlying stock up.  This is one reason why so many traders watch unusual options activity.

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.

Enjoy your day!

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

Chris Vermeulen
Founder & Chief Market Strategist
www.TheTechnicalTraders.com

 

Diminishing Volume Suggests US Stock Market Momentum Is Weakening

It represents a complacency in the markets where traders/investors are unwilling to chase an extended rally phase at higher prices.  Often traders are waiting for some type of market correction or rotation to happen – which will allow them to deploy capital back into the markets at decreased price levels.  Sometimes, this diminishing volume presents a unique scenario where traders shift their expectations away from traditional “buy the dip” thinking and that can sometimes create what is called a Flash Crash event.

Revisiting the August 2015 Flash Crash Event

In August 2015, a unique Flash Crash took place that prompted a -12.5% collapse in the S&P 500 in just four trading days – after a bout of selling pressure on a Wednesday/Thursday/Friday.  The following Monday, the markets opened with a small lower opening gap, yet traders were unwilling to buy into the ASK and this created a very unique scenario where price exploration created a widening price void.  As algos and computers continued to try to find active buyers in the marketplace, the ASK/BID spreads continued to widen as the liquidity trap had sprung.

Without active participation in the price exploration process (a lack of buyers supporting the market in this case), sell-side systems kept working active orders while chasing the ASK lower and lower through the price void.  This is a type of liquidity trap that unfolds when the equilibrium between active buyers and sellers becomes skewed.  The price void becomes a very tangible liquidity trap that eventually closes after a substantial price move – when traders become bargain hunters and start to fill the liquidity trap.

It is the opinion of my team and I that the components of a Flash Crash event consist of three unique market dynamics aligning to create this type of outcome.

  • Complacency in the marketplace – or lack of urgency by many traders to understand and recognize the risks within the markets right now.
  • Diminishing Trading Volume – a weakening total volume level suggests traders are not actively engaging in the price exploration process.  This creates the potential for a Price Void to come into existence – disrupting the normal ASK/BID spreads.
  • An Extended, almost ritualistic, price trend cycle that materializes to shake traders away from normal risk protection processes.  In this type of scenario, stops are very wide, or sometimes non-existent.  Traders are committed to the trend and have over-leveraged themselves into the belief that “nothing could go wrong”.

In August 2015, the US markets had been trending higher since the August 2011 deep market correction (consisting of a -22% correction).  The rally from those 2011 lows lasted almost 3.5 years and consisted of a +95% upside price advance before the 2015 Flash Crash.  Average Volume throughout this span of time was near 2.6~2.7M shares a day.  Over the 90+ days before the August 2015 Flash Crash, Daily Trading Volume dropped to 1.3~1.5M shares a day.  Additionally, price had entered a decidedly sideways “melt-up” in 2015 which eventually rolled over after May/June 2015.

As we move forward into this research article, I wanted to bring something interesting to your attention.  Have you noticed the deep correction in 2011 happened in August?  The 2015 Flash Crash happened in August.  The deep market correction in 2018 started on September 2, just days after August 2018.

Historically, August typically shows a nearly 2:1 downside propensity over the past 28+ years (for the SPY: 13 years showing an average of -6.34 vs. 15 years showing an average of +3.45).  The largest Monthly positive and negative values for the SPY are +8.82 and -14.42 respectively.  In other words, the month of August, or transitioning into September, can be full of very big surprises at times.

Current SPY Diminishing Volume May Be Setting Up An August Surprise

The continued melt-up over the past 8+ months since the November 2020 elections may be presenting a very real opportunity for another type of August volatility event.  We are starting to see weakening volume while the SPY continues to grind higher in a more narrowing range.  Recently, the dramatically weaker trading volume seems to have fallen off a cliff over the past few weeks.

The 2015 Flash Crash set up on the week of August 10 through August 14.  Oddly, today is August 12, 2021.  Are we setting up for another type of volatility event, or Flash Crash, right now with this diminishing volume?

S&P 400 MidCap Futures Show A Very Clear Diminishing Volume Setup

Historically, the average volume on this MC, S&P 400 MidCap Weekly Chart, has been somewhere near 65,000 to 75,000 over the past 2+ years.  Currently, the average Weekly trading volume has dropped to approximately 38,000 to 44,000 over the past 6+ months.  Additionally, we’ve seen a dramatic decline in volume over the past 3+ weeks – almost as if volume levels have fallen off a cliff while price has continued to move in a decidedly sideways price channel.

As we continue to push through the month of August, it might be wise to reconsider risks related to an August surprise while continuing to focus on protecting assets and growing wealth over time.  We are not trying to push any fear into your heads related to our research, we are simply pointing out the similarities to the 2015 Flash Crash and the August Surprise events that have taken place over the past 8+ years.

Our data shows that August typically presents a 2:1 downside price volatility exception even though August has historically been higher 15 of the last 28 years.  That means that August may continue higher with a nearly 55% chance of no August Surprise event.  But the flip-side of that is there is nearly a 45% chance that a broad downside market event will take place in August that may be in excess of -6.34 to -14.42 points for the SPY.  Translating that for the MC would represent -50.33 to -95.5 points with roughly the same accuracy ratio.

One thing is certain, there are only about 12 more trading days in August 2021.  We’ll know soon enough if there is going to be any type of volatility event associated with the diminishing volume we are seeing in the markets right now.  There is not much time left for this event to take place – only about 15 to 25+ days based on our expectations.

More than ever, right now, traders need to move away from risk functions and start using common sense.  There will still be endless opportunities for profits from these extended price rotations, but the volatility and leverage factors will increase risk levels for traders that are not prepared or don’t have solid strategies.  Don’t let yourself get caught in these next cycle phases unprepared.

Please take a minute to learn about my BAN Trader Pro newsletter service and how it can help you identify and trade better sector setups.  My team and I have built this strategy to help us identify the strongest and best trade setups in any market sector.  Every day, we deliver these setups to our subscribers along with the BAN Trader Pro system trades.  You owe it to yourself to see how simple it is to trade 30% to 40% of the time to generate incredible results.

As something entirely new, check out my initiative URLYstart to learn more about the youth entrepreneurship program I am developing. This is an online program of gamified entrepreneurship designed to introduce and inspire kids to start their own businesses. Click-by-click, each student will be guided from their initial idea, through the startup process all the way to their first sale and beyond. Along the way, our students will learn life lessons such as communication, perseverance, goal setting, teamwork, and more. My team and I are passionate about this project and want to reach as many kids as possible!

Have a great day!

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

Chris Vermeulen
Chief Market Strategist

 

Global Markets Start The Week Very Volatile – Metals & Oil Collapse, Part II

The big “mini flash-crash” in precious metals on Monday, August 9, may have been an early warning that the markets are shifting away from past expectations and moving towards a new post Q2:2021 reality.  Let’s continue exploring these trends.

JR GOLD MINERS NEED TO HOLD SUPPORT NEAR $43

The big selling that took place in Gold and Silver on Monday, August 9, will likely put pressure on GDXJ, the Jr Gold Miners ETF, which is already trading very close to the $43 support level.  If this level is broken/breached to the downside, traders need to watch if the price trend of GDXJ continues to push lower or if the $43 price level re-establishes itself with a fairly quick price recovery.

Precious metals, and the miner ETFs, react to extreme fear in the markets usually by selling off quite aggressively in volatility events.  Usually, Metals and Miners recover within 30 to 60 days of these volatility events and continue to trend higher as the fear of any market event drives traders into metals as a safe haven.

The current Double Bottom near $43 in GDXJ may prove to be a critical price level in the near future if our expectation of a global market volatility event actually unfolds over the next 10 to 20+ days.  The post Q2:2021 earnings and growth expectations have passed as earnings data has continued to hit the news wires recently.  Now, after the earnings news settles, the market must decide what is the most likely outcome of price for the next Q3 reporting period – a 65 to 95 day span of time.

Do traders believe another 15% to 20% rally phase is the path of least resistance at this stage of the recovery rally, or do they believe the markets have already reflected the post-COVID recovery rally attempt and have peaked in the near-term with Q2:2021 expectations?  That is the big question.

TRANSPORTATION INDEX CONTINUES TO WEAKEN & SETUP A PENNANT/FLAG PATTERN

In a fairly similar move to Precious Metals, the Transportation Index has continued to move downward, breaking multiple upward sloping support channels, over the past 85+ days as an indicator that traders believe the rally in the economy has already peaked.  The Transportation Index acts as a forward expectation of the US overall economic activity/engagement – often leading the markets by 2 to 4+ months.  When the Transportation Index changes direction and starts to trend higher or lower, traders should start to pay attention to this because the new major trend is likely to become a major issue for the US major markets in about 90 to 180+ days.

The peak in the Transportation Index in early May, just after the Q1:2021 earnings release, is suggesting the late 2020 and Q1:2021 rally in the US major markets was a true reflation trade rally which may have ended in April/May 2021.  The downward price slide that we can see on this Transportation Index chart suggests the US economy is sliding into a consolidation/downtrend and is weakening overall after Q1:2021.

Currently, the Transportation Index is setting up in a Pennant/Flag formation (highlighted in MAGENTA on this chart).  We found it interesting that throughout the Q2:2021 earnings announcements, which continued to stay rather strong compared to seeing broad earnings/revenue misses, prompted a sideways price trend and more volatility in the US major indexes. It also prompted a downward price trend in the Transportation Index which has shifted into this new Pennant/Flag pattern setup.

Obviously, if traders really believed the Q2:2021 earnings data translated into increased growth and revenue opportunities to continue into Q3 and Q4 2021, we would have expected to see the US major indexes rally on these strong data points and expectations – but that didn’t happen. What did happen is the markets shifted into a sideways price trend where any attempt to rally to new highs was met with almost immediate consolidation/rotation.

As we move closer to the Apex of the Pennant/Flag price setup, traders need to prepare for a breakout/breakdown volatility event taking place.  If the Transportation Index breaks below $14,000, traders should expect the second half of 2021 to become a bigger rotational price trend.  If the Transportation Index holds above $14,000 and starts a new rally, then the second half of 2021 will likely continue to push higher and higher – extending the reflation rally into the Christmas rally for 2021.

RUSSELL 2000 FLAGGING IN A BROAD RANGE CHANNEL – SUGGESTING A VERY BIG VOLATILITY EVENT IS PENDING

This URTY Weekly chart highlights one of the most important aspects of the US major markets over the past 12+ months.  You should be able to clearly see the big reflation rally that took place after the November 2020 elections on this chart where URTY rallied from $40 to $140.  Then, after March 2021 (Q1:2021), URTY setup a very broad range peak and began to trade sideways in a broad range price flag.  Support near $90 is still confirming as a critical support level for URTY while the upper range has been sliding lower over the past 3+ months.

More recently, as we’ve highlighted in GOLD, URTY has broken downward in a very broad Pennant/Flag price formation that is very near the Apex level.  This suggests a very volatile breakout or breakdown price event is setting up and this event is likely to take place within the next 2 to 4 weeks.  The $90 support level will be key to understanding if the US major markets are about to attempt a bigger downside price move while the $117 level will be key to understanding if the US major markets are about to enter a new rally phase.

The mini flash-crash that took place in Gold, Silver, and Crude Oil on Monday, August 9, may have been a very clear “shot over the bow” for traders and investors to pay attention to the risks that are setting up in the global markets right now. These Apex Flag patterns are going to prompt a new trend – as they usually do.  The lack of real upward momentum in the US major markets over the past 30+ days while the Transportation Index and Russell 2000 show very clear signs of weakness may suggest the rally is running out of momentum.

Yet, we still have to be patient and wait for the breakout/breakdown event to unfold (and confirm) before we can attempt to accurately identify which side is more likely to prevail.  One thing is certain, though, Gold, Silver, Crude Oil, and the US major markets are clearly suggesting a big volatility event is about to unload/unfold.  This could be the start of a very big Q3 & Q4 global price trend – so get ready.

More than ever, right now, traders need to move away from risk functions and start using common sense.  There will still be endless opportunities for profits from these extended price rotations, but the volatility and leverage factors will increase risk levels for traders that are not prepared or don’t have solid strategies.  Don’t let yourself get caught in these next cycle phases unprepared.

Please take a minute to learn about my BAN Trader Pro newsletter service and how it can help you identify and trade better sector setups.  My team and I have built this strategy to help us identify the strongest and best trade setups in any market sector.  Every day, we deliver these setups to our subscribers along with the BAN Trader Pro system trades.  You owe it to yourself to see how simple it is to trade 30% to 40% of the time to generate incredible results.

As something entirely new, check out my initiative URLYstart to learn more about the youth entrepreneurship program I am developing. This is an online program of gamified entrepreneurship designed to introduce and inspire kids to start their own businesses. Click-by-click, each student will be guided from their initial idea, through the startup process all the way to their first sale and beyond. Along the way, our students will learn life lessons such as communication, perseverance, goal setting, teamwork, and more. My team and I are passionate about this project and want to reach as many kids as possible!

Have a great day!

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

Chris Vermeulen
Chief Market Strategist1

 

A Volatile Start To The Week For Global Markets – Metals & Oil Collapse, Part I

Overnight, on Sunday and early Monday, Precious Metals and Oil started a fairly big collapse which quickly bottomed and recovered – at least in the Precious Metals markets.  Crude Oil is still moving lower in early trading on Monday, August 9, 2021.  Can we learn anything from the pre-COVID market trends and extrapolate any real-world analysis from this?

Precious Metals “Mini Flash Crash” Surprises Markets This Week

One thing that struck me related to this move is this is a similar type of move that took place at the start of COVID in February 2021.  Crude Oil started to move lower in early January 2020 while the US stock market continued to move higher before the COVID virus event hit.  Gold also moved higher from January 2020 to a peak in February 2020 – just before COVID.  Yet, all of them, Precious Metals, Oil, and the US major markets, moved dramatically lower as soon as the reality of a COVID type economic event setup and traders realized the scope of the issues before all of us.

Today, we are seeing the Precious Metals, Oil and the US major markets move dramatically lower with what appears to be a moderate “flash crash” type of event in Precious Metals and Oil.  If we see a continued decline in the markets over the next few days/weeks, we might start to consider a new volatility event may be setting up related to the future expectations of the global economy, US economic and Federal Reserve policies/activity, and how the unknown aspects of the future of the global economy continue to play out.

This Daily Gold Futures chart highlights the deep “flash-crash” type of price action that took place early Monday, August 9, morning.  My research team and I believe this move reflects a very deep concern by US and foreign investors related to the future global economic reflation abilities.  Even though many still believe the global markets will continue to recover and grow, we believe the post-COVID recovery may already be near a peak level and starting to flatten out/contract.

The world economy will continue to transition through an extended recovery phase which is very likely to continue to experience wild swings in volatility.  Weaker Crude Oil, Transportation Index, and other major indexes would suggest the past 12+ month global market rally is nearing a peak – or has already peaked.

We need to be cautious of a sudden change in market dynamics related to key underlying commodities and market sectors as this transition continues to play out.

Crude Oil Started To Trend Lower Nearly Three Months Before The 2020 COVID Collapse

Crude Oil is struggling to hold above support near $65.30 and has recently rolled into a defined downtrend.  One thing is very clear, the current Double Bottom near $65.30 is clearly the last line of defense for Crude Oil related to the previous bullish price trend. Once Crude Oil falls below this support level, it will likely fall back to the $50 support level and may attempt to fall further.

Watch how the US and global markets continue to contract and move lower over the next few days/weeks as a new shift in the global markets appears to have already setup and started to transition.  In early 2020, Crude Oil shifted into a bearish price trend nearly three months before the big COVID market collapse.  Currently, Crude Oil has been moving lower for almost two months already and we have seen other key market indexes move sideways/downward as well.  Have we already transitioned into a new phase of downside market trending after the June/July peak in Oil?

In Part II of this article, we’ll continue to explore how other key market indexes may be highlighting global market weakness and clearly pointing to a US market that is attempting to trend higher while the floor appears to be falling away from recent support levels. The mini flash crash in precious metals this morning may have been the shot over the bow of the global markets suggesting “here is your warning – what is your next move”.

More than ever, right now, traders need to move away from risk functions and start using common sense.  There will still be endless opportunities for profits from these extended price rotations, but the volatility and leverage factors will increase risk levels for traders that are not prepared or don’t have solid strategies.  Don’t let yourself get caught in these next cycle phases unprepared.

Please take a minute to learn about my BAN Trader Pro newsletter service and how it can help you identify and trade better sector setups.  My team and I have built this strategy to help us identify the strongest and best trade setups in any market sector.  Every day, we deliver these setups to our subscribers along with the BAN Trader Pro system trades.  You owe it to yourself to see how simple it is to trade 30% to 40% of the time to generate incredible results.

As something entirely new, check out my initiative URLYstart to learn more about the youth entrepreneurship program I am developing. This is an online program of gamified entrepreneurship designed to introduce and inspire kids to start their own businesses. Click-by-click, each student will be guided from their initial idea, through the startup process all the way to their first sale and beyond. Along the way, our students will learn life lessons such as communication, perseverance, goal setting, teamwork, and more. My team and I are passionate about this project and want to reach as many kids as possible!

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

Have a great day!

Chris Vermeulen
Chief Market Strategist

 

NQ Rallied To New All-Time Highs – Are We Starting Another Bullish Rally Phase?

After the Fed’s comments in support of the US economy and the transitory nature of the recent inflation, the NASDAQ rallied to new all-time highs and closed at $15,167.75 on August 5, 2021. If the markets fall back into the “melt-higher” mode as we move away from Q2:2021 earnings, we may be setting up for a moderately big rally phase targeting $15,400 or higher in the NQ.

Global Traders Continue To Bank On A Rally In US Equities

Global traders have poured billions into the US markets over the past 4+ years as the US Federal Reserve has continued to act as the global banker of last resort. Because of this, global traders continue to invest in US equities as the strength of the US Dollar and the incredible post-Covid rally in the markets has blown past everyone’s expectations.

This Daily NQ Chart shows how the trading on Thursday, August 5th, 2021, rallied past the recent high levels to close at a new all-time high. The $15,000 level appears to be fairly strong resistance, but the NASDAQ has continued to be one of the strongest market sectors over the past 6+ months – continually pushing higher and higher.

Quite possibly, the NQ may be starting a new rally phase which may attempt to move upward towards $15,400 or higher.

We’ll know soon enough if the NASDAQ and other US major indexes are able to continue this rally phase. August and September are typically very volatile months for traders, but the Christmas rally usually starts in late September or early October as consumers start preparing for the holidays upon seeing Halloween decorations lining the shelves in stores.

The next few months may be full of volatility and big trends. There will still be endless opportunities for profits from these extended price rotations, but the volatility and leverage factors will increase risk levels for traders that are not prepared or don’t have solid strategies. Don’t let yourself get caught in these next cycle phases unprepared.

Want to know how our BAN strategy is identifying and ranking various sectors and ETFs for the best possible opportunities for future profits? Please take a minute to learn about my BAN Trader Pro newsletter service and how it can help you identify and trade better sector setups. My team and I have built this strategy to help us identify the strongest and best trade setups in any market sector. Every day, we deliver these setups to our subscribers along with the BAN Trader Pro system trades. You owe it to yourself to see how simple it is to trade 30% to 40% of the time to generate incredible results.

As something entirely new, check out my new initiative URLYstart to learn more about the youth entrepreneurship program I am developing. This is an online program of gamified entrepreneurship designed to introduce and inspire kids to start their own businesses. Click-by-click, each student will be guided from their initial idea, through the startup process all the way to their first sale and beyond. Along the way, our students will learn life lessons such as communication, perseverance, goal setting, teamwork, and more. My team and I are passionate about this project and want to reach as many kids as possible!

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

Have a great day!

Chris Vermeulen

Chief Market Strategist

 

When The Russell 2000 ETF (IWM) Reenters Price Flag Range – What’s Next For The US Markets?

Then, in March, the Russell 2000 peaked near $234.53 and entered a sideways Pennant/Flag formation/rotation. In June and July 2021, a moderate breakout/breakdown of that Pennant/Flat formation took place – resulting in price reentering the Pennant/Flag range near the Apex level. What does this mean for investors/traders?

IWM Rallies To Incredible Highs After November 2020 Elections

First, we want to highlight something very unusual related to the strength of the rally that took place after the November 2020 elections and into early 2021. There has only really been one example of any US major index reentering a bullish price phase that rallies so strong it reaches an early (post bottom) recovery trend strength – the peak in the markets in 1929. Take a look at the MAGENTA line on this IWM Weekly chart, below, to see what we are suggesting. The post-November 2020 rally in IWM was so strong, that price rallied over a 90 day period in excess of +64% – setting up an incredible excess phase rally/peak.

1929 DJIA Shows Similar Excess Phase Peak Setup

This long-term Dow Jones Industrial Average (DJIA) chart highlights one very interesting fact that we saw on the Russell 2000 chart above. Throughout history, the only time a rally phase has rallied above the initial bottom phase trend channel has been in 1929 – representing a major excess phase peak setup. This rally in 1929 continued to extend well beyond the upper trend-line level and eventually peaked after a series of two impressive price advances above the trend-line.

If the current IWM rally continues in this manner, we may expect to see one or two more attempts at a continued market rally. Each pushing the price of IWM ever higher in an attempt to identify a true peak value. Conversely, the IWM Pennant/Flag formation suggests some type of breakout or breakdown event is very likely over the next few weeks.

IWM Showing Signs Of Increased Volatility Near Flag Apex

This last chart shows how the current Pennant/Flag formation in IWM has reconfirmed with recent price action. The June/July price rotation, beyond the Flag ranges, suggests that increased volatility exists in the US markets as traders/investors digest the Q2:2021 earnings data/expectations and as the world continues to attempt to understand what the future of global economic normalcy will look like.

The fact that the Russell 2000 has moved back into the Pennant/Flag formation ranges recently and is very close to the Apex of this setup, suggests that the US/Global markets are no more than 2 to 4+ weeks away from a big breakout or breakdown event. My research team suggests key levels to watch on IWM are $234 (for a potential upside price breakout) and $208 (for a potential downside breakdown).

US Market Will Likely Cycle Into MoM/YoY Declines Through The Rest Of 2021 & Into 2022

It is our opinion that a broader market reversion event is very likely over the next 6+ months related to the post-COVID reflation trade recovery. The process of the markets, and economic indicators, reacting to the deep COVID market collapse acts in a “Dampening Sine Wave” pattern. Initially, after the deep COVID-19 market collapse, the recovery of the markets will prompt seemingly extreme bullish monthly and quarterly expectations/results. This is because the month-over-month and year-over-year results are factoring in the extremely deeply depressed COVID-19 collapse event.

Over time, possibly more than 24 to 36 months, these levels will rotate upward and downward toward a more normal type of result. I’ve included an example of a Dampening Sine Wave similar to what I expect to happen post-COVID below.

Stay prepared for big market trends and a shift in how economic data is reported over the next 14+ months. If the markets shift, as we are expecting, a broad market stagnation or decline is likely over the next 8 to 12+ months. The extreme cycle phases that have been prompted since the COVID-19 market collapse are likely to result in a continued “Dampening Sine Wave” cycle that will eventually result in more normal types of market activity.

If another COVID event takes place before the end of 2021, resulting in any new type of lock-down or economic restrictions, the current down-wave cycle of the Dampening Sine Wave (above) will be amplified in scope. Thus, a potential deeper subsequent secondary down-wave cycle may take place – setting up another big upside recovery wave in the future.

We live in interesting times and it is important for traders/investors to learn to recognize the mechanics of what we are living through. There will come a time where the markets move in a more normalized manner – but that time is likely 5 to 6+ years away.

More than ever, right now, traders need to move away from risk functions and start using common sense. There will still be endless opportunities for profits from these extended price rotations, but the volatility and leverage factors will increase risk levels for traders that are not prepared or don’t have solid strategies. Don’t let yourself get caught in these next cycle phases unprepared.

Please take a minute to learn about my BAN Trader Pro newsletter service and how it can help you identify and trade better sector setups. My team and I have built this strategy to help us identify the strongest and best trade setups in any market sector. Every day, we deliver these setups to our subscribers along with the BAN Trader Pro system trades. You owe it to yourself to see how simple it is to trade 30% to 40% of the time to generate incredible results.

As something entirely new, check out my initiative URLYstart to learn more about the youth entrepreneurship program I am developing. This is an online program of gamified entrepreneurship designed to introduce and inspire kids to start their own businesses. Click-by-click, each student will be guided from their initial idea, through the startup process all the way to their first sale and beyond. Along the way, our students will learn life lessons such as communication, perseverance, goal setting, teamwork, and more. My team and I are passionate about this project and want to reach as many kids as possible!

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

Have a great day!

Chris Vermeulen

Chief Market Strategist

 

US Markets Stall Near End Of July As Global Markets Retreat – Are We Ready For An August Surprise?

As a result, the longer-term Custom Indexes we use to help gauge and understand market trends are showing a very clear weakening of trends.

In this article, we are going to review three of our custom index charts on a weekly chart basis, the Custom US Stock Market Index, the Smart Cash Global Market Index, and the Custom Volatility Index.  Each of these charts highlights something unique related to current market trends.

Use this information to read between the line and to help establish your own expectations for the markets going forward.  We’ll provide our conclusion near the end of this research article.

Custom US Stock Market Shows Divergent Market Trends

This Weekly US Stock Market Index chart highlights the rally from the November 2020 election into the start of 2021.  After that peak is reached in late February, one can clearly see the divergence on the RSI indicator. Below, those trends counter to the moderate price rally phase on the chart.  We believe this divergence is essential after such a strong rally and may be setting up a market base/momentum base where price may attempt another rally in the near future.

As of right now, we have not seen a breakdown event on this weekly chart, although one may take place before any new rally attempt starts.  What we are seeing is a decidedly weaker price trend and a consolidation phase in the markets after the hyper-bullish rally phase of the past 15+ months.

The breakdown of the upward price trend, below the MAGENTA trend line, is a bit concerning, but overall the markets have not shown any extreme weakness yet and may continue to push higher after a brief consolidation/basing setup.

Still, traders and investors should be somewhat concerned that any breakdown in price may prompt a -13% to -18% pullback – targeting the $1025 level on this chart.

https://www.thetechnicaltraders.com/wp-content/uploads/2021/08/USCustom_W_F-1024x688.png

Global Market Trends Decidedly Weaker Than The US Markets

This Custom Smart Cash Index Weekly Chart is more global market-based, including the SPY, DAX, Hong Kong, and Hang Seng Indexes.  This chart is used to show us how the global markets are reacting to market trends while attempting to balance US market activity and US Dollar strength.  What we can see from this chart is that the Custom Smart Cash Index has rolled sideways after the February 2021 peak and has recently started to break downwards near the end of July 2021.

This extended 4+ month sideways price channel suggested the global markets failed to continue to rally as the US markets did from February through July 2021.  This breakdown in trending between the global markets and the US markets suggests foreign markets are starting to retrace much more than the US markets are.

This suggests the Foreign markets are starting a mid-year price correction that may continue to move lower and attempt to target the $160 to $175 level before finding support.  If this happens, the US markets may eventually break lower and attempt to follow the foreign markets downward as a moderate contraction event (reversion event) takes place after the strong bullish rally from the March 2020 COVID-19 lows.

An interesting component of the global market trends is setting up that also took place in July/August 2015, February 2018 through almost all of 2018, February 2020 (just before COVID hit), and now.  If this setup is valid, as it has been in the past, then the US markets are likely going to enter a period of sideways, possibly downward, price trending fairly soon if the Custom Smart Cash (global) Index continues to fall.

https://www.thetechnicaltraders.com/wp-content/uploads/2021/08/SmartCash_W_F-1024x740.png

Combined Custom US & Smart Cash (Global) Index Weekly Chart

This combined Custom US & Smart Cash (Global) Index Weekly chart paints a very clear picture of the type of technical price pattern that is currently unfolding.  The ORANGE line on the chart is the Custom Smart Cash (Global) Index Weekly data.  The Japanese Candlesticks are the Custom US Index Weekly data.

What we’ve attempted to show you on this chart is how the Custom Smart Cash Index tends to break downward many weeks, or months, before the US market begins a move downward or sideways.  For example, in early 2018, the Smart Cash Index peaked and rolled downwards while the US market entered a period of extreme volatility.  The Smart Cash index continues to move downward while the US Market Index recovered.  Until September 2018, when the US markets broke strongly to the downside as the US Fed pushed rates just a bit too far.

With the Custom Smart Cash (Global) Index moving decidedly lower recently, and really starting to break downward, are we nearing a reversion event in the US market?  Have the markets transitioned away from the hyper-bullish trending phase and started a new phase of price trending that traders/investors are unaware of?

https://www.thetechnicaltraders.com/wp-content/uploads/2021/08/USGlobalCombined_W_F-1024x742.png

Custom Volatility Index Suggests Extreme Overbought Levels Have Been Reached In April/June 2021

This Custom Volatility Index Weekly chart shows how the markets rallied after the November 2020 US elections, through the reflation trade expectations, and pushed even higher in early 2021.  The Custom Volatility Index chart peaked in April 2021 and peaked even higher in late June 2021.  These peak levels, above 13.5 to 14.0, are historically very high overbought levels on this chart.  Whenever the Custom Volatility Index reaches levels above 11 or 12, a moderate price peak usually sets up within a few days or weeks.

There was only one other time in recent history where the Custom Volatility Index level closed above 14, and that was January 2020, the peak price level just before COVID-19 hit the markets.

The most recent Custom Volatility Index highs, above 15, are the highest levels printed on this chart over the past 20+ years.  They represent extreme overbought market levels and the Custom Volatility Index has already started to move downward from these peaks.

A move on this Index below 7~8 would represent a fairly strong downside price correction – representing a possible intermediate bottom setup.

A move below 5~6 on this Index would represent very strong selling, likely pushing the markets into a moderate downside price event that may last many weeks or months.

https://www.thetechnicaltraders.com/wp-content/uploads/2021/08/CustomVolatility_W_F-1024x687.png

Our research has not confirmed any bearish price setup or any immediate actions to take related to the potential for a peak or rollover price event based on these charts.  Our research suggests the US markets may continue to “melt upward” for a period of time as global investors pour into the US equities markets in search of profits and safety.  Yet, underlying all of this, we still see some warning signs that the markets are starting to diverge in a way that is somewhat similar to past breakdown events with the Custom Index charts.

We are attempting to present this information so you can become better prepared for the potential price swings related to this type of reversion event and attempt to protect your open trades before any volatility event takes place.  There are going to be some really big price swings taking place over the next 24+ months.  Make sure you are prepared to profit from these big events. Don’t let yourself get caught in these next cycle phases unprepared.

Want to know how our BAN strategy is identifying and ranking various sectors and ETFs for the best possible opportunities for future profits? Please take a minute to learn about my BAN Trader Pro newsletter service and how it can help you identify and trade better sector setups.  My team and I have built this strategy to help us identify the strongest and best trade setups in any market sector.  Every day, we deliver these setups to our subscribers along with the BAN Trader Pro system trades.  You owe it to yourself to see how simple it is to trade 30% to 40% of the time to generate incredible results.

As something entirely new, check out my new initiative URLYstart to learn more about the youth entrepreneurship program I am developing. This is an online program of gamified entrepreneurship designed to introduce and inspire kids to start their own businesses. Click-by-click, each student will be guided from their initial idea, through the startup process all the way to their first sale and beyond. Along the way, our students will learn life lessons such as communication, perseverance, goal setting, teamwork, and more. My team and I are passionate about this project and want to reach as many kids as possible!

Have a great day!

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

Chris Vermeulen
Chief Market Strategist

 

Revisiting The Excess Phase Peak Pattern

If the INDU and TRAN continue to move in a sideways flagging formation after recently moving moderately lower, we may start to see a new Excess Phase Peak setup in these two major indexes. This could be a warning of a much bigger breakdown in trends in the near future.

INDU MUST RALLY ABOVE $35,300 TO BREAK AWAY FROM EXCESS PHASE PEAK

The Weekly INDU chart, below, highlights the five phases of the Excess Phase Peak formation and also highlights a GREEN “break-away” rally trend that could setup to end any potential Excess Phase Peak formation.  If the markets resume the rally trend and the INDU rallies above $35,300 soon, we would consider this a new “break-away” rally trend – potentially ending the Excess Phase Peak pattern setup.  If the INDU fails to rally above $35,300 and trades within the Phase #2 sideways flag range, then breaks downward, this type of price action would confirm the Phase #3 breakdown price trend that sets up intermediate support and the eventual Phase #4 sideways consolidation.

Remember, the phases of the Excess Phase Peak pattern are fairly easy to identify.

  • Phase #1:  The rally to the ultimate peak level.
  • Phase #2:  The breakdown of that peak level, setting up the initial support level and prompting a sideways price Flag/Pennant price channel.
  • Phase #3:  The breakdown of the #2 sideways price channel leading to a steep decline to intermediate support – which acts as a temporary sideways bottom.
  • Phase #4: The breakdown of the intermediate support level which ultimately leads to the strongest price decline targeting the ultimate bottom in price.
  • Phase #5: Identifying the ultimate bottom/momentum based in price.  This trending phase can last many months (possibly more than 12 months at time), or could be in the form of a deep “V” bottom.

Once the breakdown of the Phase #2 flagging formation is confirmed, we start to look for confirmation of the Phase #3 intermediate support level and the eventual Phase #4 breakdown of that support level.

If the INDU rallies above the recent all-time highs and breaks-away from the sideways flag ranges, then we would consider that new high as a new bullish price trend – negating the Excess Phase Peak Phase #2 setup completely.  Obviously, any new all-time high/rally could eventually setup another Phase #1 peak and Phase #2 sideways flagging channel at any time in the future.

Near the lower area of this chart, we’ve highlighted the On Balance Volume trend and how it has recently started to trend lower.  We would expect any continued upside price trending to support an increasing OBV level as accumulation takes place in the markets.  Failure to see the OBV level rising as price rises may suggest a “false break-away” in trend.

https://www.thetechnicaltraders.com/wp-content/uploads/2021/08/Chart1.png

TRAN MIRRORING EXCESS PHASE PEAK FLAGGING SETUP – WHAT NEXT?

This Weekly Transportation Index chart should appear very similar to the INDU chart (above).  The unique similarities of these two charts, one addressing the Blue Chip US economy and the other addressing future US transportation expectations related to economic activity, suggests traders may be shifting away from a reflation recovery after the FOMC statements last week.

We are starting to see traders/investors reevaluate the capability of the US economy to continue the rally trends as they have since November 2020.  Could this shift in investor sentiment prompt a broader market price setup?  Is it warning of an Excess Phase Peak setup in the making?

Right now, we only have confirmation of a recent all-time high peak and the start of what appears to be a sideways Flagging price channel.  We won’t know if the Excess Phase Peak pattern is truly confirmed until we see how the current sideways Flagging price channel concludes.

If it breaks downward, then we’ll have confirmation of a Phase #3 Excess Phase Peak stage that will alert us that a bigger downside price trend is pending.  If it breaks higher, and takes out $16,175, then we’ll consider this new rally high an end of the current Phase #2 setup and expect prices to continue rallying to new highs.

https://www.thetechnicaltraders.com/wp-content/uploads/2021/08/Chart2.png

As we move past Q2:2021, it is important to understand that market price volatility should begin to increase as earnings and forward expectations continue to flood the news wires.  We are only one month into the new quarter and we believe the markets are likely to trend sideways through to the end of the month.

It makes sense to us that the broader markets, and investors, are searching for more clarity and reason to be bullish after such an extended price rally.  Time will tell how this plays out, but one thing is certain: Q2:2021 earnings and forward expectations will likely continue to drive trader/investor sentiment over the next several weeks.  Expect an increase in volatility and some potential surprises.

Consider this message an early warning if the Excess Phase Peak setup continues and confirms the Phase #3 breakdown of the current sideways Flagging setup.

Want to know how our BAN strategy is identifying and ranking various sectors and ETFs for the best possible opportunities for future profits? Please take a minute to learn about my BAN Trader Pro newsletter service and how it can help you identify and trade better sector setups.  My team and I have built this strategy to help us identify the strongest and best trade setups in any market sector.  Every day, we deliver these setups to our subscribers along with the BAN Trader Pro system trades.  You owe it to yourself to see how simple it is to trade 30% to 40% of the time to generate incredible results.

Enjoy your day!

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

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

 

The Inadvertent Debt/Inflation Trap – Is It Time To Face The Music?

What happens to a global economy after 10+ years of global central bank efforts to support a recovery attempt after a massive credit/debt collapse originates from a prior credit/debt housing bubble?  What happens to global economies when they become addicted to easy money policies and central bank activities that support greater and greater risk-taking? What is the end result of these actions after more than 10+ years of excess and central bank support for the markets?

Let’s play this out a bit to think about how the current market environment may be similar to what happened in the mid/late 1990s and see if we can come to any real conclusions. Remember, we are using our research and technical analysis skills to play a “what if” scenario in this research article.  Our current trading systems have not warned us of any major Bearish price trends of price collapses that may take place. Our systems are still trading the US markets based on current market trends.  This research is completely speculative in the sense that we are trying to identify “what if” scenarios based on events in the recent past.

One thing that our research team has been discussing over the past 8+ months, since shortly after the US elections in November 2020, is the idea that the new US President/US Federal Reserve may engage in policies that are initially perceived as supportive of the global markets in a post-COVID world – yet may engage in very dangerous end results.  An example of this is the continued stimulus efforts for a world that has somewhat moved beyond the initial COVID shock and has transitioned into a new form of economic activity.  Another example would be the US Federal continuing to act in a manner to support the US equities market while Inflation and consumer activity have recently shown extreme pricing/buying activities.

One idea that my research team suggested is this activity may be similar to President Ronald Reagan’s Star-Wars project in how Reagan was able to prompt a spending excess between the US and Russia which eventually broke the Russian economy.  The process between that event and what is happening right now are strangely similar.

The Strange Outcome Of Global Central Bank Policies – The US Is The Clear Winner

The US and many foreign central banks have pushed the envelope of easy money policies over the past 8+ years by continuing to run programs to support a stronger economic outcome.  The focus has been on creating an inflationary target to start a more traditional shift away from the ongoing easy money policies.  Inadvertently, these global central banks may have created and supported one of the biggest asset shifts/bubbles in the past 50+ years.

The COVID-19 virus event may have actually pushed the US Federal Reserve and foreign global central banks into an inadvertent process of creating a massive inflation trap at a time when the global economy and corporate world was banking on much more mild inflationary trends.  The reflation trade that came after June 2020 is likely to have pushed assets, commodities, credit & debt cycles beyond any conceivable scope of reason, while putting unimaginable pressure on foreign central banks in Asia, South America, Africa, and most of the emerging markets.

The incredible rally in commodities, asset values (homes, stocks, US equities, and others) prompted capital to shift towards the strongest and most capable outcomes on the planet.  This created a liquidity trap in many foreign markets where traders moved assets into US equities, Cryptos, US ETFs, and other assets while shunning less dynamic and secure global assets.

https://www.thetechnicaltraders.com/wp-content/uploads/2021/07/2021-07-16_WorldMarketCap-1.jpg

(Source: https://data.worldbank.org/indicator/CM.MKT.LCAP.CD)

What has transpired over the past 10+ years is that the US equities markets have risen to levels above the 2007~08 peak levels. US equities have also continued to skyrocket higher as foreign investors seek to move assets into US Dollar-based equities and ETFs, and away from stagnant, under-performing local equities and assets.  Currently, the US stock market total capitalization makes up nearly $48T of the total global market capitalization. The next closest foreign market exchange is China, which makes up nearly $12T in total capitalization.

https://www.thetechnicaltraders.com/wp-content/uploads/2021/07/2021-07-16_GlobalStockMarketCap-2.jpg

(Source: https://www.advratings.com/companies/the-largest-stock-exchanges)

When one takes into consideration the massive expansion of state, corporate, consumer, and global credit/debt that has taken place over the past 10+ years in China (and the risks associated with servicing that debt as well as increased commodities/asset costs which have taken place over the past 24+ months) one starts to consider if China may suddenly turn into Russia of the late 1990s.

At that time, the inflation rate in Russia reached over 120% and took place after a number of key economic events set up an almost perfect storm. The aftermath of this event continued to create moderate global market crisis events.

  • 1973 & 1979 Energy/Oil Crisis
  • 1982 US Interest Rate Peak/Recession
  • 1983 Israel Bank/Stock Crisis
  • 1987 Black Monday
  • 1991 India Economic Crisis
  • 1994 Mexican Peso Crisis
  • 1998 Russian Financial Crisis

Although the names and dates of these events are much different than what is set up today, imagine the 1973/79 oil/energy crisis was the peak in oil prices in 2018.  Imagine the 1982 peak in US interest rates was the peak in interest reached in 2018.  Imagine the Israel Bank/Stock Crisis and the 1987 Black Monday was the 2020 COVID crisis.  Imaging the 1991 India Economic Crisis, and 1994 Mexican Peso Crisis were the post-COVID economic and current crisis events that have taken place over the past 14+months throughout the world.

Now, imagine that China is the new 1998 Russian Financial Crisis taking place.  One of the biggest and strongest economies in the world is now at risk of entering a severe inflationary period where excess credit/debt of the past few decades may be washed away – just like what happened in Russia.

https://www.thetechnicaltraders.com/wp-content/uploads/2021/07/russia_inflation_rate2.jpg

(Source: https://www.timetoast.com/timelines/financial-crisis-1900s-2017)

Lastly, remember what came about after these events took place and how isolated the world was from the Russian economic collapse in the late 1990s. The world is not so isolated any longer.  If China initiates a credit/debt crisis event, there is a very strong likelihood that the global markets will react to this event moderately violently.

The Hang Seng Index May Foretell A Collapse In The Making

The typical process of the unwinding of this excess credit/debt/liability usually takes place in a common process.  First, individuals, corporations, and state-run agencies load up on cheap debt while inflation and costs are relatively consistent.  Then, as the economy heats up, inflation, commodity prices, and equipment/material costs begin to skyrocket – eating into operational profits for these entities. Meanwhile, the need to service the debt/credit persists.  As fractures in the system become evident (usually starting with isolated debt defaults by some large entities), investors start pricing greater risks into the credit/debt markets – further complicating the issues for these entities that are burdened with excess debt and diminishing profit margins.

Looking at the Russian Inflation Rate chart, above, any type of major inflationary increase will usually push these entities over the edge in terms of sustainability.  Once the cost of refinancing the debt and ongoing profit margins have been squeezed beyond limits, the crisis escalates to a point of implosion.

https://www.thetechnicaltraders.com/wp-content/uploads/2021/07/HSI_W_F.png

Given the rise in Real Estate, Commodities, Oil/Energy costs, and other factors, we believe this event may be unfolding right before us in current market trends.  China may be the focus of what Russia was in the late 1990s with extensive credit/debt issues, massive imports of raw materials, commodities, and food, and extensive global foreign debt/credit issues related to the Belt Road project.  If a global event were to unfold, which we are only speculating MAY happen at this point, China and Asia would become the focal point for this process.

More than ever, right now, traders need to move away from risk functions and start using common sense.  There will still be endless opportunities for profits from these extended price rotations, but the volatility and leverage factors will increase risk levels for traders that are not prepared or don’t have solid strategies.  Don’t let yourself get caught in these next cycle phases unprepared.

Want to know how our BAN strategy is identifying and ranking various sectors and ETFs for the best possible opportunities for future profits? Please take a minute to learn about my BAN Trader Pro newsletter service and how it can help you identify and trade better sector setups.  My team and I have built this strategy to help us identify the strongest and best trade setups in any market sector.  Every day, we deliver these setups to our subscribers along with the BAN Trader Pro system trades.  You owe it to yourself to see how simple it is to trade 30% to 40% of the time to generate incredible results.

As something entirely new, check out my new initiative URLYstart to learn more about the youth entrepreneurship program I am developing. This is an online program of gamified entrepreneurship designed to introduce and inspire kids to start their own businesses. Click-by-click, each student will be guided from their initial idea, through the startup process all the way to their first sale and beyond. Along the way, our students will learn life lessons such as communication, perseverance, goal setting, teamwork, and more. My team and I are passionate about this project and want to reach as many kids as possible!

Have a great day!

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

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

 

Gold And Silver – Which Will Have An Explosive Price Rally And Which Will Have A Sustained One?

Our followers and readers have been emailing us asking for more research into Precious Metals and updated Adaptive Dynamic Learning (ADL) Price Modeling charts (our proprietary price/technical mapping system capable of predicting future trends, setups, and price levels). This special Gold and Silver research article will help you learn what to expect over the next 24+ months and where opportunities exist in Gold and Silver trends.

Longer-term support in Gold likely to act as an upward sloping price floor over the next 24+ months

There are two key upward sloping trend lines we want to focus your attention on, on this Monthly Gold chart, below. The first, the YELLOW trend line, originates from the 2009 bottom from the Housing Crisis. The important thing to remember at this time was that the US markets were in the midst of a broad market Depreciation Cycle that started in 2001-02 and ended in 2010. The rally that was taking place before the 2000 Depreciation Cycle started was a reactionary upside price trend resulting from the end of the DOT COM bubble and the post 911 terrorist attacks. The US entered a war that pushed fear levels higher – resulting in a transitional shift in how Gold was perceived at that time.

The YELLOW trend line acts as key market support resulting in a Wave 1 & Wave 2 setup. Gold is currently rallying into a Wave 3 rally phase which my team and I believe will prompt two unique rally peaks over the next 24+months. The first with a high price near $2400 and a second with a high price near $2775. The first upward price wave will likely peak near the end of 2021 or in early 2022 and the second upward price wave will likely peak near Q3/Q4 of 2022.

The second upward sloping price trend line is more aggressively trending and will likely act as an immediate price floor over the next 24+ months. In other words, we expect this more aggressive CYAN trend line to continue to act as an immediate price support level pushing the next two price waves upward to our targets levels.

I’ve drawn the two expected upward price waves on this chart in GREEN Arrows. Remember, this is a Monthly Gold price chart, so each of these price waves represents 4 to 6+ months of time.

https://www.thetechnicaltraders.com/wp-content/uploads/2021/07/Chart_21-07-23_Gold_M.png

Gold Quarterly Adaptive Dynamic Learning Chart – Looking For $2500+

Our proprietary Adaptive Dynamic Learning price modeling system is showing a very clear upward arcing price advance in Gold on this Quarterly chart. It is clear to see Gold should rally into the end of 2021, reaching highs above $2100~2200 before the start of 2022, then continue to rally above $2200 into 2022. At this point, Gold will likely attempt a rally above $2400 before stalling out between $2400~$2500 near the end of 2022. This next downward price correction, after the peak, will attempt to retest the YELLOW support channel on this chart – which is very similar to the CYAN price trend line on the chart above.

The next secondary peak in Gold will likely happen in 2023. The condensed nature of this second price rally in Gold suggests the peak near $2400 may complete a minor upward wave, part of the broader upward Wave 3 structure setting up now, and prompt a minor retracement to levels near $1900 before moving higher after 2023. So, Gold traders have two to four really nice price trends setting up over the next 24+ months.

https://www.thetechnicaltraders.com/wp-content/uploads/2021/07/Chart_21-07-23_GC_Q_ADL.png

Silver Quarterly Adaptive Dynamic Learning Chart – Looking For $50+

This Silver ADL Monthly price chart highlights a very big trend that is setting up where Silver may rally above $40 to $50 near the end of 2021 or in early 2022 before moving into a sideways price consolidation phase – eventually settling near $30 to $35 in 2023~24.

What we find interesting about this ADL predictive chart is that Silver has continued to advance faster than gold over quite an extended period of time and is actually holding up a momentum/base level better than Gold over the past 8+ months. It is our belief that Silver will start to rally above $35 in Q3/Q4 2021 and may target levels above $40 before the end of 2021. The peak in Silver may happen near the end of 2021 or in early 2022, and we want to warn you that a peak level above $50 is very possibly on a washout peak type of rally.

Eventually, though, Silver will retrace back to levels near $30 to $35 and settled into another sideways price trend near the end of 2022 and throughout 2023. So, this presents another extended sideways price channel phase where Silver traders can load up on Silver while it settles into this channel before the next big rally phase.

https://www.thetechnicaltraders.com/wp-content/uploads/2021/07/Chart_21-07-23_SI_Q_ADL.png

The lack of secondary price rally in Silver, as we saw in the ADL data for Gold, suggests the secondary Gold rally phase may be very short-lived and condensed.

Either way, my team and I believe the precious metals sector is primed and ready for this next upward price trend. To help you understand the timing of these events, the bit breakout rally in Silver does not start until near the end of 2021 and carries into Q1/Q2 of 2022.

The big rally in Gold will likely start in Q3/Q4 2021 and last throughout 2022 and into Q1/Q2 2023. So, based on the ADL price modeling system’s suggestions, Silver may enter an explosive price rally phase – overshooting true market boundaries, while Gold enters a more sustained and realistic price rally to levels above $2200 over the next 6 to 8+ months. Silver will peak and begin to consolidate lower while Gold holds above $2000 and continues to trend moderately higher in two separate advancing phases.

Remember, our Appreciation/Depreciation cycle phase research suggests the new Depreciation cycle phase started in 2019 and will last until 2027~2028. That means Silver and Gold will likely continue to experience multiple upward price cycle phases (advances) well into 2029~2030 before finding an ultimate peak level. We still have a long way to go before this rally in precious metals peaks.

More than ever, right now, traders need to move away from risk functions and start using common sense. There will still be endless opportunities for profits from these extended price rotations, but the volatility and leverage factors will increase risk levels for traders that are not prepared or don’t have solid strategies. Don’t let yourself get caught in these next cycle phases unprepared.

Want to know how our BAN strategy is identifying and ranking various sectors and ETFs for the best possible opportunities for future profits? Please take a minute to learn about my BAN Trader Pro newsletter service and how it can help you identify and trade better sector setups.  My team and I have built this strategy to help us identify the strongest and best trade setups in any market sector.  Every day, we deliver these setups to our subscribers along with the BAN Trader Pro system trades.  You owe it to yourself to see how simple it is to trade 30% to 40% of the time to generate incredible results.

As something entirely new, check out my new initiative URLYstart to learn more about the youth entrepreneurship program I am developing. This is an online program of gamified entrepreneurship designed to introduce and inspire kids to start their own businesses. Click-by-click, each student will be guided from their initial idea, through the startup process all the way to their first sale and beyond. Along the way, our students will learn life lessons such as communication, perseverance, goal setting, teamwork, and more. My team and I are passionate about this project and want to reach as many kids as possible!

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

Have a great day!

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com