Options Trading Specialist Shares His Story and Strategies

Hi everyone, it’s Chris Vermeulen here. Over the years, I have covered a lot about investing, swing trading, and technical analysis in these articles. Today I have exciting news and fresh trading content you are going to love. Many of you trade options around the free trades and setup articles I post, and today options trading will become a big part of the analysis and trading because so many readers keep asking for options.

I have partnered up with an options trading specialist, and it’s time you learn more about who he is and why you need to start trading options with us.

I will let Neil introduce himself, and show you why options are so exciting!

I am Neil Szczepanski and I am an options trader and coach that is teaming up with Chris Vermeulen and the Technical Traders to offer options courses and trading strategies. A little bit about me – I’m a native of Indiana but grew up in Colorado and I’m a big sports fan. When I’m not looking through charts, I’m probably watching a game or coaching sports teams. In addition to watching sports, I like to play them.

I graduated from Central Michigan University with a degree in Economics and Marketing and been a professional in technology for 20+ years. During this time as a professional, I loved to trade and always traded as a hobby. I learned to trade in the late 1980s in a Junior Achievement class in junior high school. In the 1990’s I learned how to trade options and started trading options in 2002. I became interested in options when I learned that I could leverage what small capital I had into large trading positions. I also learned that I could employ a great risk management strategy using a defined risk in options spreads. I discovered that I could sell the rights to stock I never owned and profit off it.

Most people who invest are taught to buy and hold and that can work but in a raging bull market like we have just seen but it is hard to buy at what looks like a market top. This is yet another reason why the time is right to start trading stock options. Whether you are a beginner or experienced in trading options it can be simple in theory but not always easy. Some of the best options trading strategies are some of the simplest. I really like to trade the covered wheel strategy where you can get into long stock positions at discounts and get out of those same positions by selling your position for more than market price.

The first question people always ask me when teaching options is ‘Why do you trade options?’. Here are the 5 reasons why I prefer to trade options over stocks:

  1. MAKE BIG $$ WITH SMALL ACCOUNTS: Options give the average trader more ways to break into the trading world because of how much they are leveraged. A little investment can go a long way with less risk than buying the stock outright. For example, when an underline stock is over $2,000 or even $3,000 a share to control 100 shares becomes very expensive and for some not possible. Conversely, it is possible to control 100 shares for a specific period of time for dollars as opposed to thousands of dollars by leveraging options.
  2. SWING TRADING OPTIONS, THE PERFECT SIDE-HUSTLE: I love teaching and technology and knew early on that these were the things that would drive my career path. At the same time, I have 6 kids to feed so I needed to supplement my income to support my family. I achieved this through swing trading options. This allows me to focus on my career and family while making consistent income without having to be glued to my screen every day as trades last a few days or weeks.
  3. REDUCE RISK: Less risk – yes options can be far less risky than trading regular stock. You can define your risk 24/7, and not just during market hours with a stop loss like stocks. In very volatile markets risk management becomes even more important and your exposure to unlimited risk can destroy your account very quickly. The most successful traders are good at maximizing their winners, but more importantly, they are even better at minimizing their losses on losing trades.
  4. FLEXIBILITY TO REACT TO MARKET VOLATILITY: You don’t need to always be right on direction. With options, you can put on a position and adjust and move with the market minimizing your losses or turning a losing trade into a winning trade. You can sell premium with options and make money when the underline stock goes nowhere. You get paid for the time that you sell the rights to the stock that you can either own or not own. With stocks you can either buy more or sell and take your loss if the price goes against you, that’s it.
  5. CONSISTENT RETURNS WITH LESS DRAWDOWNS: Consistent return and far less drawdowns can be achieved with options strategies than just buying stock. I usually only allocate 50% or less of my overall account into options positions and achieve better returns than if I invest 100% into stocks. I also don’t have near the drawdowns or the risk that one would take by being 100% in the stock. Holding cash also allows me to pounce on opportunities if a black swan event were to hit I have cash available to buy in while all stocks are on sale. So I can still get a better return, with less drawdowns and be ready to pounce on buying opportunities.

I am really excited about sharing my knowledge and strategies with you. I will be writing another article this week that walks you through my simple strategy to consistently generate profits from the market. I will be walking through a few trades with you so make sure you don’t miss out.

Thank you, Neil, for sharing this information. I am very excited to add proven options strategies to our trading accounts and to post more educational articles here about how to trades options!

Well, that is all for now. We will share Neil’s next article and walk you through some winning strategies in our next post!

Sign up now to receive information about all things options… and if you want to see how Neil can help you make money and answer all your questions, visit: https://www.thetechnicaltraders.com/ots-cyhuo/

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

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

 

Silver Junior Miners Reach Flag Apex as Divided Government is Confirmed

In the wake of the US general election, which was one of the biggest American political events in history, there is one result that seems clear cut. As of November 5, two-days post-election day, a divided government appears to be in the cards. The rally in riskier assets, and the selloff of the US dollar, reflects a market that had priced in a “blue wave”, and is now unwinding that trade.

While not all the states have counted all of their votes, it appears that there are enough Senate seats confirmed that show Republicans will hold one chamber of Congress. With this fundamental backdrop, I strongly believe in several stocks that will continue to outperform including the Silver Junior Miner ETF (SILJ).

The SILJ is forming a bull flag pattern on a monthly chart that is a pause that refreshes higher. The 10-month moving average has recently crossed above the 50-month moving average which means that a medium-term uptrend is currently in place. There is solid support near the 10-month moving average near $12 and resistance near the 2020 highs, which is the apex of the flag pattern is seen near $17.21. I believe that a breakout is pending now that there will be a divided government regardless of who wins the presidency.

My target is based on a Fibonacci price extension (100% measured move) to the rally from the COVID-19 lows to the recent highs and extends that range from the September 2020 lows. By using this Fibonacci extension I have identified $20 and $25.32 as my upside price target for any potential breakout.

You can see me talk live with Nicole Petallides on TV where I covered silver miners, the charts and why they are primed and ready for a 40-70% gain from here.

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The impetus that will drive the SILJ higher is a decline in the US dollar and the view that global growth will slowly return despite the acceleration in the spread of COVID-19. The dollar index is forming a weekly bear flag pattern which is a pause that refreshes lower. With all of the fanfare focusing on the election, many investors have ignored recent weaker than expected US economic data. Private payrolls came in worst than expected and the more forward-looking ISM services report showed a decline in sentiment. The US 10-year yield has dropped 15-basis points since the election and is currently trading near 75-basis points down from 90-basis points on Tuesday, November 3. As the yield differential moves against the US dollar, silver as well as the SILJ should gain traction.

One caveat is that if riskier assets like equities drop, metals and mining stocks will also fall. This is an impulse contraction in price that occurs because of risks and fear, but it is very real. From July 2018 to June 2019, SILJ contracted almost 40%. This is an important risk component to consider when reviewing the current setup in SILJ.

In July through August 2018, the price of silver was kept down given that that the US Federal Reserve continued to raise interest rates – eventually prompting a -20% price collapse in the SPY starting near October 1, 2018. SILJ lead this move lower and didn’t bottom until June 2019 – when the SPY had recovered to near all-time highs. Thus, this setup in SILJ does include a fairly strong measure of risk which should be mitigated following an election that has ensured a divided government.

This Weekly SILJ chart, below, continues to form a bull flag continuation pattern which is expected to test resistance near the 2020 highs at $17.21. Our research team believes that this critical resistance level, once breached, will likely prompt a moderately strong upside price trend in SILJ. Failure to breach this level will likely result in a continued flagging price formation attempting to retest the 30-week moving average which is robust support near $13.00.

Please review the data we’ve provided within this research post before making any decisions. There is a moderately high degree of risk associated with this current Pennant/Flag setup. Having said that, we do believe that a breakout or breakdown move is very close to initiating and we believe the critical level to the upside is the $15.05 resistance level. Traders should understand and acknowledge the risks associated with this setup, and also understand that any breakdown price event could be moderately dangerous with quick price action to the downside.

We believe there are a number of great opportunities setting up in the markets right now. Various sectors and price setups have caught our attention – this SILJ setup being one of them. We believe the next 6+ months will present some great trading opportunities for those individuals that are willing to “wait for confirmation” of the trade entry. The one thing we’ve tried to make very clear within this article is this “setup” is not a trade entry trigger. There is far too much risk at this point for us to initiate any entry or trade, and we will make the call to trade once we have the signals we seek. Confirmation of this trade setup is pending – but it sure looks good at this point.

Chris Vermeulen

Chief Market Strategist

www.TheTechnicalTraders.com

Are Junior Silver Miners Setup For A Big Rally?

Last week, we published a research article on Silver Junior Miners that garnered quite a bit of attention. We received quite a few positive comments and questions from our friends and followers. This time, we wanted to dig a little deeper into the cycles and price setups that are currently setup in the Silver and Junior Silver Miners ETFs. It may seem odd to some readers, but we believe the uncertainty related to the US election and US policy over the next 6+ months could present a very real opportunity for skilled technical traders.

First, if you missed the previous analysis and trade idea in the Silver Junior Miners article from November 2, please follow this link to review our earlier research which has some important points you should know.

That research article from November 2 suggested a Pennant/Flag formation on the longer-term Monthly chart would prompt a large upside price move once a potential “washout low” pattern setup. The election day trend in Gold and Silver prompted Silver Miners to move a bit lower – which is what we suggested would happen in the November 2 article. Now, we’re going to highlight two incredible longer-term setups in Silver Miners that may result in almost immediate profits over the next 4+ months.

Weekly Silver Miners Chart

This first Weekly SILJ chart highlights a “100% Fibonacci Measured Move” process that is likely to take place in the near future. The current support level near $13.00 suggests a momentum base level has established in Silver Miners. If a 100% measured move takes place, mimicking the move from the COVID-19 lows to the August 2020 highs, it is very likely that the next upside price move in SILJ may rally to levels above $24.00 to $25.00. This represents an 82%+ price advance over 3 to 4+ months.

Monthly Silver Miners Chart

This next Monthly chart highlights the SPX500 to Silver ratio (in BLUE with the scale on the RIGHT EDGE of the chart) and shows the historical Silver price level (in GOLD with the scale on the LEFT EDGE of the chart). The important factors on this chart are the 15 year cycle events, highlighted near the bottom of the chart, and the breakout setup that appears to be taking place right now between the price of Silver and the SPX500 to Silver ratio.

First, the Breakout ratio. This ratio of the SPX500 divided by the price of Silver shows that, throughout history, a roughly 15 year advance/decline cycle oscillates between a peak in Silver prices to a peak in SPX500 prices. In 1979~1980, the peak price of Silver rallied to levels near $36. Then, silver fell out of favor as the US stock market rally took hold in 1986~1988. Recently, the peak price level in Silver in 2011, near $49.00, prompted another price breakout event which was similar to the one in 1977.

We believe another breakout event is pending as global market uncertainty and global debt levels continue to weight heavily on Precious Metals. The recent breakdown of the BLUE ratio level as well as the upside breakout/rally of Silver suggests an early phase breakout is setting up. If this research is correct, an extended price rally may take place over the next 4~5+ years in Silver that will prompt the ratio level to fall back below 60~75. We believe the upside breakout event could happen at any point over the next 3 to 6+ months and may last for a period of 6 to 18+ months before reaching a peak.

Our researchers believe the ultimate upside peak level for Silver throughout this breakout rally may be somewhere above $65per ounce. This level is based on historical rally events and the location of the current Silver price momentum base (near $13).

Concluding Thoughts

Overall, the cycle event suggests the peak level may extend well into 2026~2028. So, in an extreme cycle event, we may see a massive price rally that does not peak until 2026~2028. We can’t imagine a price level in Silver that extends upward from the current base level to reach lofty peaks that far out. Although we can safely guess that this extended breakout rally may likely prompt Silver prices to breach the $100 per ounce level at some point.

All of this research is longer-term in nature, so please understand that we are waiting for a confirmed longer-term trigger to initiate these setups. The washout low pattern currently taking place after the Apex of the Flag/Pennant formation is a very solid trigger. If we were to start to see a rally in Silver prices before the end of 2020, we would likely see the Ratio trigger confirm very early in 2021. Once this happens, we would be foolish not to pay very close attention to this trigger because is has proven to be very accurate historically.

I hope this analysis assists you in finding and executing better trading decisions. I use a BAN trading strategy (Best Asset Now) to find these setup, and have a few more that should give buy signals this week or next. It is a very powerful way of finding the next market leaders.

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

Disclaimer: Our free research does not constitute a trade recommendation, or solicitation for our readers to take any action regarding this research. It is provided for educational purposes only. Our research team produces these research articles to share information with our followers/readers in an effort to try to keep you well informed.

SPY Channeling Lower Ahead of Nov 3 – Watch for this Support Today

From a simple technical standpoint, we’ve seen a number of recent breakdowns in the SPY related to Fibonacci Price Theory and Price Gap Theory.  One of the most critical components of the recent 60+ days price activity in the SPY is the failed new high on October 12.  This failed attempt to rally above the previous high price level, near 358.82, suggests a broader market price decline has setup (a downtrend).

SPY 240 MINUTE CHART

After the failed new high peak on October 12, a series of new downside price gaps can be seen in the SPY chart below as price accelerated downward.  These unfilled price gaps represent price acceleration to the downside and will eventually exhaust – creating a new momentum base/bottom.

I believe the support level near 319.85 is a critical level for price going forward.  The downward price trend suggests this 319.85 level could be targeted very quickly.  The November 3 election day, and the post-election price volatility, could put this critical price support level near the top of everyone’s charts over the next few days.

SPY DAILY CHART

My researchers and I believe the upside “island price level” that has set up on November 2 is likely to prompt a downward price move near resistance at 330.25.  This type of upward gapping price “island” is indicative of a Three River Evening Star type of setup – which is typically indicative of major resistance and suggests further downside price action may unfold.

You can clearly see the Doji bar on the right side of the following Daily SPY chart below the most recent downside price gap near 333.10. The rejection of the rally in price on this bar suggests a real battle for control of trend is taking place. When a Doji forms above the previous candle’s real body, it suggests key resistance is found near the real body of the Doji.

Our researchers believe broader market weakness may become a real factor after the elections pushing price lower to retest the 319.85 support level.  Skilled traders should be warned that the 319.85 level represents a key low price level that created the Monthly Dark Cloud Cover pattern we have been suggesting all readers pay attention to.  If price blows below this 319.85 level, we may enter a new phase of downward price trending.

Ultimately, we believe the markets will attempt to find support and stage another attempt at new all-time highs – but that may not happen before a wash-out low price rotation takes place after the US elections and after the new COVID-19 issues subside.  Right now, traders need to stay very cautious of any potential breakdown risks.

Learn how my team called the Dark Cloud Cover pattern over 30 days ago and how we can help you find and execute better trades.  We can help grow your trading account with our Swing Trading service and protect your investment account with our long-term market signals service. Visit www.TheTechnicalTraders.com today to earn more.

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

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

NOTICE AND DISCLAIMER: Our free research does not constitute a trade recommendation or solicitation for readers to take any action regarding this research.  It is provided for educational and informational purposes only.

 

Silver Junior Miners Reach Flag Apex Just Before US Elections

Heading into what will likely become one of the biggest events in American political history on November 3, the US stock markets are holding up quite well on Monday, November 2.  My team and I have published a number of articles recently suggesting we believe wild price swings and increased volatility is to be expected before and after the US elections.  We have even suggested a couple of stock trades that we believe should do fairly well 60+ days after the elections are complete.  Right now, we want to bring your attention to the Silver Junior Miners ETF (SILJ).

The current Pennant/Flag formation that is setting up in SILJ on the following Monthly chart has peaked our attention.  Diminishing volume and moderately strong support above the $12 price level suggest key resistance near $15.05 will likely be retested as metals and miners continue to attract safe-haven capital after the elections.  The Apex of the Pennant/Flag formation appears to be nearly complete – a breakout or breakdown move is pending.  We believe the uncertainty of the elections will prompt a possible breakout (upside) price trend in the near future.

When we apply a Fibonacci price extension (100% measured move) to the rally from the COVID-19 lows to the recent highs and extend that range from the September 2020 lows, we can identify a $20.35 and $25.32 upside price target for any potential breakout move.

The key to understanding the potential of this setup is to ask yourself if you believe an increased wave of fear and uncertainty will exist shortly after the US elections and to ask yourself if the renewed surge in COVID-19 cases will drive investors away from stocks and into safe-haven investments?  If you believe this is true, then metals and miners should be on your radar.

One thing we would like to make very clear to you is that metals and miners tend to contract as stock markets collapse.  This is an impulse contraction in price because of risks and fear, but it is very real.  From July 2018 to June 2019, SILJ contracted almost 40%.  This is an important risk component to consider when reviewing the current setup in SILJ.  In July through August 2018, the price of silver was kept down given that that the US Federal Reserve continued to raise interest rates – eventually prompting a -20% price collapse in the SPY starting near October 1, 2018.  SILJ lead this move lower and didn’t actually bottom until June 2019 – when the SPY had recovered to near all-time highs. Thus, this setup in SILJ does include a fairly strong measure of risk for any moderate downside move if the markets fall precipitously after the US elections.

This Weekly SILJ chart, below, highlights what we believe is a clear breakout resistance level near $15.05.  Our research team believes that this critical resistance level, once breached, will likely prompt a moderately strong upside price trend in SILJ.  Failure to breach this level will likely result in a continued flagging price formation attempting to retest the $11.00 support levels.

Please review the data we’ve provided within this research post before making any decisions.  There is a moderately high degree of risk associated with this current Pennant/Flag setup.  Having said that, we do believe that a breakout or breakdown move is very close to initiating and we believe the critical level to the upside is the $15.05 resistance level.  Traders should understand and acknowledge the risks associated with this setup, and also understand that any breakdown price event could be moderately dangerous with quick price action to the downside.

We believe there are a number of great opportunities setting up in the markets right now.  Various sectors and price setups have caught our attention – this SILJ setup being one of them.  We believe the next 6+ months will present some great trading opportunities for those individuals that are willing to “wait for confirmation” of the trade entry.  The one thing we’ve tried to make very clear within this article is this “setup” is not a trade entry trigger.  There is far too much risk at this point for us to initiate any entry or trade, and we will make the call to trade once we have the signals we seek.  Confirmation of this trade setup is pending – but it sure looks good at this point.

Are you ready to find and execute better trades in 2021 and beyond?  Can our research and trading team help you develop greater success?  We follow the markets and share our proprietary research so you can become a better trader. Visit www.TheTechnicalTraders.com how we can help you cut your trading research, teach you how to spot the opportunities and setups we see, and generally stay ahead of the market.

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

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

NOTICE AND DISCLAIMER: Our free research does not constitute a trade recommendation or solicitation for readers to take any action regarding this research.  It is provided for educational and informational purposes only.

 

Market Breakdown May Extend Deeper If Support Is Broken

The breakdown in the markets last week may have caught some traders off guard and resulted in a few stressful days.  As much as we want to tell you the selling is over, my researchers and I believe the selling may continue for a bit longer as the election and uncertainty related to COVID-19, global economics and post election stimulus and US government issues continue to plague future growth expectations.

We’re presenting these custom index charts today to help you understand where key support levels are in the broader market and to help you understand what to expect if this selling continues.  Over the past few weeks, we’ve published a number of research articles that provide important background and context to this article, including what we see in store for prices of Gold and Silver.

One of the tools we use, in conjunction with our proprietary indicators, price modeling, and trading systems is our Custom Index charts.  These charts help us to gauge and understand market price activity as well as to help quantify the scale and scope of recent trends.  For example, we use these charts (and others) to better understand where, when, and how the underlying facets of the markets are shifting.  Often times, this allows us to see how the mechanics of the markets are working before the outcome really starts to become evident.

CUSTOM VALUATIONS INDEX

The first chart we will look at is the Custom Valuations Index Weekly chart, below.  It is designed to show us how and where price valuations levels are trending.  Pay attention to the Double-Top pattern that recently set up near 520 and the Pennant/Flag formation that Apexed in early September.  Notice how that setup prompted a moderately stagnant few weeks of sideways trading before the broad market breakdown started to trend.

One interesting facet about this chart is that it actually started to break down very hard five weeks ago.  Think about that interesting facet for a minute.  The markets were rallying just 3 weeks ago and many traders were jumping back into the markets expecting the rally to continue.  But our Custom Valuations Index chart was suggesting the markets were continuing to weaken.  Then came the breakdown over the last 2+ weeks

CUSTOM US STOCK MARKET INDEX

This next chart shows the Custom US Stock Market Index Weekly chart and clearly shows the new recent high price level (just three weeks ago) has completely broken down at this point.  When we take into consideration the Custom Valuations Index chart and this Custom US Stock Market chart, we start to see a broad market picture that suggests selling may continue to attempt to reach the support levels we’ve drawn on these charts.  If the US elections and post-election global market event prompt more fear and uncertainty, then we see only one process taking over – price revaluation.

We believe support levels that we’ve highlighted on these charts will likely prompt some moderately strong attempts at supporting a bottom/base in the markets.  But the downside risk depends on the actions taken by traders and governments related to the fear and uncertainty that may permeate global market sentiment.

Take another look at the Custom Valuations Index Chart, above, and focus on the two lower support levels.  Both of these price levels from late 2019 and early 2020 as key support levels.  Thus, our Custom US Stock Market Index chart suggests support may be found near 775 or 655 – these represent levels on this Custom US Stock Market Index Chart that correlate to the Custom Valuations Index Chart support levels.  We’ve translated the levels from the Valuations chart to the US Stock Market chart.

CUSTOM SMART CASH INDEX

Lastly, we also pay close attention to the Custom Smart Cash Index Weekly chart below.  It shows the “true price peak” in January/February 2018 and shows how the recent price highs on the Custom US Stock Market Index chart were really “false highs” resulting from an “excess phase” in the markets.  This happens when speculators and outside events prop-up the market price levels while true organic growth stalls.  That is what we believe the Custom Smart Cash Index chart is showing us (compared to the Custom US Stock Market Index chart).

When the Custom Smart Cash and Custom US Stock Market Indexes are moving in unison, then we are seeing true organic economic and price growth.  When they diverge, as you can see in these two examples, we believe a different type of market phase has setup.  In this case, an “Excess Phase” setup in early 2019 (just after the US Fed reversed course after an ill-fated rate increase in October 2018).  That is what we believe started the current transition in the markets and what is now, potentially, ending.

Support levels on this Smart Cash Index chart suggest 155, 143 and 136 are critical support areas for the market.  Below these levels on this chart, the markets may attempt to retest recent COVID-19 lows. On the SPY, these support levels translate to : 320.25, 299.00, and 278.50.

We believe this week will be very volatile and wild because of the US Presidential elections.  We believe the recent breakdown in the markets, as you can see on these charts, needs to find immediate support above $299 on the SPY – quickly.  If this does not happen, then we may be entering a much broader downside market trend.

We highlighted a Dark Cloud Cover pattern on the Monthly SPY chart about 35 days ago which has now confirmed.  There have been instances where this type of topping/sell signal pattern is immediately reversed by a strong rally, but right now we are uncertain that is likely to happen.  Too many factors are aligning to suggest a broader downside move is pending.

Still, we understand the real risks of the market and also understand that by the time early 2021 trading starts to unfold, many of these concerns will likely be behind us.  Our predictive modeling systems are suggesting a moderately strong Christmas rally is likely to close our 2020.  This, we may see a very quick downside move followed by a moderately strong Christmas recovery.  Therefore, we are eager to see how the next few weeks and months play out as we see many incredible opportunities for traders on the horizon.

If you want to survive trading these markets then you learn fairly quickly how important it is to protect against risk and to properly size your trades.  My research team and I are here to help you find better trades and navigate these incredibly crazy market trends. We can also help you preserve and even grow your long-term capital with our signals that tell you when long-term trends are starting and ending. Don’t wait until it is too late – find out more at www.TheTechnicalTraders.com.

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

Stay safe and healthy!

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

NOTICE AND DISCLAIMER: Our free research does not constitute a trade recommendation or solicitation for readers to take any action regarding this research.  It is provided for educational purposes only.

Precious Metals Prepare For Another Price Advance

As we continue to near the November 3rd election day, Precious Metals have continued to trade within a narrow range suggesting price support is staying strong. It is my belief that potential downside risks for Gold and Silver will be relatively short-lived after the election.  We believe the broad market decline witnessed on October 26, 2020, where the Dow Jones fell over 700 points, coupled with the fact Gold and Silver barely budged throughout the selloff, suggests support for Precious Metals has reached a “battle line”.

My research team has highlighted the current support and resistance price levels for both Gold and Silver on the charts below.  We believe the initial support levels will hold up well throughout the pending election and that an upside breakout in both Gold and Silver are likely outcomes after the elections.  Global traders and investors have already likely hedged their portfolios accordingly to attempt to eliminate risks, yet the fear of what is not known is one of the main drivers of appreciation in Precious Metals.

When the global markets become unsettled and traders/investors are unable to see clearly and identify a forward perspective, then Precious Metals start to shine. We explored this relationship last month in our article entitled Gold & Silver Follow Up & Future Predictions For 2020 &2021 Part I and Part II.

GOLD SUPPORT NEAR $1885 MAY LAUNCH NEW WAVE OF APPRECIATION

The Daily Gold Futures chart below highlights the current Support and Resistance areas.  We believe the current Support level is rather solid and that Resistance will be tested and broken on or after the November 3rd election day. If this were to occur, we would expect this to prompt a rally back above $2050 or beyond.  Ultimately, the recent lows near $1850 will attempt to act as a hard price floor for Gold, yet we believe the current price activity suggests major support near $1885 is quite strong and may propel an upward price advance soon.

SILVER SUPPORT NEAR $22.50 MAY PROMPT STRONG RALLY

The following Daily Silver Futures chart also highlights the Support and Resistance levels we’ve identified for Silver.  They are very similar to the levels on the Gold chart, yet the Silver chart has also set up an upward sloping lower price channel that suggests price appreciation is already taking place in Silver.  It is important to understand how the relative price change between both Gold and Silver creates a “ratio” that is followed by many traders (see the last chart in this article).  We believe the Gold to Silver ratio will likely fall below 60 fairly quickly after the elections in November – prompting both Gold and Silver to rise substantially.

GOLD-TO-SILVER RATIO SHOWS UPSIDE POTENTIAL

This Weekly Gold-to-Silver Ratio chart highlights our expectations related to the advance of both Gold-to-Silver near and after the US elections.  Check out our previous research on the Gold-to-Silver ratio that explains this important indicator in more detail. Pay attention to how the peak in Gold-to-Silver in 2011 drove the ratio level to a bottom near 43.  We don’t believe that type of move is setting up quite yet, but we do believe a move below 60 in the ratio is likely after the November elections.  This suggests that a $650+ rally in gold and a $16+ rally in Silver are very strong potentials if our modeling is accurate.

My team and I have already identified the trigger confirmation setups that we need to see before initiating any new trades in Precious Metals.  We believe we already know how these future rallies will take place and the setups with the best entry points.  The opportunities for traders after the elections are forming now if you know where to look for them. Join the Technical Trader research service today to get the pre-market video report delivered to your inbox every day, which will walk you through the charts of gold, silver, and other assets as well as potential trade setups.

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

Stay safe and healthy,

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

NOTICE AND DISCLAIMER: Our free research does not constitute a trade recommendation or solicitation for our readers to take any action regarding this research.  It is provided for educational purposes only and is not intended to be acted upon.  Please see your financial advisor before making any trading or investment decisions.

Four Stocks To Consider Buying Before The US Elections

Our research team put together this list of stocks to help you understand how to attempt to target strategic gains between now and 30 to 60 days after the elections. If you have not been paying attention to what is happening in the markets right now, be sure to read to the end of this report.

If you have not already prepared for the election event, and the pending chaos that is likely to happen after the elections, you better start doing something to protect your portfolio right now. Leaving your portfolio exposed in the moderate to high risk sectors in your IRA or 401k could result in some wicked risks to your total capital if you are not cautious.

ARE YOU READY FOR A VOLATILTY SPIKE AND THE RISKS TO YOUR PORTFOLIO?

Personally, I’ve been getting calls from my family and friends over the past few weeks urgently asking me “what should I do with my retirement money?” and “how should I protect my assets before the elections?”. My family knows if they do nothing to protect their capital, the could be exposed to a -20% or -30% draw down if the market moves lower after the election. We don’t know of anyone that wants to ride out another -20% to -30% correction in the markets – right?

Well, if you are interested in taking a small portion of your capital and attempting to profit from these four simple stock picks we’ve identified, you may feel quite a bit better about how you managed your capital throughout the election event and over the next 30 to 60+ days.

First off, each of these symbols targets key benefits we believe will take place (or have a moderately high likelihood of taking place) after the elections. Secondarily, each of these symbols has setup a very clear technical pattern that suggests “the bottom is in”. Lastly, we’re only including FOUR symbols that we feel are properly hedged for risk – we’ll explain everything in more detail as we go through each symbol. Each of these chart will show very clear support levels in BLUE on each chart. Use your best judgment to identify proper stop levels for each of these setups. You must allow room for the trade to mature and initiate a rally attempt in order to secure the profit potential. It should be fairly easy to see the opportunities in each of these picks. Let’s get started.

American Airlines: AAL Weekly Chart

Airlines are going to benefit from the stimulus package that will be secured shortly after the elections. One way or another, the US government must support essential transportation services through any extended economic shutdown or further COVID economic collapse. There will be some rescue package for the airline sector, we believe, within 30 days after the elections.

The basing support level, shown by the lower BLUE line on this Weekly chart, highlights the upward price trend that we believe support another attempt at a price breakout (higher). We believe the news of a stimulus package that supports an Airline rescue plan will prompt a moderately strong upside price move that could target +35% to +65% levels from the current $12.72 price levels. Ultimately, key resistance exists near the $28.50 level. Therefore, we believe this resistance level will act as a major future price ceiling going forward.

Aurora Cannabis: ACB Weekly Chart

The cannabis sector may benefit from a change at the state and local government level. The extended basing support level and Pennant/Flag formation, shown by the lower BLUE lines on this Weekly chart, highlights the upward price trend that we believe supports a price breakout attempt (higher). We believe the potential for ACB to begin a new rally will initiate shortly after the US elections and will prompt a moderately strong upside price move that could target +115% to +235% levels from the current $4.88 price levels. Ultimately, key resistance exists near the $32.76 level. Therefore, we believe this resistance level will act as a major future price ceiling going forward.

General Electric: GE Weekly Chart

General Electric Company may benefit from any new infrastructure plans related to new policy/plans on the federal/state level. The extended basing support level and Pennant/Flag formation, shown by the lower BLUE lines on this Weekly chart, highlights the upward price trend that we believe supports a price breakout attempt (higher). We believe the potential for GE to begin a new rally will initiate shortly after the US elections and will prompt a moderately strong upside price move that could target +25% to +55% levels from the current $7.39 price levels. Ultimately, key resistance exists near the $18.05 level. Therefore, we believe this resistance level will act as a major future price ceiling going forward.

Silver Miners Juniors: SILV Weekly Chart

Junior Silver Miners are the “Hedge Trade” component for this simple portfolio. We believe Silver and Silver Miners will initiate a new upside price rally very shortly after the US elections and we believe this trade is an efficient “hedge” to the risk associated with the other three symbols in this simple portfolio. The extended basing support level and Pennant/Flag formation, shown by the lower BLUE lines on this Weekly chart, highlights the upward price trend that we believe supports a price breakout attempt (higher).

Silver miners should perform well once the price of gold starts a new uptrend and starts to rally towards $2200 price level. Fibonacci extension measured moves allow you to forecast where gold should rally to next as shown in this Sept 23rd article. We believe the potential for SILJ to begin a new rally will initiate shortly after the US elections and will prompt a moderately strong upside price move that could target +35% to +65% levels from the current $14.98 price levels. Ultimately, key resistance exists near the $32.95 level. Therefore, we believe this resistance level will act as a major future price ceiling going forward.

Concluding Thoughts:

We hope you find the value in these four simple picks we have presented and understand how you can help to protect your investment portfolio by allocating a small portion of your portfolio into these opportunities. There is no guarantee that these picks will rally as we expect. There is no guarantee that the COVID-19 infections won’t skyrocket again – potentially shutting down the global economy again. You have to use your skills and abilities to manage these trades ON YOUR OWN. We are just showing you four potential trade setups that we believe have a strong likelihood of initiating an upside price move near or after the US elections. We hope you strongly consider the message we are trying to convey to you – protect your assets and prepare for extended volatility.

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

Chris Vermeulen

Chief Market Strategies

www.TheTechnicalTraders.com

 

A Wall of Worry Provides a Great Buying Opportunity for NFLX and SNAP

For a bull trend to perpetuate it occasionally needs to climb a wall of worry. Bearish investors are always on the lookout for a theme that will provide them with an opportunity to short a stock or sector. If prices rise, investors who shorted-shares will need to cover, perpetuating the bull-trend rally. This concept has recently played out when it comes to large-tech and communication stocks which have seen their stock prices temporarily decline as regulatory scrutiny has become the next wall of worry.

Congress is Always Looking to Flex in Muscles

Congress always needs a whipping boy. Social media outlets continue to be the target of congressional frustration and more recently have been drawing the ire of several oversight committees. Most recently, Facebook and Google have been accused of engaging in anti-competitive, monopoly-style tactics. The House of Representations antitrust panel found during a 16-month investigation that these two companies relied on dubious, harmful tactics to achieve their dominance in web search and social networking. The Department of Justice announced on October 20, that it will file an antitrust lawsuit against Google.

Social media platforms, like Facebook, and Snapchat,  have repeatedly found themselves in the United States government’s crosshairs as their power has continued to grow since the 2016 elections. Social media companies have no designated oversight authority that regulates their activities.  If these companies get slapped with new rules, regulations, and fines it could trigger a broad market selloff for stocks. This fear has recently been priced into some of the more attractive large-cap tech shares which have provided an excellent buying-point within a long-term bull trend.

Buying Opportunity in Snapchat

Snap Inc, is an American company and maintains several products and services, namely Snapchat, Spectacles, and Bitmoji. The share price is in the midst of a bull trend but recently pulled-back into oversold-territory as the wall of worry gained traction. SNAP is scheduled to release quarterly earnings results after the closing bell on October 20, 2020. The social media concern is expected to report earnings per share of  $-0.05 versus $-0.04 a year ago, on revenue of $549 million. Analyst estimates of SNAP’s earnings have remained unchanged over the past 30-days, and the company is expected to begin turning a profit in 2021.

From a technical analysis perspective, SNAP share price is in a strong uptrend as seen on the combo chart of the 30-minutes and daily chart provided. I see SNAP with potential measured move using a Fibonacci extension to reach $39 per share before the year-end.

Notice the oversold zone on the SNAP chart shaded lime green. That is the first oversold pullback after a new trend takes place. The 30-minute price chart saw both an RSI below 30 and a fast stochastic below 20, which is an ideal low-risk entry point. The daily chart of SNAP also shows that the share price is fast approaching its all-time high which occurred right after its IPO. A break of this level will lead to an acceleration in price to its target Fibonacci level near $39 per share.

Netflix Has its First Oversold Pullback in a Fresh New Uptrend

I believe that Netflix’s business model of providing subscriptions to streaming entertainment is benefitting substantially from COVID-19. The company is scheduled to report financial results after the bell on October 20, 2020. The company is expected to deliver earnings per share of $2.13 versus $1.47 per share a year ago. Revenue is forecasted to rise to $6.38 billion.  The average earnings per share estimate have climbed slightly more than 1% during the last 7-days. Growth estimates are expected to expand by nearly 45%. Global subscriptions are forecast to rise sharply higher as the U.S. unemployment rate surged and more people were stuck at home during the pandemic.

The technical picture shows that NFLX recently dipped as the wall of worry drove prices down temporarily. NFLX is in a fresh new uptrend and just had its first oversold zone pullback. The 30-minute chart reflects a decline where the fast stochastic printed a reading below 20 representing an oversold situation. A breakout of the tight range capped by resistance near $560 a share will lead to a test of target resistance with an upside Fibonacci target of $742.

The Bottom Line

For stock prices to continue to rally they generally need to take a pause. During these pauses, new information can arise that allows bearish investors to short these stocks generating a wall of worry. For me, this represents an excellent opportunity to purchases shares especially during their first dip in a fresh uptrend. Both SNAP and NFLX have experienced recent dips, generated by the wall-of-worry associated with new potential congressional oversight concerning antitrust regulations.

Both NFLX and SNAP are scheduled to deliver financial results after the closing bell on October 20. Both stocks have exhibited behaviors that show that the bull-trend is intact and I expect the price to continue to target higher Fibonacci target levels as these stocks continue to climb the wall-of-worry.

Want to learn how we help traders and investors stay ahead of these bigger trends and setups?  Visit www.TheTechnicalTraders.com to learn more about the Technical Trader, my swing trade analysis and alerts, and the Technical Investor, my passive long-term signals service. Stay ahead of the market and protect your wealth by signing up today!

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

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

NOTICE AND DISCLAIMER: Our free research does not constitute a trade recommendation or solicitation for our readers to take any action regarding this research.  It is provided for educational purposes only.

 

Doji Clusters Show Clear Support Ranges On The S&P500

Clusters of Doji shaped candles have, for centuries, illustrated very clear levels of support/resistance in price action.  Whenever multiple Doji candles appear in a cluster-like formation, traders should pay attention to these levels as future support/resistance ranges for price action.  In the case of the S&P500 E-Mini Futures Daily Chart, we can clearly see three separate support zones – the highest one being right where price closed on Friday (near 3475).

As the US elections near, we do expect increased volatility to become a factor in the US markets.  Currently, our predictive modeling systems are suggesting a Bullish trend bias is in place in the markets.  Therefore, we expect the bias of the trend to continue to push higher.  Yet, these Doji Cluster support levels become very clear downside targets if increased volatility prompts any broad market rotation over the next few days/weeks. These three levels are :

  • 3445~3495
  • 3330~3390
  • 3185~3225

We are suggesting that IF any deeper market rotation takes place, support near these Doji Cluster levels would likely act as a major price floor – prompting some price support and a potential for a quick upside price reversal near these levels.  If the lowest level, near 3200, is breached by deeper price rotation, then a new price correction phase may setup.

Traders should use these levels to prepare for the expected volatility spike as we near the US elections.  We believe price will become more volatile as traders/investors attempt to reposition assets away from risk before the elections.  We are particularly concerned of a breakdown in the Technology sector related to recent threats to increase liability related to a special clause (230) that protects companies like Facebook and Twitter from the same Publisher Liability as major newspapers.

Given the renewed focus on these social media sites and the content posted/restricted on these sites, it appears they have become the target of investigations and the US Congress.  This could lead to some very big volatility spikes in the NASDAQ and the Technology sector over the next few weeks and months.  This could result in some very good trade setups as price levels may rotate wildly because of the elections and the pending decisions related to these social media firms.

Want to learn how we help traders stay ahead of these bigger trends and setups?  Visit www.TheTechnicalTraders.com to learn more about my swing trade alert and passive long-term signals services. Stay ahead of the market and protect your wealth by signing up today!

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

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

NOTICE AND DISCLAIMER: Our research does not constitute a trade recommendation or solicitation for our readers to take any action regarding this research.  It is provided for educational purposes only.

7 Reasons Why the Housing Boom Will Continue to Accelerate in 2021

The US residential real estate market is on fire. Demand is surging as everyone is stuck at home, using their house as a gym or an office and of course a place to live. A recent Harris Poll showed that nearly 40% of urbanites were considering leaving the city to find a less crowded place to live, that featured a house. New and existing home sales are hitting multi-year highs and this trend will continue as interest rates are expected to remain near historic lows. The combination of ultra-low inventories as well as rising demand has buoyed the IYR real estate ETF along with other home building stocks. This momentum is poised to continue. Here are 7-reasons why the housing boom will accelerate in 2021.

1)  COVID-19 is Driving Up the Divorce Rate

The spread of COVID-19 is not going away. Nearly everyone is stuck at home with each other which is increasing separations and divorces at a higher than normal rate. For the period between March and June 2020, the number of people in the U.S. looking for divorces increased by a robust 34% year over year according to Legal Templates. The driving force, the lockdown during the spread of COVID. To me, this means that more people will be looking to find a new home especially if kids are involved.

2) People are Leaving the Cities

People are fleeing cities at record rates. The pandemic is driving people to less populated areas, away from apartment dwelling, and toward houses. The New York Times reported that from March through August the number of people moving out of large cities was up 50% year over year. HireAHelper, an online marketplace, found that the spread of COVID has generated an abnormally large increase in the people moving out of large cities like New York, Los Angeles, and San Francisco and into smaller cities like Scottsdale Arizona, Durham North Carolina, and Columbus Ohio. This trend is perpetuating and I believe it will continue through 2021.

3) The Trend in New Home Sales is Rising

It’s easy to say that since divorces are up and people are leaving cities that new home sales should rise but it is another to prove it. The proof is always in the pudding. In August, sales of new U.S. single-family homes surged to their highest level in nearly 14 years according to the U.S. Commerce Department. New home sales rose 4.8% to an annual rate of 1.011 million units which was the highest level since September 2006. Since new home sales are counted at the signing of a contract, I consider these metrics a leading indicator of home sales.

4) Existing Home Sales are Accelerating

New home sales make up about 15% of the total home sales in the US compared to existing home sales which make up the bulk of home sales. In August, existing-home sales rose by 2.4% month over month to an annual rate of 6 million units the highest level since December 2006. Sales surged nearly 11% year over year. The accelerating rate of sales has spilled over into prices. The Commerce Department reports that the median existing house price jumped 11.4% year over year to a record $310,600 in August.

5) Inventories Remain Very Low

Homebuilders are salivating at the prospect of lower trending inventories. There were nearly 1.5-million homes on the market in August, down 18.6% from a year ago. At this rate, it will only take 3-months to clear out all the current existing home inventory down from 4-months a year ago. Historically, a 7-month supply of homes is viewed as a healthy equilibrium. Homes are flying off the market. In August the average home was on the market for 22-days, compared to 31-days a year ago, according to the National Association of Realtors. Nearly 70% of the homes on the market sold in less than 1-month.

6) Interest Rates are at Historic Lows

While the tightness in the housing market could generate some demand destruction attractive borrowing rates have more than offset the higher prices. In September, the 30-year fixed mortgage rate hovered near 2.87%, according to Freddie Mac. These rates will likely remain stable as the Federal Reserve has signaled to market participants that short-term interest rates will remain near zero, for the next 3-years.

*Source Y-charts

7) The Technicals are Positive But Be Prepared Either Way

The IYR real estate ETF is consolidating sideways. When the price of an ETF moves sideways for several months it means it is building up a lot of energy for the next move. The recent movements have created a tighter range as the ETF is sandwiched between resistance near the 10-week moving average and support near the 50-week moving average. Any breakout here will generate a robust move higher, potentially testing the 2020 highs near $101. Strong resistance is seen near the August 2016 highs which coincide with the June 2020 highs near $87.

Short-term momentum is positive as the fast stochastic recently generated a crossover buy signal. Medium-term momentum is decelerating as the MACD (moving average convergence divergence) histogram is printing in positive territory with a flattening trajectory which points to consolidation.

The Bottom Line

The upshot is that the spread of COVID has brought on a cascade of events that point to a continued acceleration in the housing market. People are moving out of large cities and looking for homes in the suburbs and smaller cities. The divorce rate has accelerated which means that more people will be competing for available homes. Both new and existing home sales have reached 14-year highs, and the low level of interest rates will continue to propel demand. With inventories as multi-decade lows, home builders will continue to benefit from higher demand and low supplies. The technicals show the IYR ETF is moving sideways gathering energy and poised to break out to higher levels.

As a technical analyst and trader since 1997, I have been through a few bull/bear market cycles in stocks and commodities. I believe I have a good pulse on the market and timing key turning points for investing and short-term swing traders.

Chris Vermeulen
Chief Market Strategist

NOTICE AND DISCLAIMER: Our free research does not constitute a trade recommendation or solicitation for our readers to take any action regarding this research.  It is provided for educational purposes only to our subscribers and not intended to be acted upon.

Crude Oil Stalls In Resistance Zone

CLEAR PRICE CHANNEL MAY PROMPT BIG BREAKOUT OR BREAKDOWN MOVE IN OIL

In this report, I discuss the recent price action in crude oil and how economic conditions and the pennant flag chart pattern is indicating a big price move is about to take place over the next few weeks.  While some of you may want a clear, bold prediction as to whether a breakout or breakdown may happen, as technical traders, our job is to predict different possible setups and identify the criteria that will tell us when to enter the trade upon confirmation. Read below to learn more.

Crude Oil has continued to retest the $41.75 to $42.00 resistance level over the past 30+ days. My research team believes this represents a very clear indication that further failure to advance above this level will prompt a moderate price decline – likely breaking below the $36.00 ppb price level.

We believe the completed Pennant/Flag Apex, highlighted in Light Green on the Crude Oil Futures chart below, represents a technical pattern suggesting a new price trend is pending.  The recent sideways price action, highlighted by the Gold Rectangle on this chart, shows the range of price recently that is currently presenting a very clear support level (near $36) and a very clear resistance level (near $42).

Our research team believes the downside potential in Crude Oil outweighs the upside price potential at this time because of two primary factors; continued COVID-19 cases and the likelihood that continued economic restrictions will stay in place and the pending change in the seasons (Winter is coming).  We believe these two factors will lead to lower demand for Crude Oil over the next 3+ months which could send Oil prices tumbling lower.

Currently, Our research team is watching Crude Oil for any price breakdown below $37 as a signal that downward price pressure has prompted a price move below the MIDPOINT of the Gold Rectangle sideways price range.  We believe when the price of Crude Oil breaks below the Midpoint of this range, there is a much stronger potential for a breakdown move below the $36 price level.  Of course, we would have to have technical confirmation of this breakdown in trend from other indicators, but as long as Crude Oil price stays above $38.25 the bias of price within the range is still Bullish in nature.

This may become a very good trading signal in the next few days or weeks ahead.  Traders should keep Crude Oil on their watch lists as this technical pattern plays out.

As a technical analyst and trader since 1997, I have been through a few bull/bear market cycles in stocks and commodities. I believe I have a good pulse on the market and timing key turning points for investing and short-term swing traders.  If you want to learn how to become a better trader and investor, visit www.TheTechnicalTraders.com to learn how we can help you make money with our swing and investing signals. Don’t miss all the incredible trends and trade setups, sign up today.

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

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

 

Short Term S&P 500 Top, and Financials and Banking Start New Bear Market

Find out what type of price action is about to happen with the SP500 over the next 11 trading days. Also, did you know the financial and banking sectors are both in bear markets?

Financials are doing the exact opposite of the best performing sector which is the TAN solar ETF: https://www.fxempire.com/forecasts/article/a-perfect-financial-storm-for-the-stock-market-676819

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

Melt-Up Triggered a Short Squeeze In The NASDAQ and a Utilities Breakout

Rather quickly in trading late Sunday night, the NQ (NASDAQ E-Mini Futures) began to move higher quite consistently.  By the time the markets opened in London on Monday, the rally was ON.  We believe this is related to two underlying factors:

A.  Short positions were getting squeezed after the end of week rally in the markets last week.  The upside price pressure early in trading on Sunday/Monday likely forced many of these shorts out of the market – creating a Short Squeeze.

B.  Global traders may be interpreting a biased election victory by Donald Trump based on news events or other information.  This close to an election and with pending Q3 earnings just days away, a melt-up rally like this is fairly uncommon – unless you take into consideration that global investors may be pre positioning for an expected outcome.

30 Minute Chart of Nasdaq Showing This Weeks Rally & Squeeze

Still, one can’t discount the upside move in the NQ today, as seen on this 30 minute chart (below).  The rally started off moderately strong, then London opened Monday.  After London opened, the momentum grew and price began to rally even higher.  We believe this rally phase will abate after the momentum phase has pushed prices high enough to prompt some concerns.  You can’t fight the squeeze when it happens, but you can’t chase it very long either.

Dow Jones 30 Minute Rally, or Lack of Rally from Underperforming Sectors

The following YM (Dow Jones E-Mini Futures) chart, on the other hand, represented a very small rally phase compared to the NASDAQ.  This suggests more interest was centered in the Technology and Healthcare sectors recently as traders attempted to scoop up Call Options ahead of earnings.  The Dow Jones and the S&P 500 were still higher today, but these two major indexes were not included in the dynamic Short Squeeze like the NASDAQ was today.

Daily Chart of Utility Sector Shows Signs of Leadership

If you take a look at the following Utilities Sector ETF (XLU) it is clear that in the past few weeks they are outperforming almost all other sectors. New multi-month highs, strong momentum, and this is what happens when investors start to become nervous. They buy defensive companies that will always be needed during a recession.

Take a look at what utilities did in Jan/Feb when investors started to get nervous about the economy/COVID. I look at utilities as one of the last moves before a market correction.

Our research continues to suggest we are still in a Bullish price trend.  Our Super Cycles research and other predictive modeling system suggest volatility and risk factors are still very elevated.  In other words, we believe the US market trends are biased to the upside right now and may break higher after the elections.  We are also very cautious of election volatility and unknown factors such as earnings and other issues.

As of today, Tuesday, the NASDAQ is continuing higher as positive earnings start to hit the wires.  Learn how our predictive modeling and other advanced trading technology can assist you in finding the best trades.

As a technical analyst and trader since 1997, I have been through a few bull/bear market cycles in stocks and commodities. I believe I have a good pulse on the market and timing key turning points for investing and short-term swing traders. Don’t miss all the incredible trends and trade setups.

If you want to learn how to become a better trader and investor, visit www.TheTechnicalTraders.com to learn how we can help you make money with our swing and investing signals.

Chris Vermeulen
Chief Market Strategies

NOTICE AND DISCLAIMER: Our free research does not constitute a trade recommendation or solicitation for our readers to take any action regarding this research.  It is provided for educational purposes only to our subscribers and not intended to be acted upon.

 

Gold and Silver Ready For Another Rally Attempt

After nearly 3 weeks of sideways/downward price action in Gold and Silver, our researchers believe both metals have already setup another breakout/rally attempt after breaching downward resistance (shown as the downward sloping CYAN line). For precious metals bugs, this could be another huge opportunity as the next move higher should prompt a rally above recent highs. That means a target price level in Gold above $2100 and a target price level in Silver above $30.50.

ARE METALS POISED TO RALLY TO NEW HIGHS SOON?

The deep price retracements recently in both Gold and Silver have come from news events. First, the EU Banking Report that destroyed the market on September 21. Then, just recently, the news that President Trump contracted COVID-19. The resilience in both Gold and Silver near these recent lows suggests demand for metals is still skyrocketing – otherwise we believe much deeper price lows would have been reached.

If our previous research is correct, this current basing/bottoming pattern could be the beginning of an explosive upside “appreciation” phase in precious metals. Please take minute to read the following past research post from our team.

Sept 27, 2020: GOLD AND SILVER FOLLOW UP & FUTURE PREDICTIONS FOR 2020 & 2021 – PART I

Sept 28, 2020: GOLD AND SILVER FOLLOW UP & FUTURE PREDICTIONS FOR 2020 & 2021 – PART II

We expect Gold to rally to levels near 1995, then stall a bit before breaking clear of the $2085 level and pushing well above the $2150 as a new rally phase begins. At this point, we believe the upside move to break the CYAN resistance channel is key to starting this upside price recovery.

The setup in Silver is very similar and in many ways a bit clearer on the chart. The CYAN downward sloping price channel is very clear. Price is very close to breaking above this channel. We believe the next move in Silver is a rally to levels near $28, then stalling briefly before the next “appreciation” phase begins pushing Silver above $31.50.

Remember, what we are calling the “appreciation phase” is really a much longer term price appreciation cycle in metals that should begin within the next 6 months and may last 2+ years. When we are reviewing Daily charts, as we are in this article, we are talking about an appreciation phase that may last 7 to 15 days – not 2 years. Take a look at the research articles we’ve linked near top of this article to learn about the broader market phases that are setting up.

Still, the end result is that we believe Gold and Silver are ready to start moving much higher at this point – we just need to see those CYAN levels broken first.

Metals have been, and continue to be, incredible opportunities for skilled technical traders. Repeating cycles and patterns allows skilled traders to pick from multiple triggers. If you want to learn how to become a better metals trader, visit www.TheTechnicalTraders.com to learn how we can help you out.

NOTICE : Our free research does not constitute a trade recommendation, or solicitation for our readers to take any action regarding this research. It is provided for educational purposes only. Our research team produces these research articles to share information with our followers/readers in an effort to try to keep you well informed. Visit our web site (www.thetechnicaltraders.com) to learn how to take advantage of our members-only research and trading signals.

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

 

SPY Retesting Critical Resistance From Fibonacci Price Amplitude Arc

RESEARCH HIGHLIGHTS:

  • We continue to monitor the $339.50 level as a key resistance level.
  • Our weekly SPY chart is showing that the Fibonacci Price Amplitude Arc resistance level is acting as a ceiling for price and a downward trend in the Momentum indicator.
  • The current rally in price may simply be another Bull-Trap set up in a typical “R” price formation near our Fibonacci Price Amplitude Arc resistance level.
  • A SPY breakout or rally above $339.50 pushes us closer to the all-time highs, which could then could prompt a new breakout/rally in price.

My research team and I have been watching with keen interest how the markets have continued to trend sideways since setting up a major price peak on September 2, 2020.  We’ve continued to suggest general market weakness in the US major indexes was likely to take place after nearly all of the US major indexes rallied above the February 2020 price highs.  Our bigger concern was that a “Bull Trap” was setting up just 60+ days before the US elections.

Recently, we authored a series of new research articles about sector rotation and how we believe global investors are shifting assets away from risk and into undervalued value sectors.  You can read these articles here:

October 7, 2020: STICK WITH THE WINNERS LIKE CLEAN ENERGY

October 8, 2020: COVID-19 HAS PUSHED VARIOUS SECTORS INTO POSITIVE RECOVERY TRENDS

My research team believes the final months of 2020 will be a challenge for all traders/investors as volatility continues to stay nearly 2x to 3x higher than normal and as global investors continue to transition from high-flying sectors over the past 12+ months into undervalued sectors that appear to be breaking into a new upward trend.  We believe certain sectors, like housing, freight, and heavy equipment, as well as certain retail segments, could continue to do moderately well throughout the Christmas season.  Yet we also believe this transition away from risk may prompt some big downward price trend surprises over the next 60+ days – so traders need to stay keenly aware of risks and cautious of broad market rotations.

FIBONACCI PRICE AMPLITUDE ARC CEILING BACK IN PLAY

Today, we are focusing our research on the SPY chart and how our Fibonacci Price Amplitude Arc from a projected target point many months into the future continues to play a role in creating resistance for the SPY and major US markets.  We’ve mentioned the $339.50 level on the SPY as a key level to watch over the past 30+ days and we’ve authored numerous articles about the key developments and setup from a Technical Analysis standpoint.  One of the most informative research posts recently was our detailed article on September 6, 2020, entitled BIG TECHNICAL PRICE SWINGS PENDING ON SP500, which suggested a broad market decline was setting up.

We believe the current price setup in the SPY is similar to the early September peak price action and may prompt another downside price move after briefly testing out these recent high price levels.  In other words, the current rally in price may simply be another Bull-Trap set up in a typical “R” price formation near our Fibonacci Price Amplitude Arc resistance level and traders need to stay extra cautious at this time.

Yes, a breakout trend/rally above this level that pushes back to near the all-time highs could prompt a new breakout/rally in price – but we’re not there yet.  We believe the indecision and uncertainty related to the US elections will continue to keep the US markets in a mode of paralysis over the next 3+ weeks (or longer).  Don’t expect much of a price trend over the next three to four weeks and stay very cautious of risks as news, tweets or other items could become major drivers of price rotation over the next 30 to 60+ days.

Notice the two MAGENTA highlighted areas on the SPY 240-minute chart below.  These are the areas above the Fibonacci Price Amplitude Arc that present Bull Trap setups.  We have a moderate technical divergence in our Momentum indicator and we believe the current price setup is, again, at a make-or-break setup.

This SPY Weekly chart, below, highlights the same setup over a more condensed chart.  We can still clearly see the Fibonacci Price Amplitude Arc resistance level acting as a ceiling for price.  We can also see the two recent peaks that align with this Fibonacci Price Amplitude Arc.  We also have a downward trend in the Momentum indicator near the bottom of the chart.  If price fails to hold above the Fibonacci Price Amplitude Arc (with any indecision or uncertainty over the next few weeks), we believe the downside price risk is rather substantial.  A breakdown in price at this point could prompt a move below $315 on the SPY – possibly targeting the $280 level again.

Any failure in price to continue to rally will quickly become evident as price should setup a rollover peak very close to the $340 to $350 price level on the SPY.  Again, we are nearing a make-or-break price level on the SPY – skilled traders need to be cautious right now.

Jumping into any long-side trades at this time could represent a very real 11%+ downside risk factor.  Jumping into any inverse trades could represent a very real 6% to 8% risk.  With volatility still 2xto 3x+ the normal price range and price hovering near critical resistance just weeks before the US elections, taking big trades banking on big trends in this market is like taking a Dingy out in a Hurricane.  Best to understand the risks and prepare for stormy weather to ride out the volatility and risks.

Targeted trades in the most opportune sectors with moderate levels of risk are the only real opportunities in our opinion.  Swing traders should stay cautious as unknown risks still persist near this critical resistance level and a number of unknowns continue to lurk just below the surface.

Have a great weekend – stay safe and healthy!

Chris Vermeulen
Chief Market Strategist

COVID-19 Has Pushed Various Sectors Into Positive Recovery Trends

RESEARCH HIGHLIGHTS:

  • InfoTech has been the hottest sector in the past 30 days, although it is 11% off from September 21, 2020 highs. Consumer Discretionary and Healthcare are the #2 and #3 hottest sectors.
  • The Energy, Internet, Banks, and Insurance sectors have been weaker in the past 30 days.
  • Volatility, which is almost twice as high as historic levels, will continue to be an issue going forward so it is smart to properly allocate capital to avoid risk.

The Technology and Healthcare sector were two of the strongest sectors for growth and price appreciation in the US before the COVID-19 virus collapsed the US and global economy.  After the COVID-19 bottom setup in March 2020, these two sectors continued to lead other sectors in price appreciation and bullish trending.

SHIFTING SECTOR TRENDS MAY WARN OF A BIG ROTATION IN THE MARKETS

The trend is your friend – when it confirms with technical analysis.  As such, we must be able to identify when trends are initiating, establish momentum, and are likely to continue.  My team and I accomplish this with our Best Asset Now (BAN) technology – an adaptive indicator/tool that maps out trends, strength, confirmation, and momentum.  When we combine the BAN technology with our other proprietary trading tools, we can clearly identify the best opportunities for trends/trades and confirm trade entry and exit points.

No matter how great your technology or technical systems are, volatility and price range play a big role in protecting assets and allocating trade capital into entry triggers.  Over the past 14+ months, volatility has continued to increase to levels that are now averaging nearly 300% above traditional volatility levels (or more at times).  Throughout most of 2019, the VIX stayed below 15 – showing very mild volatility.  Currently, the VIX is hovering near 30 with spikes above 35 to 40.  Traders need to understand that higher volatility presents higher degrees of risk with every trade taken.

This Monthly Sector Heatmap below highlights how various sectors have rallied over the past 30+ days while Energy, Internet, Banks, and Insurance appear to be much weaker overall.  Healthcare is mixed/sideways as well as some consumer products like Beverages, Tobacco, Confectioners & Packaged Food Products, and Aerospace & Defense.  Watching this monthly rotation in sectors suggests consumers are changing how they spend and how the US economy is reacting to the extended COVID-19 contractions and shifts in economic activity.  Certain sectors appear to be supporting the economic activity much better than others.

(Image Source: FinViz.com)

Railroads, Farm & Heavy Equipment, Utilities Freight and Logistics, almost all components of Healthcare and certain essential consumer supply segments like footwear, apparel, home improvement, appliances and fixtures, and many others.  There certainly appears to be a boom cycle as low interest rates have pushed various sectors into strongly bullish trends while others continue to contract.

LEADING AND LAGGING S&P SECTORS

Looking at the S&P500 Index vs S&P Sectors chart, below, we can see Info Tech ($SRIT) had been one of the strongest sectors to recover after the COVID-19 bottom and continued to rally over the past 5+ months.  Currently, it is nearly 11% below its peak levels set near September 21, 2020. Healthcare is still performing well but has been replaced by the Consumer Discretionary sector as the #2 performing sector recently.  Additionally, Consumer Services briefly outperformed Healthcare near mid-September 2020 and is threatening to knock the Healthcare sector down another notch right now.  Over the past 30 days, the strongest sectors over the past 5+ months seemed to transition into sideways trending while some of the more moderately trending sectors have started to trend higher.

(Image Source: BarChart.com)

On the opposite side of this rotation are a few market sectors that appear to be sparking to new trends. The Utilities Sector ($SRUT) has recently broken above recent high price levels and started to rally. The Financial Sector ($SRFI) has stayed moderately depressed, not really showing any ability to rally after the COVID-19 collapse.  Yet, it has started to come back to life recently – initiating a moderate uptrend that threatens to break recent high price peak levels.  If this happens, the Financial sector may start to move towards new highs soon.

The Real Estate Sector ($SRRE)  has rallied over the past 12+ days and is starting to trend near levels close to the previous high peak levels.  If this sector breaks above the previous high price levels, it could begin to rally even further.

Homebuilding and home repair appear to be a hot trend right now.  The lower interest rates and extended time at home have, for many people, sparked a remodeling/flipping phase.  I’ve seen this happen around me over the past 6+ months quite frequently and it appears this trend may not end right away.

As we move closer to the US elections, we believe traders need to focus on opportunities that transcend the election event altogether to protect against risks and volatility.  Currently, the hottest sectors listed below may continue to trend higher over the next 2 to 4+ weeks as stimulus and continued US Fed support for additional economic easing push some of these trends further higher.  Our advice is to learn how to identify trends that may appear to provide opportunities, then use technical confirmation triggers to develop sound trading entries.  We use our Best Asset Now (BAN) technology to accomplish this and we believe this provides us with an edge related to opportunities and risk factors.

Volatility will continue to be an issue going forward so it is smart for traders to learn to properly allocate capital to avoid risk.  Additionally, it is important to understand that these trends will end at some point.  Stay safely hedged and trust that the consumer will attempt to capitalize on opportunities they are offered while continuing to demand essential consumer staples/supplies.

Trading during the Christmas season could be moderately strong if these trends continue and COVID-19 settles down a bit.    Obviously, housing, flipping, upgrading, and the associated equipment, supplies, and transportation related to that activity are driving a lot of this trending.  Technology demand is a result of “at-home work” and the need to upgrade/support a changing working environment.  Winter may help to propel these trends higher as people “hunker down” for the cold winter months.

Traders should be ready for wild volatility in the short term. Isn’t it time you learned how I can help you better understand technical analysis as well as find and execute better trades?  If you look back at past research, you will see that my incredible team and our proprietary technical analysis tools have shown you what to expect from the markets in the future.  Do you want to learn how to profit from these expected moves?  If so, sign up for my Active ETF Swing Trade Signals today!

If you have a buy-and-hold or retirement account and are looking for long-term technical signals for when to buy and sell equities, bonds, precious metals, or sit in cash then be sure to subscribe to my Passive Long-Term ETF Investing Signals to stay ahead of the market and protect your wealth!

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

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

 

A Perfect Financial Storm For The Stock Market

There are a number of reasons for investors to remain bullish on stocks, that’s for sure. The economy continues to remain open, earnings estimates are increasing, the Federal Reserve has indicated it will maintain monetary stimulus for the foreseeable future, plus tax rate cuts, and on a technical basis, the market remains in an uptrend.

If you can completely ignore the fact that most businesses are struggling, COVID is returning in some areas of the country, and that unemployment levels are extremely high, then the bullish items will make you want to own stocks.

No Matter Who Wins

As for the upcoming U.S. presidential election, I think the outlook is bullish for stocks no matter who wins.

Trump tweeted the other day from the hospital that he plans for the biggest tax rate cut ever if he wins, and higher stock market prices. If Biden wins, I feel stimulus will skyrocket at a faster pace, which would also be bullish for stocks.

COVID-19 has put a stranglehold on business and shoppers. This favors working from home which means technology and tech services will continue to be in high demand. Also, the largest tech companies like Amazon will continue to grow and pull the stock market’s value up with it.

This is the perfect storm for higher stock market prices because tech stocks have the lion’s share of market value.

BAN (Best Asset Now) Strategy

I use a proprietary relative strength strategy I call Best Asset Now (BAN), where I focus on owning the performance leaders and steer clear of the laggards. From a statistical perspective stocks/sectors that have been leading the rest of the market for three or more months have a 70% probability to continue to lead the market. In other words, stocks or sectors that have been leaders tend to lead for long periods of time. This is why I like to own leaders on breakouts or buy them during oversold dips.

Strong Relative Strength Sectors

An interesting sector that has been silently leading the way higher during the rally this year is solar power energy. Exposure to the sector can be attained through the Invesco Solar ETF (TAN) as it has outperformed every other asset and index this year. Another clean energy ETF, Invesco WilderHill Clean Energy ETF (PBW), takes second place.

You can see in the enclosed weekly chart for TAN that it has continued to progress into new trend highs even as the wider market fell into a correction over the past six weeks or so. TAN was up as much as 243.4% at its recent high of $72.60 since it hit the March swing low at $21.14.

Potential Resistance Zone – TAN

Nevertheless, in the short-term TAN may be getting extended. Even though upward momentum has accelerated since the last new trend high breakout on September 28, TAN has been up for each of the past eight consecutive days and gained almost 26% since the breakout. From the last swing low of $47.98 on September 4 the ETF has advanced over 51%. That is a healthy move in a short period of time.

Further, we have several Fibonacci levels close above, with a range from $72.47 to $76.94. This creates the first potential resistance zone.

Also, note that price just formed a narrow range doji candlestick pattern, while both the daily and weekly charts are in overbought territory based on the 14-period Relative Strength Index (RSI) indicator. The doji candle reflects a degree of indecision or consolidation within the day. A breakout higher or lower may resolve the indecision.

I should also note that short term and speculative traders have started buying and running up the stock price. Take a look at the rise in short term traders owning TAN from the RobinHood brokerage list.

The price of TAN shares in pink, and the amount of traders who own this ETF in green. The key take away from this chart is that when short-term traders are piling into an asset like we they did during February, and again now, you should expect wild price swings and some type of pullback in the near future that could last a few weeks or months.

Weakest Performer – Energy Sector

The worst performing sectors are also energy stocks heavily weighted in oil (dirty energy) as there is no demand as everyone works from home and travel is a fraction of what it once was. Also, Global X Uranium ETF (URA) which is a uranium equities ETF (also dirty energy), is the second worst performer.

The SPDR Energy Sector ETF (XLE) broke down from a large head and shoulders top reversal pattern in January of this year before it made a very rapid dive to the $22.88 low hit mid-March. That was a 63.4% drop from the last swing high (before breakdown) in December 2019, and a greater than 77% decline off the record high reached in June 2014.

Since that low, XLE retraced a little more than the first primary Fibonacci retracement level of 38.2%, before falling again to a low of $28.20, hit last week. If that low holds then XLE would have completed a 78.6% Fibonacci retracement of the prior rally (A to B).

ABCD Pattern Targets $52.25

This price behavior sets up a potential measured move or ABCD pattern – where a continuation of the initial rally started in March (first leg up) may be seen. If this happens, then the pattern would complete around $52.25. That is where the CD leg of the pattern would match the price appreciation see in the first AB leg up, thereby reflecting symmetry in price swings.

Concluding Thoughts:

In short, all the talk this year feels like its been about tech and biotechs. I hope I shed some light on a few sectors that should not be ignored. While I feel there will be some near term head winds for solar and clean energy, I feel there is a change in sentiment post COVID where people want to focus on being healthier, and to support our plant by going green.

As a technical analyst and trader since 1997, I have been through a few bull/bear market cycles in stocks and commodities. I believe I have a good pulse on the market and timing key turning points for investing and short-term swing traders. 2020 is an incredible year for traders and investors.  Don’t miss all the incredible trends and trade setups.

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

Chris Vermeulen
Chief Market Strategies
Founder of Technical Traders Ltd.

>>> ATTN: CHRIS – additional charts:<<<

TAN Daily chart (Source www.tradingview.com)

TAN Weekly chart

TAN Monthly chart

XLE – Daily Chart

XLE – Weekly Chart

XLE – Monthly Chart

 

Spy ETF Testing March Price Peak – What Do the Charts Say?

RESEARCH HIGHLIGHTS:

  • The SPY has been trading below its previous peak resistance level from March for more than two weeks and has begun to retest this level.
  • If the SPY can clear this level on moderately strong volume, we believe the US stock market may enter another “melt-up” phase.
  • If not, then we may see more of a sideways/melt-down phase headed into the US Presidential Elections.

The SPY, SPDR S&P 500 ETF, has been trading below the $339.50, previous peak resistance level, for more than two weeks recently and has begun to retest this level.  I believe these levels are critical in determining the future trending capacity of the SPY and the US stock market.  If the SPY can clear this level on moderately strong volume, we believe the US stock market may enter another “melt-up” phase.  If not, then we may see more of a sideways/melt-down phase headed into the US Presidential Elections.

SPY PRICE RESISTANCE AT $339.50

This Daily SPY chart below highlights our Adaptive Fibonacci Price Modeling system and shows the Previous Peak Resistance level as a SOLID RED LINE.  We believe the current setup suggests this resistance level may act as a solid ceiling in price over the next few weeks.  If price can break through this resistance level for a few trading sessions then we will likely see it continue marching up (until the next news bomb hits).

Below, we look at the Weekly SPY chart to see the bigger picture with a longer-term chart.  We can easily spot the resistance near the $339.50 previous peak level and how the current price is retesting this critical price level.  We believe the markets are simply waffling sideways before the US Presidential elections.

Watch for the $339.50 level to be accepted or rejected. Traders should stay very cautious and look for sectors that present greater opportunities and defined trends.  The major indexes are going to continue to trade in a sideways pattern as Washington DC and the Senate are stuck in paralysis before the elections.  There are still opportunities to profit from some of these moves, just be cautious of the volatility at play in the markets.

As a technical analyst and trader since 1997, I have been through a few bull/bear market cycles in stocks and commodities. I believe I have a good pulse on the market and timing key turning points for investing and short-term swing traders. Subscribers of my Active ETF Swing Trading Newsletter can ride my coattails as I navigate these financial markets and build wealth. My research and trading team are here to help you find better trades and navigate these incredibly crazy market trends.

While most of us have active trading accounts, our long-term investment and retirement accounts are equally at risk. We can also help you preserve and even grow your long term capital when things get ugly (likely now) with our Passive Long-Term ETF Investing Signals.  Don’t wait until it is too late – subscribe today!

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

Have a great week!

Chris Vermeulen
Chief Market Strategies
Founder of Technical Traders Ltd.

 

Cycles Analysis Points to Interesting Gold Price Action

RESEARCH HIGHLIGHTS:

  • In the early 1900s, multiple events prompted a rising commodity price level and a decline in the Stocks to Commodities ratio. We expect commodities may begin to appreciate and where stock price levels may stall or decline.
  • We also believe we are currently nearing the end of a rising cycle in both Stocks to Commodities and S&P500 to Earnings ratios, suggesting a downward/sideways trend in the US stock market will continue while commodities attempt to form a longer-term momentum base.
  • The current 100-year Gold cycle suggests a Recovery phase is nearly complete and we should expect an Appreciation phase to begin within 2 years (or less). Historically, the Appreciation phase prompts a 200% to 300%+ rally in Gold prices.

My research team and I have been pouring over the long-term data related to the current global markets and central bank efforts to support the global economy in the midst of the COVID-19 pandemic… and we have some keen insights I would like to share with you.  This research article highlights historical chart phases and trends and shows you how important it is to pay attention to cycles and Super-Cycle events as they continue to trend.

US STOCKS TO COMMODITIES RATIO CHART PHASES

In the early 1900s, multiple events prompted a rising commodity price level and a decline in the Stocks to Commodities ratio. The continued industrialization of the US as well as the demand for commodities as “maker industries” flourished in the early 1900s prompted a decline in the Stocks to Commodities ratio.  The start of WWI (1914 – 1918) prompted a strong downtrend in the Stocks to Commodities ratio, eventually settling near a bottom in June 1920. Even the Spanish Flu added to the demand for commodities as consumers still needed basic commodities to survive.

At that time in economic cycles, stock price levels began to collapse in comparison to commodity prices.  We can clearly see the downtrend in the long-term Stocks to Commodities Ratio chart below.  Pay very close attention to how the downtrend lasted from early 1907 to 1921.  When the Stocks to Commodities ratio declines in value, we typically see a rising commodities price level compared to a declining or stalling stock price level.  When the Stocks to Commodities ratio rises, this represents a declining commodities price level to a rising or stable stock price level.

(Source: https://www.longtermtrends.net/stocks-commodities-ratio/)

We are currently in an upward Stocks to Commodities ratio cycle – which suggests commodities are decreasing in value while stocks are increasing in value.  We believe this cycle may be nearing an end (within the next few years) where commodities may begin to appreciate and where stock price levels may stall or decline.

The COVID-19 virus event may present a similar downtrend in US stock price levels as we may have experienced with the Spanish Flu in 1918 – pushing the current rising trend into a declining trend.  The cycle of demand for commodities becomes dependent on consumer and industrial demand cycles.  Currently, we believe the demand level for raw commodities is diminishing considerably as the global economy reverberates because of the COVID-19 shutdowns.

S&P 500 PRICE TO EARNINGS RATIO CHART PHASES

When we take a look at the longer-term S&P500 Price to Earnings Ratio chart below, we see similar trends that somewhat align with the Stocks to Commodities Ratio chart.  The first downward Earnings trend peaked near 1986 and bottomed near 1919 (below).  The second downward Earnings trend peaked near 1934 and bottomed near 1952.  Using a simple “by eye” comparison across these two charts, it appears the peak in the Earnings charts originated about 2~3 years before the peak in the Stock to Commodities peaks and the bottoms in these cycles aligned within a 1~2 year range.

Our research team believes we are currently nearing the end of a rising cycle in both Stocks to Commodities and S&P500 to Earnings ratios.  We believe the final phase of this advance will look somewhat like 1933 to 1952 declining cycle where stock and commodities attempt to find a base level (we call fair market value).  We believe the Excess Phase in the US stock market has contracted over the past 25+ days as an exhaustion peak.  If this trend continues, we believe a downward/sideways trend in the US stock market will continue while commodities attempt to form a longer-term momentum base (possibly lasting 24+ months) before bottoming.

100 YEAR GOLD CHART PHASES

The 100 year Gold chart below highlights the unique phases showing how Gold reacts to the broader market cycle phases we’ve highlighted above.  Gold, being a safe-haven commodity, reacts in similar cycle phases (excluding the 1971 Exit from the Gold Standard phase).  You can clearly see the three phases we’ve highlighted in the chart below roughly align with the cycle phases and trends in the Commodities Ratio charts seen above.  The primary difference is that Gold enters a Recovery Phase early in the organic economic growth phases of the Commodity cycles and is somewhat immune to the S&P Price to Earnings phases.

Notice how Gold began Recovery Phases in 1922, 1971 and 2004?  Now, take a look at the Stocks to Commodities Ratio bottoms in the cycles: 1920, 1950, 1982, and 2009.  As you can see, there is alignment with the exception of the 1950 and 1982 cycle bottoms.  This can easily be explained as a process of the institution of the US Federal Reserve (1933) and the removal of the Gold Standard (1971).  When we discount these dramatic alterations to the organic cycles, we can see that Gold reacted to the ending of the Gold Standard with a huge Recovery and Appreciation phase.

The current cycle suggests a Recovery phase is nearly complete and we should expect an Appreciation phase to begin within 2 years (or less). Historically, the Appreciation phase prompts a 200% to 300%+ rally in Gold prices – this time the rally may be even greater.  We are just waiting for confirmation that the upward cycle in Stocks to Commodities and S&P Price to Earnings ratios have peaked and begin to move lower.  That cycle confirmation will suggest the Recovery phase in Gold has ended and the Appreciation phase has begun.  Additionally, once Gold rallies above $2,200 (breaking recent highs), this could also be considered a confirmation of the new Appreciation Phase in Gold.

This article illustrates that longer-term economic cycles play a very big role in how we, as technical traders, attempt to identify opportunities and trends.  The theory that Technical Analysis is the study of indicators and price theory fails to address the fact that many aspects of cycles, trends, appreciation/depreciation, theory, indicators, and other factors go into our analysis.  We use Technical analysis as a final confirmation tool and as a primary source for our research, but we rely on cycles, historical data, nuanced patterns and so much more to try to help traders find and execute better trades.

Traders should be ready for wild volatility over the next 2~3+ years and a very strong potential that commodity prices (particularly Gold and Silver) will transition into the Appreciation Phase fairly soon.  I have been following Gold and Silver for years now and have many of the Gold industry giants following my precious metals research.

Isn’t it time you learned how I can help you better understand technical analysis as well as find and execute better trades?  If you look back at past research, you will see that my incredible team and our proprietary technical analysis tools have shown you what to expect from the markets in the future.  Do you want to learn how to profit from these expected moves?  If so, sign up for my Active ETF Swing Trade Signals today!

If you have a buy-and-hold or retirement account and are looking for long-term technical signals for when to buy and sell equities, bonds, precious metals, or sit in cash then be sure to subscribe to my Passive Long-Term ETF Investing Signals to stay ahead of the market and protect your wealth!

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

 

Chris Vermeulen
Chief Market Strategist
Technical Traders Ltd.