Pfizer’s Vaccine and US Elect Generate new Capital Distribution

The light at the end of the tunnel shined brightly on Monday, November 9, creating a new dynamic in the equity markets. Pfizer (PFE), the pharmaceutical giant announced the results of its stage-3 trial for its COVID-vaccine, which showed a robust 90% efficacy. US stocks surged, especially many of the value stocks that have been hammered during the spread of COVID-19. Oil prices roared, and small-cap shares rallied, as investors began to reprice stocks. While it will take some time for Pfizer to produce enough of the vaccine to create herd immunity, this may be the first vaccine that has some real success behind it.

Will There Be Enough Vaccine to Create Immunity

The news that a real vaccine could be available in 2020 means business can get back to growing in due time. Pfizer announced that it would be able to produce 50-million doses in 2020, and 1.3-billion doses in 2021. While the company did not take any money from the US government to produce its vaccine, its partner BioNTech SF did receive almost $450 million from Germany.

The US government did agree to pay $2 billion upfront for 100 million doses of the vaccine and an option for another 500 million doses. Additionally, the US will get to decide who gets the vaccine first, which likely means it will provide it to its citizens before distributing the vaccine globally. It also appears that Pfizer will handle the distribution of the vaccine directly and has designed the reusable containers that keep the vaccine at the cold temperatures necessary to store the vaccine.

Sentiment Soars is Several Sectors

The announcement by Pfizer was a huge relief for traders, investors, and business owners who started to buy equities on this positive news. Several sectors outperformed, and some that did not. Hospitality and leisure, transportation, energy, financials, and real estate rebounded sharply. Oil prices rallied 11%, as investors expect a return to travel especially air travel.

Oil demand has been hammered since the onset of the pandemic. According to the Energy Information Administration, US oil product demand is down 11% year over year. Gasoline demand is also down 11% while distillate demand, which includes diesel and heating oil has declined 7%. The biggest drag on oil demand in the US has been jet fuel demand which is down a whopping 45% year over year.

The introduction of a vaccine means that the ravel sector should have better times ahead and oil consumption should recover to pre-pandemic levels. Oil prices have been in a sliding downward sloping range. A close above $44 per barrel, should lead to a test of the $55-60 region. Since many of the US production and exploration companies need oil prices above $50 to make money, a rally back to profitable levels could lead to further gains in the energy sector.

Small-Cap Shares are Breaking Out

Money is piling into the small-cap stocks Russell 2K index. Small capitalized companies are in desperate need of fiscal stimulus, and the end of the pandemic. Small-cap stocks were the best performing of the US indices rising more than 7% at one point on Monday, November 9. Many of the regional banking companies fall under the Russell 2K. The KRE SPDR Banking Index surged more than 15% on Monday. Trading volume in travel and leisure stocks was up 900% on Monday. Small caps have been dormant since 2018, and are breaking out. The IWM ETF completed an ABC correction wave and is poised to test higher levels. This group of stocks could become the next leading stock index, or at least give the Nasdaq a run for its money!

I am looking at some leading sectors using a BAN trading strategy which allows us to outperform the market during major market rallies.

Redistribution of Assets

Monday was moving day. It appears that investors are confident and money is being pulled out of the precious metals sector and dumped into the risk-on assets (stocks). Gold dropped over 5%, and silver down 7.5%. US treasury yields surged higher, with the 10-year treasury yield rising 12-basis points, which was the largest one-day rally since March 2020. Higher US yields helped buoy the US dollar which paved the way for lower gold prices. Gold prices appear to have tested support near the September lows at $1,848 and are oversold on an intra-day hourly chart as the fast stochastic hit a reading of 7, below the oversold trigger level of 20, which could foreshadow a temporary correction.

The news over the weekend that the US had a new President-elect which was followed by the results of Pfizer’s vaccine results sparked a distribution of capital. It’s a big moving day with big winners and big losers.

Concluding Thoughts:

Investors and large institutions are just starting to rebalance and invest their capital. Until there Biden is in the house and there is more details on the vaccine I expect the market to continue making large swings. Risks are still hight overall so stepping into this market lightly is what we are doing for the time being.

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

Chris Vermeulen
Chief Market Strategies
www.TheTechnicalTraders.com

 

Oil Stocks – Buying Opportunity of a Lifetime

There is no sector more unloved than energy. The relentless bear market forced oil companies to slash exploration projects. We believe this could lead to an unforeseen supply crunch in 2021 as demand surges as global economies recovers.

Quantitative Easing

Can governments print endless amounts of money without causing inflation? Not usually. However, they did get away with it (for the most part) during the 2008 crisis. Back then, the money stayed on bank balance sheets, mostly. This time, the money is entering the system, and there is a lot more of it. This could lead to a perfect storm for higher oil prices this decade and perhaps a generational buying opportunity in stocks.

THE RETURN OF INFLATION

The last time inflation was out of control was during the 1970s. In an inflationary period, investors flee fixed income for assets with inflation protection (real assets and commodities). It does not make sense to be locked into a Treasury yielding 0.7% if inflation annualized is much higher. As a result, investors flee stocks and bonds for hard assets.

I believe the annual inflation rate exceeded 8% in the 70s. By 1979 nobody wanted to own Stocks or Bonds – no matter what they were yielding. Treasuries were considered “certificates of confiscation.” BusinessWeek’s August 1979 issue was titled: The Death of Equities – how inflation is destroying the stock market. At that time, 30-year Treasuries were approaching yields of 10%…no one wanted them (sound like energy today). That period turned out to be a generational buying opportunity for both stocks and bonds.

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IS INFLATION DEAD?

Fast-forward 40-years, and here we are again. However, this time the opposite is true. The April 22, 2019 issue of BusinessWeek asks – Is Inflation Dead? with an image of a deflated Dinosaur, i.e., energy. Could this be another contrary indicator? I believe it is, and I think we are on the verge of a new inflation.

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The Bear Market in Energy

Energy has been in a terrible bear market for over 6-years. Producers cut their drilling and exploration projects to almost nothing. Remember, it takes several years from the time of discovery to create a producing well. As demand returns, I believe a lack of supply could lead to shortages later this decade.

Increased Demand 

The global pandemic has reinforced the need to secure supply chains. A global rebuilding effort will result in massive onshoring projects of critical supplies. The infrastructure required and retooling will require a tremendous amount of fossil fuels. Ultimately, I think oil will reach new all-time highs in the 2020s.

Conclusion: Oil is one of the most valuable commodities on the planet. Without energy (oil, coal, uranium, and natural gas), the world would stop. It is essential to everything we do. I do not see how we can have inflation without much higher energy prices. Consequently, I am betting big on an energy comeback.

I started buying energy aggressively in October 2020. Prices could dip a bit further, depending on the elections and more lockdowns. I will continue to accumulate if prices decline.

AG Thorson is a registered CMT and expert in technical analysis. He believes we are in the final stages of a global debt super-cycle. He posts daily updates to Premium Members. For more information, please visit here.

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

 

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

US Dollar Has A Lot Of Upside Potential – Part III

  • Presidential election cycles drive US Dollar trends.
  • US Dollar expected to rise before the election and then stall right before the day of the election.
  • Money will start shifting away from the stock market now, and traders will likely target safe-haven investments and undervalued traditional investments (dividends, blue chips, utilities, energy, bonds, consumer service and supplies, and possibly technology suppliers) going forward.
  • The potential for a US Dollar upside price rally after the elections (just like the 2013~2014 setup) is a very valid expectation from a technical analysis perspective.

This is the final part of our three-part US Dollar research article. My research team’s belief is that the US Dollar will recover in value before the US Presidential Election, then stall right before the election date as traders attempt to digest the outcome of the election.  In this final part of our research article, we’re going to share insights and technical analysis setups that we believe support our predictions on the US Dollar.  Please take a minute to review Part I and Part II of this research series if you have missed any portion of it.

Our research team has highlighted a price pattern in the US Dollar that seems to be fairly consistent over the past 8+ years.  This pattern suggests the US Dollar will move higher over the next 60+ days, which may likely correlate with the US stock market stalling and/or moving lower. Just prior to the November 3, 2020 election date, the US Dollar should stall as global traders and investors await the results. After the election is complete, then we watch the scramble as global traders and investors attempt to reposition assets to take advantage of perceived opportunities.

CUSTOM SMART MONEY SETTING UP A HEAD-AND-SHOULDERS TOP

We are going to start by reviewing our Custom Smart Money Index Weekly chart, below.  This Smart Money Index chart highlights the triple-top pattern that appears to be setting up after the COVID-19 collapse.  We find this important because the “true smart money peak” in the US stock market occurred near the peak in January/February 2018.

Therefore, our researchers believe the true organic growth peak in the US and global markets occurred well over 2 years ago – not throughout the new price peaks we’ve experienced in the US markets after the COVID-19 collapse.  Those, secondary price peaks, were speculative peaks – not organic economic growth peaks.  And speculative peaks tend to end in explosive contraction events.

Without getting into politics, policies or other aspects of the 2020 US Presidential Election, there are only 60+ days left for skilled traders and investors to prepare for either a Trump or Biden Presidency.  Each candidate has outlined numerous objectives, tax policies and spending plans.  All of the translates into how consumers and businesses plan for and prepare to operate within these potentially new economic constructs.  When you stop and think about the potential differences between a Trump second term and a new Biden term – the stakes for investors and traders are much higher than many expect.

Because of this high-stake US Presidential election, we believe global traders and investors will begin to move assets away from the high-flying US stock market and away from excessive risks.  Traders will instead likely target safe-haven investments and undervalued traditional investments (dividends, blue chips, utilities, energy, bonds, consumer service and supplies and possibly technology suppliers) going forward.

My research team believes the transition away from the high-flying technology sectors and S&P sectors will be a move into protection – away from risks relating to a potential collapse in the US stock market.  We believe the triple-top in our Custom Smart Cash Index clearly illustrates how the US and global stock market is functioning – even though the price charts for the NASDAQ and S&P 500 charts show moderately higher price levels.  This Custom Smart Cash Index shows a clear Head-and-Shoulders pattern setting up – which is a strong indication that another decline in price levels may be in our immediate future.

COMPARISON CURRENCY ANALYSIS SHOWS US DOLLAR MAY RALLY 5% OR MORE

This comparison chart, below, comparing the Asian currencies and the US/Western currencies highlights another technical pattern that we believe substantiates a potential US Dollar rally over the next 60+ days.  The Custom Asian to US/Western currency index chart is the Candlestick price chart while the US Dollar Index is shown on this chart as the BLUE LINE on this chart.

What we want you to focus on is how the Asian to US/Western index tends to parallel the US Dollar Index more than 80% of the time on this chart.  Yet, we also want you to focus on the times when the US Dollar Index (the BLUE LINE) varies away from the Custom Index price levels. We found this very interesting as the US Dollar Index tends to react in ways that leads and lags the price correlation of the Custom Index.

We also believe the current extreme low price level in the US Dollar Index is similar to the 2013~14 area on this chart – where the US Dollar was pushed lower because the US stock market continued to rally to new highs and traders/investors concerns were the “fear of missing out” of the rally.  When this happens, global traders pile into the US stock market and ignore the US Dollar.  Who cares that the US Dollar lost 3% to 4% of value when the US Stock market just rallied 13% to 20% over the past 16+ months.

Yet, the minute the US stock market enters a period of consolidation, sideways trading and concern, then everyone suddenly cares what’s happening with global currencies and the US Dollar because 8% to 15%+ rotations in the stock market while the US Dollar is falling 3% to 5% or more can really hurt foreign investors.

We believe the current setup on the right side of this Asian to US/Western currency correlation chart is very similar to what happened in late 2013 – where the correlation price index rose to a peak near 38 – then stalled into a narrow sideways channel.  The US Dollar Index collapsed throughout this span of time and then suddenly started to gain in value in late 2014 – right near the peak in the markets before the 2015/2016 US stock market (which also correlated with the start of the 2016 Presidential Election campaigns).

Imagine what would happen if a similar rally in the US Dollar took place after the 2020 elections and how that will reflect as global investors pile into the US markets with a stronger US Dollar.

As technical traders, we attempt to identify and analyze these types of technical patterns as well as price patterns and other advance price theory. Our job is to try to find hidden, often somewhat secret, correlations in price, technical patterns, seasonal patterns or cross-market trends so our members can profit from these setups.  When we’re right, we try to take advantage of these setups and alert our members to the trade setups as they happen.  When we’re wrong, we take our losses – just like everyone else.

We believe this setup in the US Dollar Index could be a very valid technical price trigger that could prompt a big rally in the US Dollar and US Stock market.  We believe the rally in the US stock market may start to to really shape up in late 2021.  Yet, everything depends on what happens over the next 90+ days and how the US elections turn out.  This year, the one thing we’re not going to try to predict is the results of the US Presidential elections – that’s not our specialty.  We do believe the potential for a US Dollar upside price rally after the elections (just like the 2013~2014 setup) is a very valid expectation.

Either way, we’re going to be here to help you find these incredible setups and great trades.  Think about how a big rally in the US Dollar will result in a massive influx of capital from foreign investors and institutions.  It is a very real possibility at this point – stay tuned for more from our research team.

Isn’t it time you learned how my research team and I can help you find and execute better trades?  Do you want to learn how to profit from market moves? Our technical analysis tools have shown you what to expect months into the future, so sign up for my Active ETF Swing Trade Signals today to learn more!

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

Stay safe and healthy!

Chris Vermeulen
Chief Market Strategist
Founder of Technical Traders Ltd.

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

 

Could Gold Reach $7,000 by 2030?

This bull market can be more positive than the previous one both for gold and the mining stocks.

In the last edition of the Fundamental Gold Report, I analyzed various WGC’s reports on the gold market. Today, I will focus on the issues of Alchemist – the flagship publication of the London Bullion Market Associations – I was unable to discuss during the most acute phase of the pandemic and the following economic crisis.

I’ll start with the article “Is there a place of Gold Equities in a Gold Allocation?” by James Luke from issue no. 96. The Author poses title question because gold equities performed poorly relative to the gold prices over the last 10 or even 20 years, and “investors would have been better served staying well away.” Indeed, while the gold price is up more than 250 percent since 2005, the HUI Gold Index is just about 20 percent higher.

Wow, it was a harsh criticism! But justified given the fact that although in theory mining stocks provide a leveraged way to own exposure to movements in commodity prices, in reality many miners lag behind the physical market. This is why I always warn investors that investing in gold shares is very demanding, as mining stocks are not a perfect play on gold or other metals. In other words, investing in miner’s equity is a whole different kettle of fish, as “the stocks are not a safe haven against market turmoil, but a bet on company’s operating earnings and the management team which controls it”. Indeed, the problem of gold equities over the last decades was – according to Luke – that “yes, you had higher prices, but no, the industry did not capture margin, and no, the industry did not generate returns”.

However, that may change now. The Author believes that producers are facing now a friendlier environment in which they could be able to capture profit margins far greater than in the past. You see, in the 2000s, gold was rallying together with other commodities and with its own input cost base, which cannibalized the margins. But the current gold’s rally is more monetary-based than commodity-based, which supports gold prices but remains cost inflation limited.

Gold Resilient in Adversity

Another interesting article from the Alchemist, this time from issue no. 97, is “Gold Resilient in Adversity” by Rhona O’Connel. She compares gold with other commodities, pointing out gold has been the outperformer within the sector. While other metals suffered massive demand destruction and price falls of several percent amid the coronavirus crisis, gold has been a “sanctuary from the vicissitudes of the economic environment”. The conclusion is simple: the impressive gold’s performance compared with its commodity peers underlines the safe-haven status of the yellow metal and the fact, emphasized by me for a long time, that gold is more of a monetary asset than a mere commodity.

The Rational Case for $7,000 Gold by 2030

I left the most controversial article from Alchemist issue no. 97 – The Rational Case for $7,000 Gold by 2030 written by Charlie Morris – for last. The Author starts with the observation that gold has been the leading major asset class in the 21st century, which is an extraordinary achievement given that gold doesn’t pay a yield.

Some people believe that because gold doesn’t pay a yield, gold can’t be valued. But Morris disagrees – and he models gold, very interestingly, as a bond with the following characteristics: it is zero-coupon because it pays no interest; it has a long duration because it lasts forever; it is inflation linked, as historic purchasing power has demonstrated; it has zero credit risk, assuming it is held in physical form; it was issued by God.

Wow, what an original bond! The model makes clear why the main driver behind the gold’s gains in this century was the fall in the U.S. real interest rates, as the chart below shows. According to the Author’s model, gold is traded now with premium over its fair value, but investors should not worry, as “it is more likely to rise from here than reverse. That’s because gold is in a bull market and the forces driving it higher far outweigh the forces holding it back.”

In particular, Morris believes that gold simply sees inflation coming in 2021. After all, contrary to the quantitative easing that occurred in the aftermath of the Great Recession, this time the surge in money supply flows into the real economy. Hence, according to the Author, if the long-term inflation expectations rise, together with the gold’s premium, while the bond yields remain ultra low, the price of gold could rationally achieve the level of $7,000. After all, “the huge gains in the 21st century have occurred in an environment with falling rates, while long-term inflation expectations have barely moved. With higher inflation on the horizon, things start to get interesting.”

Although $7,000 sounds to me like an exaggeration, I agree with the article’s main premises: the repercussions of the coronavirus recession could be more inflationary than the Great Recession, and that gold is in the bull market that could last for a while.

If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!

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

Arkadiusz Sieron, PhD
Sunshine Profits: Analysis. Care. Profits.

 

Corona Crisis Will Have Lasting Impact on Gold Market

No matter what shape the recovery is, the epidemic will likely have lasting, positive effects on the gold market.

During the most acute phase of the pandemic and the following economic crisis, there was no time to analyze various WGC’s reports on the gold market. Let’s make up for it!

I’ll start with the report “Recovery paths and impact on performance” about the gold mid-year outlook 2020. The World Gold Council notes that gold had a really excellent performance in the first half of 2020, rising almost by 17 percent (see the chart below), much higher than other major asset classes.

Given gold’s impressive gains, adding between 2 and 10 percent in gold to an average investor’s portfolio would have resulted in higher risk-adjusted returns over the pandemic and economic crisis (as well as over the past decade). Similarly, according to a separate WGC’s research, higher allocations to gold would have improved the performance of a typical central bank’s total reserve portfolio during the coronavirus crisis.

When it comes to the future, the WGC points out that expectations for a V-shaped recovery are shifting towards U-shaped or even W-shaped (a double-dip recession). Such transformation keep uncertainty high, supporting save-haven assets such as gold.

However, the key takeaway from the report is that no matter what shape the recovery is, the epidemic will likely have a long-term, positive effects on the gold market, strengthening the role of gold as a portfolio diversifier. According to the former WGC’s analysis of potential impact of coronavirus crisis on the gold market, the deep recession would be, of course the best for the gold prices, but even in the scenario of swift recovery, gold would shine this year and maintain positive returns until 2022, as the Fed would keep its monetary policy loose, while the real interest rates would remain close to zero.

Supply Disruptions Made Gold Prices Disconnected

In a former report entitled “Gold supply chain shows resilience amid disruption,” the WGC notes that the pandemic has caused unprecedented disruption to various parts of the gold supply chain, but the gold market has remained resilient after all.

However, the epidemic and the resulting supply crisis has hit the retail segment, which is more fragmented, has more complex supply chain, and holds less stocks of small gold bars and bullion coins. This is why “the supply and logistical issues caused depletion of some dealer inventories and left many investors facing long wait times and high premiums”. So, not necessarily manipulation, but supply disruptions explain the high premium for coins over spot price.

Interestingly, and somewhat similarly, the logistical disruptions – and not necessarily malicious conspiracy – triggered by the coronavirus and the Great Lockdown caused the widening of the differential between the London spot price and the futures price on Comex, which jumped from $2 to $75 at one point.

Implications for Gold

Not surprisingly, the WGC is, as always, bullish on gold. The organization believes that “the combination of high risk, low opportunity cost and positive price momentum looks set to support gold investment and offset weakness in consumption from an economic contraction”. This time we agree with the WGC. The coronavirus crisis and the following economic crisis and the response of the central banks and governments significantly shifted the already bullish fundamental outlook for gold prices into an even more bullish one, also potentially strengthening the role of gold as a strategic asset.

The thing is that the Fed and other central banks have cut interest rates to zero and reintroduced or expanded the quantitative easing. In consequence, equity and bond prices are elevated, which increases the risk of pullbacks. Moreover, the soaring fiscal deficits and public debts raise concerns about the sovereign-debt crisis, or a long-term run up of inflation. All these risks and uncertainties related to the ongoing pandemic and fragile economic recovery could increase the role of gold as a strategic hedge in investor portfolios.

If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!

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

Arkadiusz Sieron, PhD
Sunshine Profits: Analysis. Care. Profits.

 

Gold During Covid-19 Pandemic and Beyond

What a crazy six months! Let’s look at the chart below. As you can see, over the first half of the year, gold gained more than 16 percent, rising from $1,515 at the end of December 2019 to $1,762 at the end of June 2020.

The beginning of the year was, as usual, positive for the gold prices. However, gold did not rally in January as it did in just like in the previous years. Instead, it shot up in February amid mounting worries about the COVID-19 pandemic. After a short correction at the end of the month, probably due to the initial stock market crash, the price of gold jumped to $1,684 at the beginning of March, in the aftermath of the emergency FOMC meeting, when the Fed cut the federal funds rate by 50 basis points.

Then, when the most acute part of the global stock market happened and investors were selling everything to raise cash, the price of gold plunged below $1,500, bottoming out on March 19. But the rapid spread of the coronavirus, radically accommodative response of the Fed (including slashing interest rates to almost zero) and the implementation of economic lockdowns pushed gold prices to above $1,740 in mid-April (for the first time since late 2012). There was a sideways trend in the gold market with a yellow metal trading between $1,680 and $1,750 until the end of June, when the price of gold jumped above the ceiling.

How can we judge the gold’s performance during the first half of the year and the global epidemic in particular? Well, on the one hand, gold bulls might be a bit disappointed. After all, one could expect that the most impactful pandemic since the Spanish flu of 1918, together with the unprecedented stock market crash, the deepest recession since the Great Depression, and the reintroduction of the ZIRP and quantitative easing would push gold prices much higher. The gain of 16 percent is great, but in the first half of 2016 gold gained even more.

On the other hand, gold performed much better than many other assets. Although its price declined in March, the drop was relatively mild compared to the stock market crash (see the chart below) or the collapse in oil prices. Gold is actually one of the biggest beneficiary of the coronavirus crisis, confirming its role as a safe-haven asset and portfolio diversifier.

We have to also remember about three important features of the recent crisis, which limited gains in the gold market. First, there was a fire sale to get cash – and during panic no assets are really safe. In the aftermath of the Lehman Brothers’ bankruptcy, the price of gold also declined initially. Moreover, in March 2020, the U.S. dollar appreciated significantly, which put downward pressure on the gold prices, as the chart below shows.

Second, the coronavirus recession was very deep, but also very short. It means that investors started quickly to expect a bottom and the following rebound, which weakened the safe-haven demand for gold. In other words, the coronavirus crisis was more like a natural disaster rather than financial crisis or recession triggered by fundamental factors (although the global economy slowed down even before the pandemic and the U.S. repo crisis showed that the American financial system is quite fragile).

Third, the Fed’s response was quick and very aggressive, much more radical than in the aftermath of the Great Recession. The U.S. central bank’s decisive actions and implementation of many liquidity measures and unconventional monetary policies (as well as Treasury and Congress’ actions) managed to quickly restore confidence in the marketplace, spurring the appetite for risky assets rather than safe havens.

OK. But what’s next for the gold market? Well, the key to this question might lie in the chart below. As one can see, there has been a strong negative correlation between the gold prices and real interest rates. In March, the panic was so great that investors were selling even Treasuries, which pushed the bond yields higher, and send the price of the yellow metal down.

Now, the real interest rates are at very low, negative level, which should support the gold prices. The record low was -0.87 percent, so there is still some potential for going negative, especially given the ultra dovish Fed’s monetary policy.

However, with yields at such low level, there might be limited room for further downward move. So, unless we see a high inflation (or a significant second wave of coronavirus infections, or a softening of the greenback, for example, because of the sovereign debt crisis), we won’t expect a significant rally in gold prices (or there might be ups and downs on the way). Actually, if the real interest rates rebound somewhat, the yellow metal may struggle.

Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!

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

Arkadiusz Sieron, PhD
Sunshine Profits: Analysis. Care. Profits.

 

A Stealth Double Dip or Bear Market Has Started

The stock has gone through many cycles since the 2000 tech bubble. The tech bubble was the last significant time the stock market’s popularity among individuals piqued their interest in such a huge way similar to what we see now in the markets.

Market legend Jeremy Grantham recently talked on CNBC about the price action in the markets is the “Real McCoy” of bubbles. We will get back to his insight later in this article, but let’s get into some technical analysis that helps us see when and where the market bubble could burst.  When it does, it’s going to seriously hurt all the newly unemployed and sports betting traders who don’t know better yet how the markets move.

The stock market and how it moves is always evolving. Since 2008 when the FED stepped into the bailout America, which manipulated the financial system, the markets have been riddled with new policies by presidents and the Fed.

Instead of letting the markets naturally correct and revalue stock prices with each economic cycle (which is more or less what happened in the past), now, leaders and central bankers don’t want to let the music stop.  Now they are pushing money into the economy and making the rules/policies/taxes better for each business.

Unfortunately, we know how all this fiscal stimulus and manipulation will ultimately end. Changing rules/policies, pumping money into the economy, and giving out free money, may help short term, but this only worsens everyone down the road.

Currently, traders and investors think they have the fed acting like their parents to fall back on if things get tough and that there are no financial threats to a falling stock market. Traders are paying a premium for stocks and buying ever pause of dip. While all those traders may be feeling great with position and gains, they can and will likely all be wiped out soon enough if position sizing and risk management are not in place for each position held.

Don’t get me wrong, I am not a doomsday kind of person, but this is “Crazy Stuff” as Jeremy said in his recent interview.

Ok, now with that rant behind us, let’s move on to three simple charts that paint a clear picture because last week’s closing price action is potentially the beginning of something ugly.

I know my team, and I have been talking about a market top and lower prices for a long time as we are trying to warn as many traders and investors as we possibly can. Unfortunately, the FOMO (fear of missing out) on this rally has taken over peoples emotions and forcing them to buy buy buy and think its smooth sailing from here, which we believe is not the case. Going against the herd during extreme sentiment times like this is tough to do.

Take a look at these charts for a simple view of the market internals weakening and how it has proved to play out in the past.

S&P 500 VS Stocks Trading Above 200-Day MA
2004-2009 Bull & Bear Market

This chart is fairly clear in showing that when 50% or more of stocks are trading above the 200-day moving average, we are in a bull market. It is not a short term indicator, it does lag, but the setup with the red arrows shows the strong stock market rally in the top, and the breakdown below 50% and the rebound of stocks trading over the 200 moving average. This is what happened during the last bull and bear market and just like what we are experiencing now.

S&P 500 VS Stocks Trading Above 200-Day MA
2014 – 2020 Bull & Bear Market

This chart shows a few interesting things. First, the number of stocks trading over the 200-day moving average is below 50%. Last week this value had a massive reversal indicating the majority of stocks have been experiencing momentum moves to the upside and are now starting to be sold.

Momentum stocks are when stocks move so quickly to the upside that everyone has FOMO and just chasing prices higher.  Once they begin to roll over, everyone panics and dumps the shares, and the share value falls fast and hard. This is a bearish sign because once the momentum stalls, we know what goes straight up, generally comes straight back down for at least half of the recent rally.

The other pattern that is of concern is the megaphone pattern. This indicates price instability and adds more risk to investors’ long stocks and not planning to dump them when things turn south.

Since 2015 the market has had all kinds of landmines and manipulation form fed, new tax policies, etc. In my opinion, and many others I have talked with 2015/2016, the market was ready for a normal correction cycle (bear market), but the new policies put in place supercharged the economy for another mega wave higher, which brings us to today. As I mentioned before, when you start gaming the system and changing the rules, things become uncertain and unstable long term, which eventually leads to failure. Megaphone patterns show precisely the unstable price and health of the market.

Bonds Point To Near Term Market Weakness

Bonds have been holding up exceptionally well during this fed induced rally. Bonds tend to lead the stock market and start to rally or at least outperform stocks before the stock market corrects in any significant way.

For example, in January this year, we traded GDXJ and TLT as they were leading the way and pointing to much higher prices vs. the stock market. GDXJ we locked in 10% and exited the position it at the high tick the day when gold miners topped and fell 57% over the next few weeks. That price level, which we exited was a significant resistance zone and was our target price to exit.

TLT had broken out of a huge bull flag and was starting to outperform stocks. We purchased TLT and ended up closing that out for over 20% as the stock market crashed.

Both of these assets not only warned us that the stock market was becoming fragile but provided great trading opportunities.

This shows you the power of using inter-market analysis, technical analysis, and predefined trading rules. By using these techniques, you don’t get sucked into the emotional side of trading, which leads to falling in love with winners and not selling them until they turn into losers you that you can’t handle the size of the loss anymore.

If you have not yet watched this video where I compile our recent major calls of the Feb crash months before it happened, the 30% rally prediction, and more on what I am talking about in this article, be sure to watch this video.

 

Concluding thoughts:

In short, I hope you glean something useful from this article and that I don’t come across as a doomsday kind of guy. If this is the start of a double-dip, it’s going to be huge, and if it’s the start of a bear market, it is going to be life-changing.

If you are new to trading, technical analysis, or are a long term passive investor worried about what to do, you can follow my lead. I share both my investing signals and more active swing trade signals using simple ETFs at www.TheTechncialTraders.com

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

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Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

 

 

Surging Retail Sales, Cautious Powell, and Gold

Retail sales came in really strong in May, which could strengthen risk appetite, but the dovish Fed should support gold.

As the chart below shows, retail sales surged 17.7 percent in May, as the U.S. economy started to reopen. The number was a record high and above expectations, triggering optimism in the marketplace.

However, the sales were still 6 percent lower than a year ago, which means that the coronavirus crisis has not ended yet. But such reports may, nevertheless, increase the risk appetite among investors at the expense gold and other safe havens.

Another sign that the US economy began to revive in May, was the increase in industrial production by 1.4 percent, as many factories resumed operations. However, the number came below expectations, and the industrial production was still 15.4 percent below its pre-pandemic level, as one can see in the chart below.

Powell’s Testimony and Gold

On Tuesday, Powell testified before the Senate Banking Committee. His prepared testimony was not much different than from his earlier remarks during the press conference after the June FOMC meeting. Powell reiterated his cautious view about the economic outlook and that he does not expect a V-shaped recovery:

“the levels of output and employment remain far below their pre-pandemic levels, and significant uncertainty remains about the timing and strength of the recovery. Much of that economic uncertainty comes from uncertainty about the path of the disease and the effects of measures to contain it. Until the public is confident that the disease is contained, a full recovery is unlikely. Moreover, the longer the downturn lasts, the greater the potential for longer-term damage from permanent job loss and business closures.”

Therefore, according to Powell, investors should not overreact to surprisingly good economic data such as the May nonfarm payrolls or retail sales report. He said that the economy would go through three stages: economic shutdown, the bounce-back as people return to work and the economy “well short” of the pre-pandemic level in February. In other words, we are at the beginning of rebound, and many economic reports may be very positive, but it should not be actually surprising as they are coming off extremely low levels. What is crucial here is how will the economy evolve later.

The new thing Powell said was admission that the latest Fed’s dot plot does not factor in a potential second wave of coronavirus infections later this year, which is rather concerning. When asked by Senator Krysten Sinema whether “Does this projection assume a potential second wave of coronavirus and the accompanying economic impacts?”, Powell replied:

I would think the answer to your question, though, largely will be that … my colleagues will not principally have assumed that there will be a substantial second wave.

It means that the potential resurgence of coronavirus in the second half of the year would alter the Fed’s stance into being even more dovish, which could be positive for gold prices.

Implications for Gold

What does it all mean for the gold market? In his testimony, Powell reemphasized that the Fed will be very accommodative for a long period of time, with potentially being even more dovish if the second wave of infections occur. The U.S. central bank is not concerned about inflation, but about lack of growth and unemployment rate. Although the upcoming economic data could be very positive due to the very low base, investors should not overreact and remember that there is still long way to recovery.

This is, however, what they should do. But they don’t. The market is ignoring the bad news and focusing on the positives. After all, things turned out to be not so apocalyptic as the initial March assessment suggested. Moreover, the interest rates and bond yields are ultra low, while the Fed stands ready to intervene, which increases market confidence. The optimism among investors is a bad things for gold prices, but negative real interest rates and very accommodative central bank should support the yellow metal, as the chart below shows.

If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!

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

Arkadiusz Sieron, PhD
Sunshine Profits: Analysis. Care. Profits.

 

What Does The Great Disconnect Imply for Gold?

It seems that global stock markets have disconnected from the fundamental reality. They have been rising since the end of March despite the collapsing economies and soaring unemployment. We invite you to read our today’s article about the Great Disconnect and find out what does it imply for the gold prices.

What Does The Great Disconnect Imply for Gold?

It seems that global stock markets have disconnected from the fundamental reality. They have been rising since the end of March despite the collapsing economies and soaring unemployment. Why? And what does it imply for the gold prices?

Let’s start with the brief review of the economic reality, focusing on China, as the country offers a preview of what is likely to happen in the West a bit later. In April, the industrial production grew 3.9 percent year-over-year, following the 1.1 percent decline in March, as the chart below shows. This is very good news for China’s economy. However, it might be too early to trump the full recovery. As a reminder, the industrial production in December 2019, before the outbreak of the pandemic, rose 6.9 percent.

Chart 1: Industrial production in China from April 2019 to April 2020.

And the domestic demand remains very weak: the retail sales in China dropped 7.5 percent in April from a year earlier. Moreover, investment fell 10.3 percent in the January-April period on an annual basis, a modest improvement from the 16.1 percent drop posted in the first three months of the year, but still a negative growth below expectations.

The official unemployment rate reached 6 percent, up from 5.9 percent in March and just shy of February’s record of 6.2 percent. Of course, the true unemployment rate is likely twice as much as the official rate does not include people in rural communities and migrant workers. And remember that the global economy is expected to contract 3 percent in 2020, so this decline will negatively hit China, which is the world’s factory.

And there are also significant downside risks on the way to full normalization, with the risk of the second wave of the coronavirus and resulting reemergence of lockdowns being the most important threat for the steady economic recovery. Actually, this is actually materializing right now. According to the Bloomberg News, more than 100 million people in China’s northeast region, Jilin province, are once again under lockdown restrictions after new cases of COVID-19 have recently emerged.

The situation might be even worse, as the Financial Times’ China Economic Activity Index in mid-May was still below 80, where 100 is level seen on January 1, 2020. Many of its subindices, such as coal consumption, air pollution, container freight or box office numbers, remain subdued.

The conclusion is clear: China – and Western countries as well – can forget about the V-shaped recovery, as we have long ago warned. Instead, we could see a U-shaped recovery, which is deeper and more prolonged, or even a L-shaped recovery, which is even slower, although it might be too pessimistic a forecast. Or, there might be actually a mix of V, U, and L: in some industries the recovery will be quicker, while in certain industries – think airlines – it will be slower. Another possibility is that the recovery will look like W, i.e., there will be a rebound in one or two quarters, followed by another dip because of the second wave of epidemic.

The W-shaped recovery seems to be the most positive scenario for the gold market, as the second wave of injections would imply renewed worries and shaky economy. The slow recovery – U-shaped or L-shaped – will be better for the yellow metal than V-shaped, but they would not have to cause a rally in gold. After all, in the aftermath of the Great Recession, the recovery was very sluggish, but gold entered the bear market in 2011.

However, the performance of the global equity markets suggests that investors are rather optimistic about the future, at least this is the popular interpretation. Despite rising COVID-19 infections and deaths and the Great Lockdown, despite the collapsing economy and skyrocketing unemployment, the S&P 500 Index has been rising since March 23, as the chart below shows. We know that the stock market is not the real economy and that stock markets are forward-looking and do not want to fight the Fed, but the disconnect is troubling. After all, Mr. Market is not always correct – for example, it overlooked the risk of Covid-19 pandemic.

Chart 2: S&P 500 Index (green line, left axis) and Dow Jones (red line, right axis) from January 2 to June 2, 2020

But the rising S&P 500 Index does not have indicate strong recovery on the horizon. This is because the rebound in the S&P 500 was driven by selected few companies, i.e., Microsoft, Apple, Amazon, Alphabet, and Facebook – the relative winners during the Great Lockdown that forced people to shift into the online world. Moreover, the behavior of cyclical commodities and bond yields suggest rather weak recovery.

What does it mean? Well, the fundamental outlook does not bode well for equity markets. Given the expected decline in the GDP, the earnings per share for companies listed on the S&P 500 will likely fall by 10-20 percent versus expectations from the beginning of 2020. So, the stock market capitalization from end of May of about 3,000 implies the P/E is higher than before the pandemic! Maybe we should believe more in the collective wisdom of the crowds, but today’s equity valuations appear to be at odds with the fundamental reality. The selected few companies will not drive the broad market forever.

We do not say that the stock market crash is imminent, but rather that at least a correction might happen, which could be positive for the gold prices, although the initial downward move could pull the yellow metal down. In other words, investing in the stock market seems to be risky right now given that the V-shaped recovery is unlikely and given elevated equity valuations, so adding gold, which is good portfolio’s diversifier, to the portfolio might be a smart move.

If you enjoyed the above analysis and would you like to know more about the links between the coronavirus crisis and the gold market, we invite you to read the June Market Overview report. If you’re interested in the detailed price analysis and price projections with targets, we invite you to sign up for our Gold & Silver Trading Alerts. If you’re not ready to subscribe yet and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!

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

Arkadiusz Sieron, PhD
Sunshine Profits – Effective Investments Through Diligence and Care

Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our Trading Alerts.

 

Staying Cautious & Staying Prepared With You Trading Account

Over the past 30+ days, our researchers have been warning our friends and followers to stay cautious and to consider the risks within this market trend.  Certainly, we’ve received some emails and contact from some people suggesting we missed this move over the past 14+ days, but we’ve also received many emails from members that feel we’ve kept them safely removed from the volatility and risks associated with this wild price rotation.  Additionally, we’ve been able to grow their accounts at the same time.

One of the reasons we’ve been able to accomplish this is because our research team identified a major supercycle event that was likely near August 2019 and continued to warn our members of this potential event well ahead of the projected event date.  We also issued a Black Swan warning on February 21, 2020 warning all of our members to “get into cash” and to prepare for a very big price event.  Throughout this massive price rotation, we’ve been protected from risk by properly hedging our investments into Metals, Bonds, and other sectors all of which were profitable trades.  Our research team attempts to find the “Best Asset Now” known as our BAN strategy to keep our members safely positioned.  We try to avoid taking unwanted risks and wait for the markets to set up a proper trading trigger before executing a new trade.

In today’s article, we wanted to share a bit of longer-term research highlighting why we believe the current price rally may present some very real risk for certain traders and why we continue to be cautious in our actions.  There is plenty of time to wait for the markets to setup better trade triggers – we just can’t fall into the trap of being greedy and feeling like we have to trade all the time.  The reality of the markets is that more than 55% to 65% of the time we are waiting for trade setups.

SPY – S&P500 ETF WEEKLY CHART

This first chart is the SPY Weekly chart highlighting the price channels that are currently driving many facets of the current price rotation.

The shorter-term price channel, from 2015~16 till now, is suggesting the current price has rallied back to levels near the upper 1x Std. Deviation range.  This area is typically where we would expect the price to stall or set up some type of price retracement from recent peaks.  Applying the strategy to a longer-term price channel, we can see the price is already well above the 1x Std. Deviation channel and nearing the 2x level.  You’ll hear many people telling you this stock market rally is “forward-looking” and attempting to price in a future recovery of the US stock market and US economy. 

We believe this current rally is more about speculation with the US and foreign investors piling into the US Fed based rally as the “best investment on the planet right now”.. and we believe we are starting to see signs that this rally is close to reaching a critical peak.

CUSTOM US STOCK MARKET INDEX WEEKLY CHART

This next chart is our Custom US Stock Market index using our Fibonacci Price Amplitude Arcs and a traditional Fibonacci Retracement.  Our Price Amplitude Arcs attempt to measure Fibonacci as it related to previous price trends and attempts to identify frequency and resonance (think Nikola Tesla) in relation to past and future price target and inflection points.  Currently, the Arc near the February peak is suggesting price is nearing a 0.764% Arc level – which is a fairly narrow price area near the original peak price level.  These “inner” price levels don’t often come back into play after price moves dramatically away from them – in most cases.  The fact that the SPY price level has recovered so quickly over time and is now targeting these inner arc levels suggests that volatility could become excessive again.

One other technical trigger our researchers want to point out is that price has reached the 0.8535% Fibonacci retracement level recently.  This is not a typical Fibonacci retracement level for many people.  There are important levels between 0.75% and 0.97% that are often very important when price sets up in a near Double Top or Bottom pattern.  These levels become important because they often reflect a “failure level” for price.

Currently, our research team is still warning of excessive risks and the very strong potential for a renewed spike in volatility (VIX).

VIX – VOLATILITY INDEX WEEKLY CHART

This VIX Weekly chart highlights the Flag formation that is setting up as the US stock market rallies back towards new all-time highs.  A tightening and narrowing FLAG formation is setting up in the VIX that suggests a breakout will occur fairly soon – likely with 7 to 10+ days.

Take a look at this short video we did showing what the technicals are starting to warn is coming.

Our objective is to help you navigate the risks and opportunities within the market to help you secure better and more consistent profits over time.  Think of this as a longer-term battle, not a short-term race.  Currently, there are a number of ETFs and market sectors that are on our radar (Utilities, Precious Metals, Miners, Consumer Staples, Technology, Biotech, and others).  Our objective is to identify the next big move and to time the trade entry so that we eliminate as much risk as possible for our members.  Right now, our research team believes there is a very high degree of risk in the markets for the reasons we have illustrated above.

We could be wrong about the excessive risk levels – we’ll find out over time.  But, again, there is plenty of time to find and execute great trades and we don’t mind waiting for the best opportunities with our accounts sitting in cash – protected from any and all risk.

The reason for today’s article is to help you understand what our research and trading team are seeing in the markets – the potential for new volatility and new risk factors to suddenly burst into the markets.  We are cautiously waiting for the markets to complete this setup and watching our trade setups for confirmation. Please consider this research article a suggestion to properly protect your open long positions and to properly hedge your portfolio accordingly.  If we are right, a spike in volatility may only be about 7 to 10 days away.

Chris Vermeulen: 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.

Subscribers of my Investor and Swing Trading Newsletters had our trading accounts close at a new high watermark. We not only exited the equities market as it started to roll over in February, but we profited from the sell-off in a very controlled way with TLT bonds for a 20% gain, and we closed out another winning trade last Friday.

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.

 

M2 Velocity Collapses – Could A Deep Bottom In Capital Velocity Be Setting Up?

M2 Velocity is the measurement of capital circulating within the economy.  The faster capital circulates within the economy, the more that capital is being deployed within the economy to create output and opportunities for economic growth.  When M2 Velocity contracts, capital is being deployed in investments or assets that prevent that capital from further circulation within the economy – thus preventing further output and opportunity growth features.

The decline in M2 Velocity over the past 10+ years has been dramatic and consistent with the dramatic new zero US Federal Reserve interest rates initiated since just after the 2008 credit crisis market collapse.  It appears to our researchers that these extended periods of zero interest rates deflate the capability of money circulating throughout the economy and engaging in real growth opportunities for investment and capital inflation.

It also suggests that the US Federal Reserve, while attempting to support the US economy and global markets, maybe destructively engaging in policy that removes the capital function from the markets in a systematic process.  Eventually, something will break related to M2 Velocity and/or the global economy.  As more capital pours into less liquid assets and/or broader investment funds and Bonds, this process ties capital up into assets that take investment away from Main Street and the lower/middle class.  There is less capital available to support the ground level economy as more and more capital ends up buried in longer-term investment assets.

VELOCITY OF M2 MONEY STOCK

US FEDERAL FUNDS RATE CHART

We believe the collapse of the M2 Velocity rate is similar to a slow decline of economic capacity and output over a longer period of time.  We believe this process will likely end in a series of defaults and bankruptcies as a result of capital being stored away into longer-term assets and investments (pensions, investment funds, and other types of longer-term assets).  As this capital is taken away from the core engine of economic growth (main street and startups), the process of slowly starving the economy begins.

We believe we’ve already entered a period of decline that has lasted at least 15+ years and the “blowout process” that ends this decline will be somewhat cataclysmic.  One way or another, the function of capital must return to levels of activity that supports a ground-level engagement of economic growth and opportunity.  A healthy balance of capital available to all levels of society and deployed in means to support growth and opportunity is essential for the proper health and future advancement of global economies.

It appears that after 2008-09, the global economy disconnected from reality as investors began relying on institutional level investments and speculation in large scale assets instead of ground-level investments and core economic function.  This translates into a very euphoric mode for stocks and commodities where capital chases capital around the planet seeking out undervalued and opportunistic investments…  until…

Pay attention to what happens over the next 4 to 5+ years related to the COVID-19 virus event.  We believe this virus event could be a “monkey wrench” in the capabilities and functions of the global economy over the next 5+ years. Pay attention to what is really happening as capital plays the “dog chasing its tail” routine and the central banks attempt to stimulate economic activity by printing more and more money.  If you understand what we are trying to suggest in this article – printing more and more money at this stage of the game is like saying “diving our of the 20th-floor window is not enough – let’s go up to the 50th floor and give it a try”.

Hang tight, there are going to be some very interesting and big price swings over the next 4+ years in the US and global markets.  Skilled technical traders should prepare for the opportunity of a lifetime if they understand what to watch for and how to protect assets.

Please take a moment to visit www.TheTechnicalTraders.com to learn more.  I can’t say it any better than this…  I want to help you create success while helping you protect and preserve your wealth – it’s that simple.

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

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

 

Real Estate Showing Signs Of Collateral Damage- Part IV

This final part of our multi-part Real Estate article should help you understand what will likely transpire over the next 6+ months and how the unknown collateral damage may result in a “Double-Dip” price event taking place before August/September 2020.  In the first three parts of this article, we’ve attempted to highlight how the current COVID-19 virus event is different than any of the previous two crisis events.

We’ve also highlighted how consumer psychology will change over the next 12+ months as this event continues to unfold.  Most importantly, we attempted to highlight how the disruption in income, one of the biggest factors we should consider, for businesses, individuals, states, and governments will likely present a very real contraction event over the next 24+ months.

It is difficult to really explain how so many people fail to see what we are seeing in terms of our research.  Yes, the COVID-19 virus event will end at some point and the economy will begin to engage at growing rates.  Yet, the process of getting to that stage is likely to be full of unknown economic events over the next 24+ months.

We’ve published articles suggesting our Super-Cycles and generational cycle research suggests we have entered a 10 to 20 year period of “unraveling and crisis processes” before a rebuilding phase can begin to take place.  If our research is correct, this unraveling and crisis phase will end near 2025~26.  This suggests we have another 5+ years of unknown collateral damage and unknown economic events

On February 24, 2020, we published this article which is very important because it warned our followers to prepare for a crisis event and to protect your portfolios with what to expect in the yield curve.

Our suggestion is to plan to set up your portfolio so you have sufficient cash in reserve in the event of an unexpected market decline.  We also suggest proper protection/hedge investments, such as precious metals and metals miner ETFs.

The reality is that mortgage delinquencies have already begun to skyrocket higher.  It is obvious to anyone paying attention that the lack of real income opportunities for individuals and businesses will translate into major economic collateral damage processes (crisis events) playing out over the next 12+ months. Depending on how the COVID-19 virus lingers throughout the world and the extent of the global shutdowns, we could be on the cusp of experiencing one of the biggest “revaluation events” in history.

This Bloomberg article summarizes our research and thinking nicely. Despite government support, we believe a massive revaluation event related to Real Estate and other assets is just starting to unfold.  Skilled technical traders will stay keenly aware of this potential event and position their portfolios to protect assets in the event of a sudden change in trend.

Price trends have just started to move lower based on this data from Realtor.com up to March 2020.  We believe the April and May data will show a substantial collapse in pricing levels – particularly in areas that continue to experience high COVID-19 issues.  This suggests California, Washington, New York, New Jersey, Florida, and other areas could experience a sustained price decline lasting more than 12to 24 months.

Florida Real Estate Price Trends

Washington Real Estate Price Trends

Watch as more populated areas (cities and larger regional areas) see a shift in consumer sentiment related to Real Estate price levels over the next 6+ months.  Once the consumers start shifting away from seeing Real Estate as an opportunity at any price and begin to watch the price levels drop, their psychology changes in terms of “when will the bottom happen?”.  Once this happens, the markets change into a Bear market trend for real estate as at-risk homeowners are placed under severe pricing pressure and markets continue to implode.

What this means for skilled technical traders is that opportunities will be endless over the next 12+ months to target real gains through skilled technical trades.  As capital shifts from one sector to another – avoiding risk and attempting to capitalize on the opportunity, skilled technical traders will be able to ride these trends and waves to create substantial gains.

Protect your portfolios now.  Don’t fall for the overly optimistic “follow the NQ higher” trade as risks are still excessive.  Wait for the right setups and determine how much risk you can afford to take on each trade. This is not the time to bet the farm on one big trade – wait for the right setups and wait for the collateral damage to play out.

It doesn’t matter what type of trader or investor you are – the move in Gold and the major global markets over the next 12+ months is going to be incredible.  Gold rallying to $2100, $3000 or higher means the US and global markets will continue to stay under some degree of pricing pressure throughout the next 12 to 24 months.  This means there are inherent risks in the markets that many traders are simply ignoring.

I keep pounding my fists on the table hoping people can see what I am trying to warn them about, which is the next major market crash, much worse than what we saw in March. See this article and video for a super easy to understand the scenario that is playing out as we speak.

If you want to learn more about the Super-Cycles and Generational Cycles that are taking place in the markets right now, please take a minute to review our Change Your Thinking – Change Your Future book detailing our research into these super-cycles.  It is almost impossible to believe that our researchers called this move back in March 2019 in our book and reports.

If you have been following me for a while, then you know my analysis and trades are the real deal. You also would know that I made over $1.9 million from the financial markets during the 2008 crash and recover into 2010. I have been semi-retired since the age of 27.  I continue to follow, predict, and trade the markets because its the ultimate business and my passion.

A bear market and its recovery can make your rich in a very short period. I believe this is about to happen again, so why not follow my super simple SP500 ETF investing strategy?  Trade with your investment account and become a stock market success with me!

I’m offering my investing signals for the next few years to those who want to know their investment capital is in the asset. Let face it; there is a time to be 100% long stocks, to own an inverse fund, and when to sit in cash. Your financial advisor would NEVER recommend a cash position, why because he is not allowed, he and his firm will not make money. Instead, they will keep you long stocks, with some bonds, and you will have to ride out the bear market rollercoaster again.

During the March Market crash, the BEST position was cash for short term trades. EVERY asset fell in value (stocks, bonds, gold, commodities) two months ago. Only one asset rallied, guess what it was? The USD dollar (CASH), moving to USD cash, gained a whopping 11% while most indexes and sectors fell 35-80+%. all you had to do was close all positions in your portfolio, and you would have looked like a hero, and that’s what I did with my account and members of my swing trading newsletter.

Follow me to success. Trade my most simple single ETF investing strategy and know when to own stocks, when to own an inverse ETF, or be in cash. For only $149 you can have the keys to the kingdom during a time when we are going to experience more historical price swings. This is as good as it gets, in my opinion.

Even if we don’t enter a new bear market this year, my investing signals will still nail the bull market and make you a ton of money. This is the most affordable insurance plan for your retirement account, so you don’t lose it.

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 going to be an incredible year for skilled traders.  Don’t miss all the incredible moves and trade setups.

Subscribers of my ETF trading newsletter had our trading accounts close at a new high watermark. We not only exited the equities market as it started to roll over in February, but we profited from the sell-off in a very controlled way with TLT bonds for a 20% gain. This week we closed out SPY ETF trade taking advantage of this bounce and entered a new trade with our account is at another all-time high value.

I hope you found this informative, and if you would like to get a pre-market video every day before the opening bell, along with my trade alerts. These simple to follow ETF swing trades have our trading accounts sitting at new high water marks yet again this week, not many traders can say that this year.

We all have trading accounts, and while our trading accounts are important, what is even more important are our long-term investment and retirement accounts. Why? Because they are, in most cases, our largest store of wealth other than our homes, and if they are not protected during a time like this, you could lose 25-50% or more of your entire net worth. The good news is we can preserve and even grow our long term capital when things get ugly like they are now and ill show you how and one of the best trades is one your financial advisor will never let you do because they do not make money from the trade/position.

If you have any type of retirement account and are looking for signals when to own equities, bonds, or cash, be sure to become a member of my Long-Term Investing Signals which we issued a new signal for subscribers.

Ride my coattails as I navigate these financial markets and build wealth while others lose nearly everything they own during the next financial crisis.

Chris Vermeulen
Chief Market Strategies
Founder of Technical Traders Ltd.

 

Dollar Short Reduced; Swiss Franc Long Raches 2016 High

The risk-on seen during the previous weeks paused with the S&P 500, U.S. 10-year Notes and the dollar all trading softer. The dollar was nevertheless in demand against most of the ten IMM currency futures tracked in this, not least against the euro and Japanese yen. Exceptions being the Aussie dollar and the Swiss franc which reached a level of longs last seen in 2016.

Saxo Bank publishes two weekly Commitment of Traders reports (COT) covering leveraged fund positions in bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.

Hedge funds and other large speculators bought U.S. dollar for a second week to May 5. Buying against ten IMM currency futures were broad based resulting in the gross dollar short being reduced by 17% to $6.7 billion. The two exceptions being the Aussie dollar and the Swiss franc, with the long on the latter rising to the highest since 2016.

Biggest changes weighing the most on the sell side was the euro, which was sold for a second week, and the Japanese yen long which retraced after reaching a 13 months high a week earlier. Selling of the Mexican peso resumed despite rising 1.7% against the dollar.

Leveraged fund positions in bonds, stocks and VIX

The speculative short position in the C’Boe VIX futures was cut by 41% to 19k lots, an almost 15 month low. The reduction occurred despite a 4.6% rally in the S&P 500 Index driving a 12% drop in volatility. Interestingly the reduction was almost entirely driven by short positions being closed, potentially a sign of fading optimism that the stock market rally can continue.

What is the Commitments of Traders report?

The Commitments of Traders (COT) report is issued by the US Commodity Futures Trading Commission (CFTC) every Friday at 15:30 EST with data from the week ending the previous Tuesday. The report breaks down the open interest across major futures markets from bonds, stock index, currencies and commodities. The ICE Futures Europe Exchange issues a similar report, also on Fridays, covering Brent crude oil and gas oil.

In commodities, the open interest is broken into the following categories: Producer/Merchant/Processor/User; Swap Dealers; Managed Money and other.

In financials the categories are Dealer/Intermediary; Asset Manager/Institutional; Managed Money and other.

Our focus is primarily on the behaviour of Managed Money traders such as commodity trading advisors (CTA), commodity pool operators (CPO), and unregistered funds.

They are likely to have tight stops and no underlying exposure that is being hedged. This makes them most reactive to changes in fundamental or technical price developments. It provides views about major trends but also helps to decipher when a reversal is looming.

Ole Hansen, Head of Commodity Strategy at Saxo Bank.
This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

Coronapocalypse and Gold – How High Is Too High for the Yellow Metal?

$2,000, $5,000 or even the Jim Rickard’s $50,000 as the next target for gold. How realistic are these figures – could we see the yellow metal at $5,000 or even higher amid the coronavirus crisis? We invite you thus to read our today’s article and find out how high gold prices can go in this downturn.

Coronapocalypse and Gold – How High Is Too High for the Yellow Metal?

The first quarter of 2020 was clearly positive for the gold market, as the chart below shows. The yellow metal gained 6.2 percent from December 30, 2019 to March 31, 2020, moving from $1,515 to $1,609. In April, the bullion went up even further to $1,693, increasing gains to 11.7 percent in 2020 (as of April 17).

Chart 1: Gold prices (London PM Fix, in $) in 2020.

The obvious reason for this bullish move was the COVID-19 pandemic and the resulting shutdown of the global economy. As a result of the coronavirus shock, most of the major drivers of the gold prices improved. In particular, the real interest rates, as measured by yields on the 10-year inflation-indexed Treasuries, dropped, plunging into negative territory. As one can see in the chart below, gold prices behaved like a mirror image of the real government bond yields.

Chart 2: Gold prices (yellow line, left axis, London PM Fix, in $) and real interest rates (red line, right axis, in %, yields on 10-year inflation-indexed Treasuries) in 2020.

Moreover, the risk premium also surged, which supported safe-haven assets such as gold. As the chart below shows, credit spreads greatly widened, while the CBOE Volatility Index skyrocketed.

Chart 3: CBOE Volatility Index (green line, right axis, index) and ICE BofAML Option-Adjusted Spreads (red line, left axis, %) from January 2 to April 16, 2020

Some people complain that gold’s performance has been rather shy given the depth of the negative economic shock. Well, it’s true that gold has not rallied so far, but achieving almost 12-percent gain when almost all assets plunged makes gold one of the best performing asset in 2020, if not the best.

Gold prices did not soar further because of two factors. First, just as in the immediate aftermath of the Lehman Brothers’ collapse, investors started to liquidate gold holdings in order to raise cash. But when the dust settles and the sell-off inevitably ends, the yellow metal will have a cleared path upward.

Second, the US dollar appreciated amid the coronavirus crisis, as the chart below shows. The greenback is also seen as the safe haven during crashes, so investors switched their funds from all over the world and put them into the US-dollar denominated assets. Given the strong negative correlation between the greenback and gold, the appreciation of the dollar exerted downward pressure on the gold prices. However, gold and greenback can both appreciate during the financial crises, as it was the case in early 2009. Importantly, the surge in the US fiscal deficit and public debt may weaken the dollar in the longer run.

OK, we know what happened, but what’s next for the gold market? Will the price of gold quickly rally to $5,000 or more, as some analysts claim? No. It’s true that the Fed’s balance sheet is going to balloon, and the money supply will soar, but there is no correlation between the money supply and gold prices. As you can see in the chart below, the broad money supply has been rising since the 1970s (the data series we got unfortunately starts only in the 1980s), when Nixon closed the gold window, but the price of gold has not – instead, the yellow metal experienced bull and bear cycle.

Chart 4: Gold price (yellow line, left axis, London PM Fix, in $) and the US M2 money stock (red line, right axis, in billions of $) from January 1981 to March 2020

The ratio between the fiat money supply and gold’s supply is no simple formula for gold’s fair value. You see, the claims that the soaring money supply could push gold prices to a dozen or even tens of thousands dollars are based on the assumption that the global economy will return to the gold standard (then, the price of gold would have to indeed increase to “replace” the value of all demonetized paper money), which is highly unlikely, no matter whether we sympathize with the idea (we do) or not.

Let’s move now to the aftermath of the Great Recession. The price of gold increased 244 percent, from $775 on September 15, 2008 to $1,895 on September 5, 2011. So, if history replays itself, the price of gold could increase to about $4,140. However, it was not a quick rally, it took three years for gold to reach the peak. And history never repeats itself, but only rhymes: remember that it always easier to rise when you start from lower levels.

Does it mean that we are bearish on gold? Not at all. Of course, there is a risk for gold outlook that the pandemic will be quickly contained and the economic growth will swiftly rebound. However, we think that the V-shaped recovery is unlikely. Social distancing will not disappear in one day. You see, the pandemic is not confined in time and space like a hurricane or a terrorist attack. The coronavirus will linger through the year (or even longer, according to Michael Osterholm, an infectious-disease epidemiologist at the University of Minnesota). The problem is that people still do not understand that this epidemic is not a matter of just weeks.

And there are significant downside risks for the economy, which – if they materialize – could push gold prices even further up. In particular, there might be a feedback loop in the financial system that could culminate in a systemic financial crisis. We believe that many analysts underestimate the possibility of further repercussions, hoping for a quick rebound. Remember 2007? Economists believed then that the problems would be limited to the subprime mortgage market and wouldn’t affect the whole economy. Yeah, right.

However, even if the quick recovery happens, the low interest rates, dovish central banks and high debt will stay with us, which would support the gold prices. Thus fundamentally, the coronavirus crisis is very positive for the gold prices, and the outlook for the yellow metal in 2020 has clearly improved compared to a few months ago.

If you enjoyed the above analysis and would you like to know more about the links between the coronavirus crisis and the gold market, we invite you to read the May Market Overview report. If you’re interested in the detailed price analysis and price projections with targets, we invite you to sign up for our Gold & Silver Trading Alerts. If you’re not ready to subscribe yet and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!

Arkadiusz Sieron, PhD
Sunshine Profits – Effective Investments Through Diligence and Care

Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our Trading Alerts.

 

Unique S&P 500 Technical Analysis for April 30 2020

Trades and investors forget what is happening and are buying on FOMO yet again. This unique view on the indexes, gold and bonds shows why they are ready to fall is courtesy of https://www.TheTechnicalTraders.com

S&P 500  Video Analysis 30.04.20

 

Reference article in video: https://www.fxempire.com/forecasts/article/three-charts-every-trader-and-investor-must-see-641353

Is Stock Market Volatility About to Spike Higher than March?

A very interesting setup is currently taking place in the VIX chart with our Adaptive Fibonacci Price Modeling system that has us quite concerned.  The Daily VIX chart running our Fibonacci Price Modeling system, which is one of our primary price modeling tools, is suggesting upside price targets for the VIX near 110, 134 and 158.  The reason these levels are extended into future price expectations is because of the recent explosion in volatility over the past 90 days.

Yet, the real concern originates from the question “what would it take for the VIX to rally to these levels and is this a real possibility in the current global markets?”.  So, we attempted to answer that question by attempting to identify what it would take for the VIX to skyrocket above 110 in the near future.

Volatility Index (VIX) Daily Chart

First, pay attention to this VIX Daily chart and the targeted levels above 100.  Please understand that in order for the VIX to skyrocket higher reaching levels above 100 would require another massive downside price move in the US and global markets – something unexpected and very dramatic.  Is this an unrealistic expectation given the current global market environment headed into Q2 and Q3?  We really don’t believe it is an unrealistic potential expectation at this point.

We’ve recently authored a series of articles suggesting the global markets are marching through a human psychological process related to the virus event (crisis).  Somewhat similar to the “Grieving Process”, a crisis event prompts a similar set of human emotions ending in an angry and helpless feeling.  We believe this early stage crisis event process has positioned the global markets clearly within the Denial and Stigmatization phase of the crisis event. These are the Second and Third human responses to a major crisis event.

If we are correct and the markets are reacting to the Denial and Stigmatization phases of this virus event, then the next transitional phases are Fear and Withdrawal/Hopelessness.  Could this transition into a more fearful human instinct prompt a massive collapse in the US and global markets?  If so, what would be the cause of this transition into fear?

We believe the transition may come from the continued economic strain that is likely to become very evident in Q2 and Q3 of 2020.  Right now, the US stock market is only -10% to -15% from recent all-time highs.  The reality of the virus event for traders is that this is only a minor blip in the markets so far.  Yes, the markets fell much lower recently, but traders/investors have shrugged off the real risks and put their faith into the US Fed and global central banks to navigate a successful recovery.  What if that doesn’t happen as we expect?

What if the real numbers for Q2 and Q3 come in dramatically lower than expected?  What if global GDP contracts by -10% or -15% for the next 12+ months?  What if consumers don’t return as quickly as we expect?

Its going to be the race to cash and bonds once again. I talked with Cory Fleck from Korelin Economics Report today. Listen to our thoughts on the race to the safe-haven assets, bonds, and cash. What about gold and gold stocks? These have been more correlated to the US markets but the charts of the major stocks and gold are still very bullish.

CLICK TO HEAR OUR CONVERSATION

Weekly DOW (YM) Chart

Take a look at this Weekly YM Chart and pay attention to the downward sloping price channels that help guide us to a conclusion.  Additionally, the Adaptive Fibonacci Price Modeling system is showing us a new target near 12,475.  If this is accurate, then a breakdown in price over the next 6+ months may push the YM to levels near 12,500 (-50% from the recent peak in April 2020).  A move like this would certainly prompt a massive increase in the VIX and would frighten traders, investors, and consumers into a “helplessness” mentality.  What can you do when the markets are collapsing like this except wait for the bottom.

The one thing we can be certain of is that at long as humans exist on this planet, economies will continue to function at some level.  Being human in today’s world means we engage in economic activity and trade.  Therefore, we believe there is a moderate risk that the US and global markets have completely misinterpreted the true price valuations and expectations based on this research.  Simply put, we believe a Denial phase has taken root where investors and traders simply deny and ignore the real potential for future collapse.

I keep pounding my fists on the table hoping people can see what I am trying to warn them about, which is the next major market crash, much worse than what we saw in March. See this article and video for a super easy to understand scenario that is playing out as we speak.

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 going to be an incredible year for skilled traders.  Don’t miss all the incredible moves and trade setups.

Subscribers of my ETF trading newsletter had our trading accounts close at a new high watermark. We not only exited the equities market as it started to roll over in February, but we profited from the sell-off in a very controlled way with TLT bonds for a 20% gain. Yesterday we closed out SPY ETF trade taking advantage of this bounce and our account is at another all-time high value. Exciting times for us technical traders!

I hope you found this informative, and if you would like to get a pre-market video every day before the opening bell, along with my trade alerts. These simple to follow ETF swing trades have our trading accounts sitting at new high water marks yet again this week, not many traders can say that this year.

We all have trading accounts, and while our trading accounts are important, what is even more important are our long-term investment and retirement accounts. Why? Because they are, in most cases, our largest store of wealth other than our homes, and if they are not protected during a time like this, you could lose 25-50% or more of your entire net worth. The good news is we can preserve and even grow our long term capital when things get ugly like they are now and ill show you how and one of the best trades is one your financial advisor will never let you do because they do not make money from the trade/position.

If you have any type of retirement account and are looking for signals when to own equities, bonds, or cash, be sure to become a member of my Long-Term Investing Signals which we issued a new signal for subscribers.

Ride my coattails as I navigate these financial markets and build wealth while others lose nearly everything they own during the next financial crisis.

Chris Vermeulen
Chief Market Strategies
Founder of Technical Traders Ltd.

 

Two Leading Indicators for Crude Oil Point To Higher Prices

On Friday morning I created these charts on the price of crude oil, the energy sector stocks (XLU), and also the Canadian Dollar, which I think paint a clear picture of what to expect for the price of crude this coming week.

I always like to look at the leading indicators of the asset which I am interested in trading. For those trading the price of crude oil you should be watching what the energy stocks are doing or the sector as a whole. I use XLE ETF for this. I also will show you the Canadian dollar and what it is going later in this post.

Energy stocks are a way for traders to leverage the move in oil so the smart/big money tends to move into these stocks before the underlying commodity (oil) will start to change direction.

Price of Crude Oil – Daily Chart

Oil has been trading sideways for a couple of weeks. The range may not look big but just note that it’s a roughly 25% range from the bottom to the top of the blue box. The key take-aways here is simple. Oil is still trading at the bottom of the chart and trading sideways. What we will be looking for is a breakout of this zone in either direction which should induce a strong rally or selloff to the expected price levels of $34, or $14. These moves are likely to happen quickly over a 2-3 day period to expect an explosive move.

Price of Energy Sector Stocks ETF (XLE) – Daily Chart

Energy stock generally leads to the price of oil by a few days. The important points on this chart are that price has rallied off the lows, and is forming a bull flag pattern which means higher prices are expected.

Much like crude, a break in either direction in XLE can be traded, but the pattern which has formed puts the odds in favor of an upside breakout and rally of roughly 12%.

Price of Canadian Dollar – Daily Chart

The Canadian dollar is very tied to the energy sector, both the price of oil and energy stock because we are a resource-rich country, with oil being once of our top resources.

As you can see in the chart below the Canadian dollar it too has formed a bull flag pattern and looked primed and ready for another rally higher. The currency market, in general, is massive and when a large asset class is showing signs of reversing you better pay attention.

When I see a currency forming strong pattern to give us an expected price breakout direction, I like to look at what that is telling me. What companies or commodities will this move affect? In this case, money is moving into the Canadian dollar expecting oil to bottom and rally which should help increase the value even more.

I Talk Live On TV about These Trade Setups

If you want more details on this trade setup just watch this clip from TraderTV where I talked with Brendan Wickens in detail.

Concluding Thoughts:

In short, this coming week is most likely going to be much wilder than last week. While I didn’t cover on the other asset classes just know that precious metals, the major stock indexes, bonds, and oil have al built powerful patterns. Breakouts of these patterns will trigger big moves 10-25% in some cases, so get ready for fireworks this week!

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

I hope you found this informative, and if you would like to get a pre-market video every day before the opening bell, along with my trade alerts visit my Active ETF Trading Newsletter.

We all have trading accounts, and while our trading accounts are important, what is even more important are our long-term investment and retirement accounts. Why? Because they are, in most cases, our largest store of wealth other than our homes, and if they are not protected during a time like this, you could lose 25-50% or more of your entire net worth. The good news is we can preserve and even grow our long term capital when things get ugly like they are now and ill show you how and one of the best trades is one your financial advisor will never let you do because they do not make money from the trade/position.

If you have any type of retirement account and are looking for signals when to own equities, bonds, or cash, be sure to become a member of my Long-Term Investing Signals which we issued a new signal for subscribers.

Ride my coattails as I navigate these financial markets and build wealth while others lose nearly everything they own during the next financial crisis.

Chris Vermeulen
Chief Market Strategies
Founder of Technical Traders Ltd.

Equities Take a Stroll Through Wonderland, Awaiting “Herd Immunity.”

Markets

US equities were stronger Thursday, S&P closing 2.3% higher. Smaller gains in Europe, mixed in Asia. US 10Y treasury yields up 2bps to 0.61%. Oil prices lifted 22.1% after the US president indicated that he expected Russia and Saudi Arabia would agree to reduce production by “approximately 10 million barrels, and maybe substantially more”. Price action has been choppy, though, as Russia denied talks had taken place only for Saudi officials to express willingness to reduce production if others did as well. Separately, the number of confirmed cases of coronavirus has surpassed 1 million globally, having doubled in the past week.

US initial claims rise more than 3mn for another week, a spike in continuing claims suggests the labor market has come to a full stop Initial claims jobless claims for the week ended March 28 were 6.6mn, up 3.3mn from the previous week.

Since markets have seemingly become immune to the rise in COVID 19 case counts, I’m not sure where the more important story lies today. Is oil the talk of the town, or is it the thought-provoking ( non) price action across a breadth of US asset classes in the aftermath of the ghastly jobless claims number. The optimistic read here is that the market is already toggled for horrendous economic numbers. In other words, a bleak picture is already in the price.

But the process of risk normalization will continue to be chaotic, and we should expect it to stay on a downward, albeit choppy, trend for the stock markets. After all, the world is expected to extend lockdowns.

Even if the market has seemingly hit a trough, equities rarely bounce back to their previous highs immediately. A medical breakthrough could cause that, but for investors to get back on board the rally bus, they will need to see falling case numbers, alongside an end in sight to mobility restrictions.

We are entering a climate with lower or no dividends, fewer financial options, but most importantly, fewer jobs, lower output, and probably a lot fewer companies around the word. Many small and large-sized businesses will not survive this storm.

I’m not sure what to say about the speed with which the labor market is being hit. Jobless claims of 10M in May would be eye-popping. But 6M was incomprehensible a month ago. It came that quickly one day there the next day gone.

I’m not so much a bear as a realist and not buying into the notion that this is a temporary dip followed by a huge rebound. Voluminous job losses and bankruptcies could lead to permanent wealth deviation. If and when things return to normal, restaurants and hotels (for example) will hire back in a gradual, incremental, and cautious way. And Wave 2 fears will lurk around every previous and cranny until we either achieve “herd immunity” or a health care solution is discovered.

Thanks to the volatility suppressant nature of the unprecedented peacetime fiscal and monetary stimulus. Market makers feel comfortable replenishing inventories of their favorite COVID 19 risk immune stocks on a dip, and now they can gingerly add oil stocks back to their laundry lists despite being hampered by a wet blanket. So for today anyway, all is good in the Wonderland scenario.

In the meantime, our energies should be less focused on the yield curve and currency markets, and more focused on the roll out the proper test, track, and trace technology in the major economies.

Oil markets

Based on my dire macro views from above, I don’t think WTI prices have that much farther to climb, and I’m sticking to my guns that WTI $25 will be the new normal over the short term until a compliance deal gets sorted out. Even then, given the worrisome logistics of shutting in 20- million barrels of oil per day needed to balance the markets and where the cure might be worse than the symptoms itself, adjusting the oil markets to any semblance of balance is next to impossible.

At this stage, probably the best we can count on is graduated, and globally coordinated production curtailment that will provide sufficient wiggle room before its game over when storage capacity overflows, and oil becomes cheaper than the tanks it’s physically stored. And in this scenario, we could see WTI $30 be then new short term benchmarks.

Gold markets

Gold rebounds as data show US jobless surge and as bullion bullishly ignored the equity rally and firm USD.

Gold continued to reverse recent losses, jumping in active trading. After steadying in Asia, gold began to move higher in Europe with the gains then accelerating in US action. Initially, the broader financial markets struggled for direction with no clear indication of risk sentiment. The initial move in gold was likely triggered by rising oil prices, which points to less deflation and improves gold outlook.

But the short term game-changer for gold came with the release of the US jobless claims. In addition to being a new record weekly rise, the data was above the highest expectations.

The fact that gold moved higher despite stronger equities and a firmer US dollar suggests there could b a bit more upside to come. But with near term positioning, a bit stretched, it’s difficult to gauge if there still enough meat on the bone to whet investors appetite for bullion on a Friday after a roller-coaster week.

My view is to reduce into the weekend as I’m not a fan of when correlations break positively or negatively for gold as the misalignment never seems to stick over time. You can tell your self this time is different until you turn blue in the face, but you’re probably wrong.

Currency markets

The Euro

The Euro is unlikely to get much headroom with the dollar still in demand and Europe in lockdown. While there are nascent signs that Chinese activity is returning to normal levels, much of the west remains in lockdown. As a result, markets have come under severe pressure as the virus has spread trigger dollar safe-haven flows.

But there is an opportunity here. With the cost of hedging dollars now significantly reduced and with the virus showing signs of slowing Europe compared to the US. Its the coronavirus divergence and not the yield curve convergence trade that opens up a panacea for short dollar positioning. Currencies of countries that will see the virus pass quicker should be in demand as those nations will see a faster economic recovery.

The Yen 

Not sure how much is left to do from the GPIF US bond purchases from a week ago assuming we are nearing the end. US funding pressure has recanted, and US yields are low enough to send the USDJPY toppling on the next sigs of equity market weakness. There is less exporter selling demand for general hedging purposes. Its likely offset by fewer importer dollar demand with oil prices in the $ ’20s.Although there has been a bounce in the USDJPY with risk sentiment, USDJPY and S&P 500 is not the truth bearer. Instead, its US rates that are the truth stayer so we could see USDJPY fall under pressure on the first sings of equity market weakness what will undoubtedly happen sooner or later. If you are bearish equities, now might be a good time to get short USDJPY.

The Ringgit 

A more positive risk sentiment, USD dollar funding easing, and the prospect of higher oil prices should see the Ringgit trade on a more friendly not today. A rise in oil prices sheds a lot of unwelcome baggage that has been hobbling the KLCI. And while the bounce in oil does not signal an all in green light for the Ringgit, we’re in a much better position today than we were mired in midweek, which is a good thing for local sentiment.