Chinese Crackdown on Bitcoin Another Blow to Cathie Wood’s ARK ETF

Wood, who has said that bitcoin will rally to $500,000, has slightly more than $1 billion invested in cryptocurrency trading firm Coinbase Global Inc, a position that makes up approximately 4.7% of her $21.7 billion fund. Shares of Coinbase fell more than 1.5% on Friday after Chinese regulators announced a blanket ban on all crypto transactions and mining.

China’s move triggered a selloff in bitcoin, taking the value of the world’s largest cryptocurrency down more than 5% to approximately $42,475.

ARK Innovation was down 1.4% in midday trading on Friday.

The declines come as several of Wood’s top holdings this year are floundering during a market rally that has pushed up the benchmark S&P 500 more than 18% for the year to date.

While shares of Tesla Inc, Wood’s top holding, are up 8% for the year, large positions in companies including Teladoc Health Inc and Zoom Video Communications Inc are down 20% or more over the same time amid a shift away from the stay-at-home technology stocks that dominated during the COVID-19 lockdowns of 2020.

ARK Invest did not respond to a request for comment on this story.

Overall, the ARK Innovation Fund is down 4.4% for the year to date, putting it in the bottom 100th percentile among the 595 other U.S. mid-cap growth funds, according to Morningstar.

Over the last five years, however, the fund is up an annualized 42.3% a year, placing it among the top 1 percentile in its category.

That strong long-term performance is likely what is keeping retail investors from selling their stake in the fund this year despite its poor showing, said Todd Rosenbluth, director of fund research at CFRA.

“ARKK is down for the year and has significantly lagged behind index-based growth ETFs yet most investors have remained loyal, likely due to fond memories of prior periods of relatively strong performance,” he said. “But as the recent period of underperformance persists it is harder to justify not considering alternatives.”

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

(Reporting by David Randall in New York; Additional reporting by Saqib Iqbal Ahmed in New York; Editing by Ira Iosebashvili and Matthew Lewis)

Industrials: A Buy The Dip Opportunity For Long-Term Investors

Whilst the industrials sector has only fallen about 7% from its highs set in May of this year, as per the XLI ETF, the extreme washout of sentiment and breadth within the sector presents a potentially favorable buy-the-dip opportunity for long-term investors.

Beginning with sentiment, the SentimenTrader Optix measure of the pessimism and optimism of investors within the sector has fallen to extreme levels representative of decent buying opportunities over recent years. On the whole, investors are clearly pessimistic towards industrial stocks right now.

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Whilst not at the same level of pessimism as the Optix measure above, the Bullish Percent Index (BPINDY) for the sector has fallen to a sub-50 reading. Such a level in the past has generally been indicative of attractive buying opportunities for those with a time frame of at least 12 months.

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Meanwhile, the washout in breadth within the sector has too reached favorable levels for those looking to accumulate long-term holdings. The number of stocks within the XLI ETF trading above their 50-day moving fell to below 15%, if only briefly.

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Using another measure of market breadth, the McClellan Oscillator (which calculates breadth based on various measures of the number of advancing versus declining stocks), has also plunged to a level indicative of an excellent long-term buying opportunity historically. According to SentimenTrader, when we see a reading in this breadth measure whilst XLI continues to trade above its 200-day moving average, investors who were willing to deploy capital at such a time were rewarded with excellent returns over the proceeding six to 12 months.

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Corporate insiders are clearly taking note and are using this opportunity to add to their company holdings. The corporate insider sell-buy ratio for the industrials sector has fallen to its lowest level since March 2020.

Source: WhaleWisdom.com

Source: WhaleWisdom.com

From a technical perspective, the sector has been channel-bound for a number of months now, but has still managed to reach an oversold level in momentum (RSI) and money flow (MFI). Encouragingly, there appears to be a strong level of support around the $97-$98 area, which is the confluence of the lower trend-line of this channel and the 200-day moving average.

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However, as you have probably noticed thus far, I am emphasizing my view that this buying opportunity potentially presenting itself is geared towards long-term investors looking to add or commence positions in the industrials sector. Whilst the breadth and sentiment levels in the sector are indicative of favorable buy-the-dip opportunities historically, this is more so the case for those buying with a long-term/multi-year timeframe.

As with most cyclical stocks and assets classes at present, the current state of the business cycle and the apparent deceleration in growth does not present a favorable risk-reward set-up for the next few months at the very least. This is a topic I covered comprehensively in a recent post. Indeed, as we can see in the back-test above, the one to three month returns in such times historically were subpar. This is the likely scenario for the next few months in my view. Until the leading indicators of growth in the economy begin accelerating, the industrials sector is likely to continue to underperform the market, as has been the case since May. However, as we have experienced this past week, unfavorable macro conditions create the potential for additional buying opportunities for the long-term investor.

Finally, confirming this message of potentially imminent further weakness is seasonality, which indicates that historically, September and October are generally not favorable months for the sector, but have provided solid buying opportunities.

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In summary, whilst the macro headwinds are present for the industrials sector and are likely to remain present for the next few months, for long-term investors willing to look past the potential short-term volatility and underperformance, we may be experiencing a good buy-the-dip opportunity.

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

Best ETFs For September 2021

That’s why I spend my time crafting portfolios chock full of outlier stocks. If you choose right, you’ll have enormous gains on your hands in the years to come.

Now, I pick my ETFs perhaps a bit differently than other people. I can find outlier ETFs by tracking the Big Money. But that alone isn’t enough: when I catalog the components and find outlier stocks underneath… that’s the winning recipe.

First, I looked at all ETFs making Big Money signals by going to MAPsignals.com and scanning the Big Money ETF Buys and Sells chart. I looked for recent days with heavy buying (the bright blue spikes):

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Source: www.mapsignals.com

Once I knew which ETFs Big Money was buying, then I wanted the best opportunities. Remember: ETFs are just baskets of stocks. MAPsignals specializes in scoring more than 6,000 stocks daily. Therefore, if I know which stocks make up the ETFs, I can apply the stock scores to the ETFs. Then I can rank them all strongest to weakest.

So let’s get to the 5 best ETF opportunities for September.

#1 Real Estate Select Sector SPDR Fund (XLRE)

First off, real estate is hot. We can see that Big Money has been plowing money into this ETF over the last year. We saw a few fresh buy signals recently too:

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XLRE holds some awesome stocks and one great example is Prologis, Inc. (PLD). Below we see the Big Money signals for PLD:

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#2 iShares S&P 500 Growth ETF (IVW)

Next, I’m looking for growth. IVW has it and lots of green signals, too:

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One great stock that IVW holds is Microsoft Corp. (MSFT). It has awesome fundamentals and some recent big money buying:

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#3 Global X Cloud Computing ETF (CLOU)

The cloud is a big area for growth this year. CLOU holds some phenomenal stocks. It’s also collecting lots of green:

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One big winner that caught my eye inside of CLOU is Netflix, Inc. (NFLX). It’s starting to get its mojo back:

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#4 ARK Innovation ETF (ARKK)

Cathie Woods, the star of Wall Street last year has hit some head winds. The ARKK saw huge buying through February then hit a wall. But the pullback, I believe, is an opportunity because it holds some terrific companies:

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It holds a monster growth stock, Square, Inc. (SQ). Big Money has been consistent for years:

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#5 iShares NASDAQ Biotechnology ETF (IBB)

The biotech space has been booming. Big Money has been flowing into IBB:

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It holds some great stocks too. One that I have my eye on is Regeneron Pharmaceuticals, Inc. (REGN), which has benefited from the COVID pandemic:

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Here’s a reminder for what to look for in the charts above:

  • When Big Money buying pours in, stocks tend to go up
  • Repeated buying usually means outsized gains

Let’s summarize here:

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IVW, XLRE, & CLOU rank high. ARKK and IBB however, rank lower on our list, mainly due to weaker technicals. That’s why I think these weaker ETFs represent great potential bargains.

The Bottom Line

IVW, XLRE, CLOU, ARKK, and IBB are my top ETFs for September 2021. Growth, REITs, & cloud stocks have performed well lately. My bet is they continue.

To learn more about MAPsignals’ Big Money process please visit: www.mapsignals.com

Disclosure: the author holds no positions in XLRE, IVW, CLOU, ARKK, IBB, PLD, SQ, or NFLX, but holds long positions in MSFT & REGN in managed accounts at the time of publication.

Investment Research Disclaimer

https://mapsignals.com/contact/

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

Best ETFs For August 2021

Hendrik Bessembinder proved it with his research in his paper “Do Stocks Outperform Treasury Bills?”

That’s why I spend my time crafting portfolios chock full of outlier stocks. If you choose right, you’ll have enormous gains on your hands in the years to come.

Now, I pick my ETFs perhaps a bit differently than other people. I can find outlier ETFs by tracking the Big Money. But that alone isn’t enough: when I catalog the components and find outlier stocks underneath… that’s the winning recipe.

That’s how I found the best big money ETFs for August.

First, I looked at all ETFs making Big Money signals by going to MAPsignals.com and scanning the Big Money ETF Buys and Sells chart. I looked for recent days with heavy buying (the bright blue spikes):

Chart, histogram

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Source: www.mapsignals.com

Once I knew which ETFs Big Money was buying, then I wanted the best opportunities. Remember: ETFs are just baskets of stocks. MAPsignals specializes in scoring more than 6,000 stocks daily. Therefore, if I know which stocks make up the ETFs, I can apply the stock scores to the ETFs. Then I can rank them all strongest to weakest.

So let’s get to the 5 best ETF opportunities for August. Given that usual seasonal summer volatility is here, and the stock market is a constant washing machine of sector rotations, we are taking a barbell approach this month. We went for 3 of the strongest ETFs and 2 weaker ones while still having strong fundamental qualities

#1 Technology Select Sector SPDR Fund (XLK)

First off, tech is king again. We can see that Big Money has been plowing money into this ETF over the last year. We saw a few fresh buy signals recently too:

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XLK holds some awesome stocks and one great example is Fortinet, Inc. (FTNT). Below we see the Big Money signals for FTNT:

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#2 iShares U.S. Home Construction ETF (ITB)

Anyone trying to buy a home right now may find it’s tougher than usual, especially here where I live in South Florida. Building supplies and home inventory is scarcer than usual due to the pandemic. But with rates remaining low for the near future and construction booming, the setup is nice to take advantage of an ITB pullback from highs (don’t let the red sells confuse you- if there is selling on quality ETFs holding great stocks, it’s often an opportunity):

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One great stock that ITB holds is Sherwin Williams Co. (SHW). The paint maker has their product deployed in many new homes being built as well as older ones being remodeled. It has awesome fundamentals and some recent big money buying:

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#3 iShares Russell 1000 Growth ETF (IWF)

Growth has seen its ups and downs this year. But IWF holds some phenomenal stocks. It’s also collecting lots of green:

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As I said, IWF holds a plethora of great growth stocks. One big winner that caught my eye is Veeva Systems, Inc. (VEEV). It was a huge winner last year and is suddenly seeing a resurgence:

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#4 ARK Next Generation Internet ETF (ARKW)

Cathie Woods, the star of Wall Street last year has hit some head winds. Her ETFs have suffered a bit after a monster performance last year. The ARKW saw huge buying through February then hit a wall. But the pullback, I believe, is an opportunity because it holds some terrific companies:

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It holds one of my all-time favorite stocks, Nvidia Corp. (NVDA). This stock is quite possibly the biggest outlier of all. They make chips and graphics cards for computers and are the best at it. Big Money loves this stock:

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#5 Invesco Solar ETF (TAN)

Solar is a boom-bust type of sector. It’s fallen significantly off its highs. Big Money loved TAN leading up through February as well. Then it got crushed:

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But TAN holds some great solar stocks that make money. One industrials company in their portfolio is Fastenal Co. (FAST), which saw Big Money buying earlier in the year, and has rallied to 1-year highs:

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Here’s a reminder for what to look for in the charts above:

  • When Big Money buying pours in, stocks tend to go up
  • Repeated buying usually means outsized gains

Let’s summarize here: the top 3 ETFs (XLK, ITB, and IWF) for August score well in terms of MAPsignals’ scores. That means Big Money has been pouring into them:

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ARKW and TAN however, rank lower on our list, mainly due to weaker technicals. That’s why I think these weaker ETFs represent great potential bargains.

The Bottom Line

XLK, ITB, IWF, ARKW, and TAN are my top ETFs for August 2021. Tech, homebuilders, and growth stocks have performed well lately. My bet is they continue.

To learn more about MAPsignals’ Big Money process please visit: www.mapsignals.com

Disclosure: the author holds no positions in XLK, ITB, IWF, ARKW, TAN, FTNT, SHW, VEEV, NVDA, or FAST at the time of publication.

Investment Research Disclaimer

https://mapsignals.com/contact/

 

ESG Fever: Share of Sustainable Fund Trading Soaring in 2021

ESG assets are increasingly in demand among investors as companies that perform well on a range of issues from climate change to boardroom diversity are seen as better long-term investments than peers lagging in these areas.

On its Frankfurt-based electronic trading platform Xetra, German stock exchange operator Deutsche Boerse said ESG ETFs now account for more than 16% of total ETF trading turnover on Xetra compared to 6% a year ago.

Assets under management for ESG ETFs listed on Xetra amounted to 137 billion euros ($161.62 billion) at the end of June, compared to 43 billion euros a year earlier.

“Europe is at the forefront of ESG investing and that shows up in the development of our ESG ETF strategy,” said Stephan Kraus, head of the ETF segment at Deutsche Boerse.

Bolstered in large part by a swathe of European Union legislation designed to help drive the bloc’s transition to a low-carbon economy, ESG ETFs have also benefited from their large holdings of in-demand mega-cap technology stocks.

While most of the world’s ESG funds are actively managed, passive funds are grabbing an increasing slice of the pie as the broader structural trend to access markets through cheaper index-tracking products gathers steam.

According to Morningstar data, flows into European ESG ETFs amounted to 27 billion euros in the first quarter of 2021, more than four times recorded in the same period last year.

On a global basis, flows into European focused ETFs are the biggest, dwarfing net flows into U.S. and other markets.

Total assets under management by ESG funds have swelled to nearly $1.7 trillion at the end of the March quarter, doubling from two years ago though most of the funds are dominated by active strategies.

While a global index of ESG shares has moved pretty much in lockstep with its broader global shares counterpart so far this year, some ESG ETFs have recorded stellar returns, according to Refinitiv data.

Deutsche Boerse’s efforts to boost its ESG business franchise received a major boost last year when it acquired ESG analytics firm Institutional Shareholder Services (ISS) in March 2020.

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

($1 = 0.8477 euros)

(Reporting by Saikat Chatterjee; Additional reporting by Simon Jessop; Editing by Hugh Lawson)

 

Want To Invest In Real Estate But Don’t Have The Down Payment?

As an asset class, real estate should be a part of every balanced investment portfolio. That’s because real estate investments generally have a low correlation to stocks, can offer lower risk, and provide greater diversification.

Today about 65% of Americans own a home, but that means that tens of millions of Americans have no exposure to real estate. Making matters worse, becoming a homeowner today is harder than in previous generations, with 1 in 5 millennials believing they will never be able to afford a home. Is there a way to get exposure to the real estate market for as little as $100?

Residential Real Estate Market Trend

From the chart below, we can see that the residential real estate market continues to climb and the median price of houses sold in the US is near recent all-time highs of $347,500. Even though mortgage rates remain near all-time lows, the appreciation of prices in certain pockets of the country are making many cities and areas simply unaffordable for most. Things look much the same for industrial, commercial, agricultural, and most other specialized real estate subsectors.

How Can You Invest in Real Estate Through the Stock Market

The stock markets offer three different ways you can invest in real estate, and today we will be looking at three of them: REITs, ETNs, and ETFs.

A REIT is a real estate investment trust and it generally owns, manages, and/or finances income-producing real estate assets. REITs are generally highly liquid (trading like stocks) and are known to produce steady income through dividends as opposed to focusing on capital appreciation.

There are hundreds of REITs, with the most popular focused on retail, residential, healthcare, office, and mortgages. Having REIT status enables those companies to avoid paying taxes at the corporate level as taxes are paid by the investors when they receive distributions of income in the form of dividends.

A real estate ETN is unsecured debt of real estate assets, essentially a type of bond with a maturity date (but without interest payments). ETNs do not provide ownership of the underlying assets, but their performance is directly correlated to the performance of those assets.

Investors need to be wary that they can lose all of their ETN investment if the underlying debt goes into default. They also face closure risk if the issuer closes the ETN before maturity by paying the prevailing price in the market (potentially creating a loss for the investor). Despite these risks, some investors prefer ETNs because of the tax treatment for long-term ETN holdings.

A real estate ETF is the same as any ETF, being a basket of securities in the real estate sector that can be bought and sold on the stock market. Real estate ETFs often focus on a collection of REITs, offering investors a way to diversify their real estate bets without the torture of researching hundreds of REITs. REIT ETFs offer investors to earn dividend income like REITS while also benefiting from higher diversification and greater market liquidity, which are the hallmarks of all ETFs.

What Makes a Good REIT ETH?

First, you need to decide if you want a mortgage or equity REITs, as well as if you are looking for an objective-specific REIT (like storage facilities) or something more broad and big-picture (like residential real estate). Your REIT ETF should also have a good amount of assets under management in order to keep expense ratios down, and always check to see if the ETF you are interested in has sufficient liquidity.

The charts below show you the performance of the three largest real estate ETFs. Each of these ETFs have over $5 billion of assets, are highly liquid, and a slightly different focus in either the index they track or the real estate assets they are comprised of.

Vanguard Real Estate Index Fund (NYSEARCA: VNQ)

Vanguard focuses on US equity REITS with a small allocation to specialized REITS and real estate firms.

iShares U.S. Real Estate ETF (NYSEARCA: IYR)

The iShares REIT, above, follows the Dow Jones U.S. Real Estate Index, whereas Schwab’s REIT ETF (below) follows the smaller Dow Jones U.S. Select REIT Index.

Schwab US REIT ETF (NYSEARCA: SCHH)

For those of you that get my daily BAN Hotlist, you will know that real estate triggered a signal more than a month ago indicating the sector to be in an uptrend. Real estate continues to be a top-performing sector, with all three of the biggest ETFs gaining more than 15% so far in 2021. In fact, more than 90% of all real estate ETFs have outperformed the S&P500 this year. When you add in the fact that some of the REIT ETFs are also producing annual dividend rates as high as 7-8%, it becomes clear that real estate ETFs should be part of your portfolio.

For those who believe in the power of trading on relative strength, market cycles, and momentum but don’t have the time to do the research every day then my BAN Trader Pro newsletter service does all the work for you with daily market reports, research, and trade alerts.

More frequent or experienced traders have been killing it trading options, ETFs, and stocks using my BAN Hotlist ranking the hottest ETFs, which is updated daily for my premium subscribers.

Happy Trading!

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

Stronger US Dollar – Which ETFs Will Benefit? Part II

In this second part of our exploration of the recent US Dollar rally and what it may be reacting to in relation to the current US stock market highs and continued rally, we will explore some of the underlying factors that are translating into US Dollar strength while the US stock market continues to push higher.

In the first part of this research article, we highlighted the US Dollar reaction to the 2008-09 credit market crisis and how the US Dollar actually started to bottom/rally in early 2008 – just as the rollover top in the US stock markets continued to setup.  The way the US Dollar reacts to stress factors in the global markets is to strengthen as a safe haven as capital is constantly seeking the best environment for investment and profits.  When the markets enter a period of turmoil, the US Dollar typically begins to strengthen before the global markets really begin to react to the fear or turmoil.

The recent news of large financial institutions and hedge funds taking large losses and closing operations is somewhat similar to the Lehman event of 2008.  These types of larger corporate debt collapses have wide-range global market effects.  Sometimes, these events can ripple into other global corporations who engaged in this level of financing or credit functions.  For example, Credit Suisse’s attempt to recoup potential losses from the Greensill collapse may be a very complicated and fruitless process according to a recent Wall Street Journal article.

Weekly US Dollar Shows Uptrend Starting

The current US Dollar Weekly chart, below, shows how the US Dollar has strengthened over the past 3 months and how this current uptrend aligns with the $89 lows from early 2018.  One of the most interesting aspects of this chart is the peak in early 2020, as the COVID-19 virus market collapse bottomed, which was followed by an extended decline.  As mentioned earlier, the US Dollar acts as a safe haven during times of uncertainty and chaos.  Obviously, the initial COVID-19 market selloff prompted quite a bit of uncertainty and chaos, prompting the US Dollar to rise nearly 9% in just two weeks.  Does the current upside trending in the US Dollar translate into more uncertainty and chaos in the markets?

The recent bottom on this Weekly US Dollar chart happened on January 6, 2021. This was the day that Congress certified the US state electors.  It was also the day that chaos took place in Washington DC.  From that point onward, the US Dollar began a decidedly upward price trend.  Since that low on January 6, the US Dollar has risen over 4.60%.  Over that same time, the SPY has rallied more than 7.5%, which obviously fails to show any US or global market concerns.

Weekly Smart Cash vs. US Dollar Correlations

The following chart shows the US Dollar (as a GOLD line) and our Custom Smart Cash Index (as a BLUE line) and highlights the threshold of the US Dollar that usually prompts a breakdown in price in the stock market.  The ORANGE threshold level on this chart for the US Dollar is 94.10 and the PURPLE threshold level on this chart 99.50.  Once the US Dollar reaches levels above the ORANGE threshold, the SPY becomes much more volatile and tends to retrace lower over time.  Once the US Dollar reaches above the PURPLE threshold, it appears the US Dollar reaches major resistance, stalls, and contracts, which prompts a fairly large upside price trend in the SPY.

Currently, the US Dollar Index is trading just above 93.00 and it just 1.1 away from the ORANGE threshold.  Should the US Dollar continue to rally over the next few weeks and months, our research suggests the US stock market will enter a period of increased volatility with broad sector trending/rotation.  As you can see on this chart, near the end of 2018, the US Dollar Index rallied above the ORANGE threshold while the Custom Smart Cash Index entered a period of extended price volatility (2019 through the COVID-19 bottom in 2020).  Once the US Dollar Index fell back below the ORANGE threshold (July/August 2020), the Custom Smart Cash Index began to rally estensively.

The current rally in the US stock market will likely continue until the US Dollar Index moves comfortably over the ORANGE threshold, there is a strong possibility the US stock market will enter a period of extended volatility and trending.  That means that the current bullish price trend may enter a broader rally phase – targeting a new excess phase peak.  Or, it may shift into more of a sideways price trend with a broad range of price rotation – like what happen in 2015 to 2016.

Interestingly enough, near the end of 2016, as the US stock market bottomed and began to rally, the sectors that lead that rally included precious metals, miners, utilities, regional banking, and technology (later in 2017).  This suggests we need to watch metals & miners as well as utilities and regional banking sectors later in 2021.

Currently, the leading sector trends are Real Estate, REITS, US Financials, Global Infrastructure, Global Natural Resources, Technology, Consumer Services, and Aerospace & Defense.  These leading sectors suggest many traders/investors believe the next few years will be filled with various advantages in technology, raw materials, consumer activities and infrastructure/defense spending.  Get ready for some really big trends in various sectors and be prepared to jump into some of these bigger trends.

For those who believe in the power of trading sectors that show relative strength and momentum but don’t have the time to do the research every day, let my BAN Trader Pro newsletter service do all the work for you with daily market reports, research, and trade alerts. More frequent or experienced traders have been killing it trading options, ETFs, and stocks using my BAN Hotlist ranking the hottest ETFs, which is updated daily for my BAN Trader Pro subscribers.

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

Happy Trading!

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

 

The REIT Special – An Inflation Hedge

In the premium editions of my newsletters, you know that I have been consistently touting the iShares Cohen & Steers REIT ETF (ICF) as a potential hedge against inflation.

In this REIT Special Edition, I will break down the WHY. But not, we aren’t going to just talk about the ICF ETF. We will dig into what specific real estate sectors you might want to consider when looking at REITs to invest in.

But first and foremost, what is a REIT, and why are they such strong bets right now?

Let’s just say, if you want to invest in real estate but do not necessarily have the capital, you will want to read on. If you don’t have the patience for illiquid assets like buildings, you will want to read on. And suppose you want the easiest, most convenient way to diversify your portfolio and add real estate exposure. You will want to read on.

A REIT, or real estate investment trust, is a company that owns, operates, or finances income-producing real estate assets. Think of REITs as mutual funds for real estate. REITs pool the capital of numerous investors.

For the most part, REITs trade on public exchanges like stocks, which makes them highly liquid, unlike physical real estate assets. But the thing I love most about REITs? They also almost mirror the consistent income streams you can get from real estate assets. REITs pay some of the best and most consistent dividends on the market. All while you as an investor don’t have to get your hands dirty and buy, manage, or finance the property.

REITs invest in almost every real estate sector. However, in this edition, we will focus specifically on multifamily, hospitality, industrial, and healthcare. Why? Multifamily and hospitality could see substantial recoveries after 2020. Industrial and healthcare had strong 2020s and could continue to succeed in 2021 and long after.

Hopefully, you find my insights enlightening. I welcome your thoughts and questions and wish you the best of luck.

 Multifamily

Figure 1- iShares Residential Real Estate ETF (REZ)

Multifamily or residential REITs own and operate apartment buildings and/or manufactured housing.

The most important factors to focus on when researching multifamily REITs are affordability, population growth, and job growth. For example, large cities such as New York and LA have higher living costs and more renters. But their job growth and population growth are severely lagging right now. You want large urban centers that show strong in-migration trends and job growth.

Figure 2: Marcus & Millichap Forecast

Consider the multifamily market in the Sunbelt and Mountain region. Even before COVID, there was a migration boom and significant employment growth, especially in the Sunbelt region. Plus, this region didn’t lock down as strictly as big cities like New York and LA and saw fewer job losses during the pandemic.

The Mountain region is also seeing a rapidly growing population, a strong quality-of-life, and affordable living costs. Do you know the ONLY state that saw year-over-year job growth for total nonfarm payrolls in January 2021 while also leading in year-to-date growth? Idaho .

While multifamily growth will be likely be fragmented based on region, there are two ways you can play this:

  1. Research individual REITs with the most exposure to growing regions.
  2. Add broad-based exposure to multifamily assets through ETFs like the iShares Residential Real Estate ETF (REZ) . While this ETF does not focus EXCLUSIVELY on residential REITs, as it has exposure to healthcare and self-storage, too, this is an easy and convenient way to give yourself multifamily exposure.

For more of my thoughts on REITs focusing on hospitality, office, industrial, and healthcare, sign up for my premium analysis today.

Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter – it’s absolutely free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

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

Thank you.

Matthew Levy, CFA
Stock Trading Strategist
Sunshine Profits: Effective Investment through Diligence & Care

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All essays, research, and information found above represent analyses and opinions of Matthew Levy, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Matthew Levy, CFA, and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Levy is not a Registered Securities Advisor. By reading Matthew Levy, CFA’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading, and speculation in any financial markets may involve high risk of loss. Matthew Levy, CFA, Sunshine Profits’ employees, and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Gold Miners: Why Apparent Strength is Just a Facade

Despite everyone saying the bottom is in, and that gold and miners are set for takeoff, the signs still point south. The real question: how low can they go?

Let’s take a look at some price targets for where the GDX and GDXJ mining ETFs might land up.

With the miners attempting to reclaim Pride Rock, it won’t be long until the GDX ETF is singing Hakuna Matata.

Rising U.S. Treasury yields? No problem.

A reinvigorated USD Index? Who cares.

But while strength is often viewed through the eyes of the beholder, the GDX ETF is far from being The Lion King. Sure, its bravery in the face of familiar foes is reason for optimism. However, we’ve seen this movie before. While the recent rally may resemble Mufasa, beneath the surface, the GDX ETF’s tepid price action looks a lot like Simba.

If you analyze the chart below, you can see that the GDX ETF moved to the upper level of my initial target range. However, with the Mar. 19 close eliciting a sell signal from the stochastic oscillator (the black and red lines at the bottom section of the chart), a historical reenactment (repeat of the early-2021 performance) could deliver another sharp move lower.

ChartDescription automatically generated

In addition, the shape of the early-January swoon is eerily similar to today’s price action. Case in point: back in January, the GDX ETF enjoyed a material daily rally, consolidated , then sunk like a stone. Because of that, the recent move higher and a few days of back-and-forth trading ( consolidation ) is nothing to write home about.

To explain, I wrote on Mar. 18:

Mining stocks followed gold higher, and they moved to the upper part of my previous target area, but not yet to its upper border. As you may recall, I mentioned the possibility of GDX moving to the $34 – $35 area and my original target for this rally was slightly below $34.

The GDX ETF now encountered the strongest combination of resistance areas, while the Stochastic indicator moved above the 80-level. Technically, the situation is now much more bearish in the GDX ETF chart than it was at the beginning of the year. Back in January, the GDX ETF was only at the declining blue resistance line.

Now, in addition to being very close to the above-mentioned line it’s also at:

  • The neck level of the previously broken broad head and shoulders pattern
  • The 50-day moving average
  • The previous (late-February) highs.

Consequently, it’s highly likely that we’ve either just seen a top or one is close at hand.

But if we’re headed for a GDX ETF cliff, how far could we fall?

Well, while the S&P 500 is a key variable in the equation, there are three reasons why the GDX ETF might form an interim bottom at roughly ~$27.50 (assuming no big decline in the general stock market ):

  1. The GDX ETF previously bottomed at the 38.2% and 50.0% Fibonacci retracement levels. And with the 61.8% level next in line, the GDX ETF is likely to garner similar support.
  2. The GDX ETFs late-March 2020 high should also elicit buying pressure.
  3. If we copy the magnitude of the late-February/early-March decline and add it to the early-March bottom, it corresponds with the GDX ETF bottoming at roughly $27.50.

Keep in mind though: the interim downside target is based on the assumption of a steady S&P 500 . If the stock market plunges, all bets are off. For context, when the S&P 500 plunged in March 2020, the GDX ETF fell below $17, and it took less than two weeks for it to move as low from $29.67. As a result, U.S. equities have the potential to make the miners’ forthcoming swoon all the more painful.

If gold forms an interim bottom close to $1,600, this could also trigger a corrective upswing in the mining stocks, but it’s too early to say for sure whether that’s going to be the case or not.

Also supporting the potential move, the GDX ETF’s head and shoulders pattern – marked by the shaded green boxes above – signals further weakness ahead.

I wrote previously:

Ever since the mid-September breakdown below the 50-day moving average , the GDX ETF was unable to trigger a substantial and lasting move above this MA. The times when the GDX was able to move above it were also the times when the biggest short-term declines started.

(…)

The most recent move higher only made the similarity of this shoulder portion of the bearish head-and-shoulders pattern to the left shoulder) bigger. This means that when the GDX breaks below the neck level of the pattern in a decisive way, the implications are likely to be extremely bearish for the next several weeks or months.

Turning to the junior gold miners , the GDXJ ETF will likely be the worst performer during the upcoming swoon. Why so? Well, due to its strong correlation with the S&P 500, a swift correction of U.S. equities will likely sink the juniors in the process.

What’s more, erratic signals from the MACD indicator epitomizes the GDXJ ETF’s heightened volatility.

Please see below:

ChartDescription automatically generated

To explain, I wrote on Mar. 12:

The above chart is a big red warning flag for beginner investors . The flag reads: “verify the efficiency of a given tool on a given market, before applying it”.

The bottom part of the above chart features the MACD indicator . Normally, when the indicator line (black) crosses its signal line (red), we have a signal. If it’s moves above the signal line, it’s a buy sign, and if it moves below it, it’s a sell sign.

But.

If one actually looks at what happened after the previous “buy signals” in the recent months, they will see that in 5 out of 6 cases, these “buy signals” practically marked the exact tops, thus being very effective sell signals! In the remaining case, it was a good indication that the easy part of the corrective upswing was over.

I’m not only describing the above due to its educational value, but because we actually saw a “buy signal” from the MACD, which was quite likely really a sell signal.

More importantly though, the MACD indicator is far from a light switch. While false buy signals often precede material drawdowns, the reversals don’t occur overnight. As a result, it’s perfectly normal for the GDXJ ETF to trade sideways or slightly higher for a few days before moving lower. This is what we saw last week

But how low could the GDXJ ETF go?

Well, just like the GDX ETF, the S&P 500 is an important variable . However, absent an equity rout, the juniors could form an interim bottom in the $34 to $36 range and if the stocks show strength, juniors could form the interim bottom higher, close to the $42.5 level. For context, the above-mentioned ranges coincide with the 50% and 61.8% Fibonacci retracement levels and the GDXJ ETF’s previous highs (including the late-March/early-April high in case of the lower target area). Thus, the S&P 500 will likely need to roll over for the weakness to persist beyond these levels.

Some people (especially the permabulls that have been bullish on gold for all of 2021, suffering significant losses – directly and in missed opportunities) will say that the final bottom is already in. And this might very well be the case, but it seems highly unlikely to me. On a side note, please keep in mind that I’m neither a permabull nor a permabear for the precious metals sector, nor have I ever been. Let me emphasize that I’m currently bearish (for the time being), but earlier this month, we went long mining stocks on March 4 and exited this trade on March 11.

Another reason (in addition to the myriads of signals coming not only from mining stocks, but from gold, silver, USD Index, stocks, their ratios, and many fundamental observations) is the situation in the Gold Miners Bullish Percent Index ($BPGDM), which is not yet at the levels that triggered a major reversal in the past. The Index is now back above 27. However, far from a medium-term bottom, the latest reading is still more than 17 points above the 2016 and 2020 lows.

Back in 2016 (after the top), and in March 2020, the buying opportunity didn’t present itself until the $BPGDM was below 10.

Thus, with sentiment still relatively elevated, it will take more negativity for the index to find the true bottom.

Graphical user interface, chartDescription automatically generated

The excessive bullishness was present at the 2016 top as well and it didn’t cause the situation to be any less bearish in reality. All markets periodically get ahead of themselves regardless of how bullish the long-term outlook really is. Then, they correct. If the upswing was significant, the correction is also quite often significant.

Please note that back in 2016, there was an additional quick upswing before the slide and this additional upswing had caused the $BPGDM to move up once again for a few days. It then declined once again. We saw something similar also in the middle of 2020. In this case, the move up took the index once again to the 100 level, while in 2016 this wasn’t the case. But still, the similarity remains present.

Back in 2016, when we saw this phenomenon, it was already after the top, and right before the big decline. Based on the decline from above 350 to below 280, we know that a significant decline is definitely taking place.

But has it already run its course?

Well, in 2016 and early 2020, the HUI Index continued to move lower until it declined below the 61.8% Fibonacci retracement level. The emphasis goes on “below” as this retracement might not trigger the final bottom. Case in point: back in 2020, the HUI Index undershot the 61.8% Fibonacci retracement level and gave back nearly all of its prior rally. And using the 2016 and 2020 analogues as anchors, this time around, the HUI Index is likely to decline below 231. In addition, if the current decline is more similar to the 2020 one, the HUI Index could move to 150 or so, especially if it coincides with a significant drawdown of U.S. equities.

Moreover, let’s keep in mind that an unwinding of NASDAQ speculation could deliver a fierce blow to the gold miners. Back in 2000, when the dot-com bubble burst, the NASDAQ lost nearly 80% of its value, while gold miners lost more than 50% of their value.

Please see below:

ChartDescription automatically generated

Right now, the two long-term channels above (the solid blue and red dashed lines) show that the NASDAQ is trading well above both historical trends.

Back in 1998, the NASDAQ’s last hurrah occurred after the index declined to its 200-day moving average (which was also slightly above the upper border of the rising trend channel marked with red dashed lines).

And what happened in the first half of 2020? Well, we saw an identical formation.

The similarity between these two periods is also evident if one looks at the MACD indicator . There has been no other, even remotely similar, situation where this indicator would soar so high.

Furthermore, and because the devil is in the details, the gold miners’ 1999 top actually preceded the 2000 NASDAQ bubble bursting. It’s clear that miners (the XAU Index serves as a proxy) are on the left side of the dashed vertical line, while the tech stock top is on its right side. However, it’s important to note that it was stocks’ slide that exacerbated miners’ decline. Right now, the mining stocks are already declining, and the tech stocks continue to rally. Two decades ago, tech stocks topped about 6 months after miners. This might spoil the party of the tech stock bulls, but miners topped about 6 months ago…

Also supporting the 2000 analogue, today’s volume trends are eerily similar. If you analyze the red arrows on the chart above, you can see that the abnormal spike in the MACD indicator coincided with an abnormal spike in volume. Thus, mounting pressure implies a cataclysmic reversal could be forthcoming.

Interestingly, two decades ago, miners bottomed more or less when the NASDAQ declined to its previous lows, created by the very first slide. We have yet to see the “first slide” this time. But, if the history continues to repeat itself and tech stocks decline sharply and then correct some of the decline, when they finally move lower once again, we might see THE bottom in the mining stocks. Of course, betting on the above scenario based on the XAU-NASDAQ link alone would not be reasonable, but if other factors also confirm this indication, this could really take place.

Either way, the above does a great job at illustrating the kind of link between the general stock market and the precious metals market that I expect to see also this time. PMs and miners declined during the first part of the stocks’ (here: tech stocks) decline, but then they bottomed and rallied despite the continuation of stocks’ freefall.

Even more ominous, the MACD indicator is now eliciting a clear sell signal . And displaying a reading that preceded the dot-com bust in 2000, the NASDAQ Composite – and indirectly, the PMs – continue to sail toward the perfect storm.

As further evidence, the HUI Index/S&P 500 ratio has broken below critical support.

Please see below:

ChartDescription automatically generated

When the line above is rising, it means that the HUI Index is outperforming the S&P 500. When the line above is falling, it means that the S&P 500 is outperforming the HUI Index. If you analyze the right side of the chart, you can see that the ratio has broken below its rising support line. For context, the last time a breakdown of this magnitude occurred, the ratio plunged from late-2017 to late-2018. Thus, the development is profoundly bearish.

For further context, the ratio is mirroring the behavior that we witnessed in early 2018. After breaking below its rising support line, the ratio rallied back to the initial breakdown level (which then became resistance) before suffering a sharp decline. And with two-thirds of the analogue already complete today – with the ratio rallying back to its initial breakdown level (now resistance) last week – a sharp reversal could occur sooner rather than later.

In addition, because last week’s bounce was merely a technical development, the HUI Index’s recent strength is nothing to write home about. What’s more, the early-2018 top in the HUI Index/S&P 500 ratio is precisely when the USD Index began its massive upswing. Thus, with history likely to rhyme again, the outlook for the PMs remains profoundly bearish.

Moreover, please note that the HUI to S&P 500 ratio broke below the neck level (red, dashed line) of a broad head-and-shoulders pattern and it verified this breakdown by moving temporarily back to it. The target for the ratio based on this formation is at about 0.05 (slightly above it). Consequently, if the S&P 500 doesn’t decline at all (it just closed the week at 3913.10), the ratio at 0.05 would imply the HUI Index at about 196. However, if the S&P 500 declined to about 3,200 or so (its late-2020 lows) and the ratio moved to about 0.05, it would imply the HUI Index at about 160 – very close to its 2020 lows.

In conclusion, with the miners’ recent confidence likely to fade, it’s only a matter of time before they show their true colors. With the USD Index raring to go and U.S. Treasury yields seemingly exploding on a daily basis, the PMs recent move higher is akin to swimming against a strengthening current: while they’re making progress, each stroke requires more and more energy. In addition, if a drawdown of U.S. equities enters the equation, the metaphor will be akin to swimming against a tsunami. The bottom line? Long positions in the PMs offers more risk than reward over the next several weeks or so. However, once the medium-term climax is complete, it will be smooth sailing once again.

Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.

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

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

How the EUR/USD Affects Miners; Which ETF Will Suffer More?

A large part of yesterday’s free version of the analysis focused on the Eurozone’s economic outlook and how it affects the precious metals. We’ll eventually get to Europe again later in today’s analysis, but let’s first examine gold related ETFs, namely the GDX and GDXJ. How low can they go? That will depend on the general moves in the stock market.

The GDX ETF didn’t move to the strongest combination of nearby resistance levels, but it did flash a few bearish signs, anyway.

The resistance that it reached was notable as it moved to its November 2020 low. Consequently, “it makes sense” for the mining stocks to have topped here.

In yesterday’s (Mar. 11) regular analysis , I wrote the following about the above chart:

Miners generally paused yesterday (Mar. 10), which is quite natural after a sharp daily rally. They closed the day slightly higher, but the RSI is not yet at 50 and the volume that accompanied yesterday’s small move up was nothing to call home about. It was just a pause, and the preceding short-term move is now likely to continue.

Yesterday’s volume was nothing to call home about, but the RSI moved to 49.94 – close enough to 50 to be viewed as a sell signal.

Moreover, please note that while spike-high volume would be a reversal indication, it’s not required for a top to form. The recent small tops formed without high volume.

Consequently, it could be the case that the top in the mining stocks is in, and that by selling GDX at $32.96 yesterday (March 11) we exited the long positions (and entered short ones) practically right at the top – a week after buying in the $30.80 – $31 area .

Before anyone asks, yes, miners were strong relative to gold yesterday, but it was practically the only thing that was positive about yesterday’s session and the USDX’s performance along with gold’s weakness seem more important.

Please keep in mind that every now and then miners very briefly (!) fake their strength (or weakness) relative to gold right before the reversal. The 2016 rally started with a fake breakdown and fake underperformance of gold. So, while the continuous underperformance of miners (compared to gold) is very often bearish, a single day of strength or weakness might be a trap.

How low can the GDX ETF go? Our final downside target area ($15 – $24.5) is quite broad, because a lot depends on what the general stock market will do. I’ll be looking at gold for the key signs along with a few other factors (including the Gold Miners Bullish Percent Index ) and determined the buying opportunity based on them – not necessarily based on the price of the GDX or GDXJ by itself.

Yes, this target is quite low, and thus might appear unrealistic, but let’s consider the following:

  • Miners are slightly above their early-2020 high – just like gold.
  • Gold is likely to decline to its 2020 lows or so
  • General stock market might have just topped.

Considering all three above factors it’s clear that a move to even the 2020 lows is not out of the question.

And this means that junior miners might decline more than senior miners. A move from the current levels to the 2020 would imply a decline by about 50% in case of the GDX, and by about 60% in case of the GDXJ.

Speaking of the GDXJ, let’s take a look at its chart.

The most interesting thing on the above chart is a big red warning flag for beginner investors . The flag reads: “verify the efficiency of a given tool on a given market, before applying it”.

The bottom part of the above chart features the MACD indicator . Normally, when the indicator line (black) crosses its signal line (red), we have a signal. If it’s moves above the signal line, it’s a buy sign, and if it moves below it, it’s a sell sign.

But.

If one actually looks at what happened after the previous “buy signals” in the recent months, they will see that in 5 out of 6 cases, these “buy signals” practically marked the exact tops, thus being very effective sell signals! In the remaining case, it was a good indication that the easy part of the corrective upswing was over.

I’m not only describing the above due to its educational value, but because we actually saw a “buy signal” from the MACD, which was quite likely really a sell signal. Today’s pre-market decline in gold (and the move lower in the GDXJ in the London trading) seems to confirm it.

So, how low can the GDXJ go? As it is the case with the GDX, a lot depends on the general stock market and our final target area is quite broad (between $18 and $26), and the key indications will come from other markets and the way they behave relative to each other.

There’s an interim (and strong) support provided by the $42.5 level, which might trigger a corrective upswing, but since we have just seen one, it’s far from being certain that we’ll see another corrective upswing so soon. This could be another opportunity to profit on a long position in the gold miners , but we can’t say that we’ll definitely go long at that time – at least not based on the information that we have available right now. Naturally, we’ll keep monitoring the situation and send out regular (and intraday) Alerts with details as more information becomes available.

Having said that, let’s take a look at the market from the more fundamental angle.

Fundamental Frailty (Part 2)

As you’ve likely noticed, I spend a lot of time analyzing the EUR/USD – that’s because the currency pair accounts for nearly 58% of the movement in the USD Index. And due to Europe’s economic underperformance and the relative outprinting by the European Central Bank (ECB) , a sharp rerating of the EUR/USD could be the engine that drives the USD Index back above 94.5

For some time, I’ve warned that the ECB’s bond-buying program was likely to accelerate. On Jan. 22 , I wrote:

The ECB decreased its bond purchases toward the end of December (2020), Then, once January hit (2021), it was back to business as usual. As a result, the ECB’s attempt to scale back its asset purchases was (and will be) short-lived. And as the economic conditions worsen, the money printer will be working overtime for the foreseeable future.

And with Eurozone fundamentals continuing to deteriorate, I added on Mar. 9:

The ECB’s splurge could begin as early as this week. With Eurozone bond yields already on the rise and the debt-ridden economy unlikely to tolerate a sustained ascension, the ECB’s weekly PEPP purchases (pandemic emergency purchase program) are likely to accelerate.

And what happened?

Well, on Mar. 11, the ECB stuck another fundamental dagger into the heart of the euro. Lamenting the rise in European bond yields, ECB President Christine Lagarde told reporters that “market interest rates have increased since the start of the year, which poses a risk …. Sizeable and persistent increases in these market interest rates, when left unchecked, could translate into a premature tightening of financing conditions.”

And why is she so worried?

Well, if you analyze the chart below, you can see that Goldman Sachs’ Financial Conditions Index (FCI) has moved moderately higher. For context, the FCI is derived by calculating the weighted-average impact of the ECB’s overnight lending rate, sovereign bond yields, corporate bond spreads, equity prices and cross-border trade conditions.

Please see below:

To explain, when the white line above is falling, it creates an environment where money is cheap, abundant and easy for corporations to obtain. Conversely, when the white line is rising, it creates the opposite environment. As you can see, excess liquidity has begun to evaporate.

So, what was the ECB’s response?

Source: ECB

As expected, the ECB’s weekly PEPP purchases will now “be conducted at a significantly higher pace.”

Far from news for those that have been paying attention, Europe is extremely allergic to higher bond yields. Just yesterday, I wrote that rising Eurozone interest rates remain extremely unlikely. And because a picture is worth a thousand words, notice the reaction from the German 10-Year Government Bond yield?

Source: Holger Zschaepitz

Moving in lockstep, the Italian 10-Year Government Bond yield also followed suit.

Source: Jeroen Blokland

In stark contrast, the U.S. 10-Year Treasury yield actually rallied on Mar. 11 . And demonstrating material outperformance, since bottoming on Aug. 6, the benchmark has raced past the German 10-Year Government Bond yield.

Please see below:

What’s more, European lawmakers seem to believe that an economic resurgence is forthcoming. Projecting 3.8% GDP growth in 2021 – headlined by 5.5% growth in France (Europe’s second-largest economy behind Germany) – European officials believe that fiscal support will unleash pent-up demand once the coronavirus pandemic subsides.

For context, I wrote on Feb. 11:

Wishing, wanting and hoping, European lawmakers anticipate that more than €300 billion in excess household savings will lead to an economic renaissance in 2021. However, when you break it down, the balance only amounts to 4% of annual household income. Thus, the short-term bounce (if any) won’t last very long.

And to that point, if you analyze the chart below, you can see that excess household savings in the Eurozone are now less than $84 billion.

To explain, the brown bars above represent excess household savings in the Eurozone. And from the second-quarter to the third quarter of 2020, European households have spent nearly 60% of their Q2 excess savings . Thus, at this pace, there won’t be any “excess savings” left.

Also signaling economic weakness, the slump in Eurozone retail sales (released on Mar. 4) shows that consumers are spending their money on necessities and not discretionary items that boost GDP.

Please see below:

Falling off a cliff, Eurozone retail sales declined by 5.1% in January. Even more revealing, France (– 9.9%) – which is projected to be a beacon of Eurozone growth in 2021 – underperformed the bloc average, with December’s momentum quickly fading in January.

Source: Eurostat

On the flip side, U.S. retail sales rose by 5.3% in January (5.1% excluding food).

Please see below:

And while fundamentals continue to chip away at the EUR/USD, activity in the futures and options markets are signaling a shift in sentiment. Remember, narratives overpower fundamentals in the short-term, thus, changing opinions is like trying to fill a glass from a dripping faucet. However, the pressure may be rising.

Case in point: the latest Commitments of Traders (COT) report shows that non-commercial futures traders (speculators) have increased the EUR/USD short positions by more than 6,500 contracts, while reducing their EUR/USD long positions by nearly 5,900 contracts (the blue box below).

Source: COT

Even more interesting, EUR/USD futures’ volume exploded on Mar. 10. If you analyze the right side of the chart below, you can see that an abnormal number of contracts exchanged hands.

Chart, bar chartDescription automatically generated

Source: CME Group

And while the volume data doesn’t tell us whether these are bullish or bearish bets on the EUR/USD, the CME Group’s options data signals that it’s the latter. If you analyze the graphic below, you can see that there is little open interest for bullish bets of 1.1950 or above.

Source: CME Group

In stark contrast, there is plenty of open interest for bearish bets of 1.1850 or belowwith 1.1750 the most popular (642 contracts still outstanding).

Source: CME Group

In conclusion, the EUR/USD continues to swim against the fundamental current. And while daydreams of a Eurozone economic boom propel European equity bourses to new highs, the misguided optimism has also lifted the euro. However, with the USD Index already verifying its medium-term breakout and a boost from the EUR/USD likely to push it beyond the 94.5 level, the PMs medium-term outlook remains profoundly bearish. And while their correlations with the S&P 500 remains supportive in the short-term (which I predicted would be the case this week), a severe correction of U.S. equities increases the likelihood of a significant slide over the next few months.

Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.

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

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Bonds And Stimulus Are Driving Big Sector Trends And Shifting Capital

Falling Bonds and rising yields are creating a condition in the global markets where capital is shifting away from Technology, Communication Services and Discretionary stocks have suddenly fallen out of favor, and Financials, Energy, Real Estate, and Metals/Miners are gaining strength.  The rise in yields presents an opportunity for Banks and Lenders to profit from increased yield rates. In addition, historically low interest rates have pushed the Real Estate sector, including commodities towards new highs.

We also note Miners and Metals have shown strong support recently as the US Dollar and Bonds continue to collapse.  The way the markets are shifting right now is suggesting that we may be close to a technology peak, similar to the DOT COM peak, where capital rushes away from recently high-flying technology firms into other sectors (such as Banks, Financials, Real Estate, and Energy).

The deep dive in Bonds and the US Dollar aligns with the research we conducted near the end of 2020, which suggested a market peak may set up in late February. We also suggested the markets may continue to trade in a sideways (rounded top) type of structure until late March or early April 2021.  Our tools and research help us to make these predictions nearly 4 to 5+ months before the markets attempt to make these moves.  You can read this research here:

2021 MAY BE A GOOD YEAR FOR THE CANNABIS/MARIJUANA SECTOR

PRICE AMPLITUDE ARCS/GANN SUGGEST A MAJOR PEAK IN EARLY APRIL 2021 – PART II

If our research is correct, we may have started a “capital shift” process in mid-February where declining Bonds, rising yields and the declining US Dollar push traders to re-evaluate continued profit potential in the hottest sectors over the past 6 to 12+ months.  This would mean that Technology, Healthcare, Comm Services and Discretionary sectors may suddenly find themselves on the “not so hot” list soon.

Bonds Collapsing While Yields Continue To Rise

The following TLT Weekly chart highlights the extended downward trend taking place in Treasury Bonds.  This downside pricing pressure would usually support a rising stock market and moderately weaker precious metals.  But given the way the US Dollar is also declining, we are seeing fear become more of an issue as the high-flying stock market starts to look quite a bit over valued.  Rising yields also puts Financials and banking/lending near the top of the list for future profit potential.

US Dollar Struggling To Find Support

The Invesco US Dollar ETF, (UUP) Weekly below chart shows how weak the US Dollar has been after the COVID-19 price rotation.  The continued decline in price levels after May 2020 is a very clear indication that the US Dollar is reacting to the continued stimulus efforts as well as the decreased economic expectations.

Combined, the Bonds and US Dollar decline are raising the fear-factor among global investors and causing many to rethink where future growth and profits will originate.  Many are landing on the Financial and Energy sectors right now.

Financial Sector Begins To Skyrocket Higher

The following Direxion Financial Bull 3x ETF (FAS) Weekly chart shows the incredible advance in the Financial Sector over the past 6+ months.  Almost like a sleepy rally, Financials have been rallying while traders have been focused on Technology, Healthcare and other sectors that seemed hot.  This shifting trend in sectors, and the associated shifting capital, suggests we may be nearing a tidal shift in sector trends – moving away from Technology and into Financials, Energy, Real Estate, and others.

Volatility is still 2x to 3x what we have seen 4 to 5+ years ago.  This suggests any breakdown in trends could prompt a very volatile price correction/transition.  As sectors continue to shift, we urge traders to pay attention to the risks in the markets related to this elevated volatility which seems to be present in every sector.

We believe we may be starting an extended “capital shift” process which may last well into March/April 2021 before real opportunities setup possibly in May or June.  The markets will do what they always do, react to traders, capital, and global central bank influence.  There are times when certain sectors enter a euphoric phase and there are times when the global markets revalue risk.  We may be nearing an end to a euphoric phase and starting a revaluation phase.

This means many various sectors and symbols will present some very real opportunities for profits over the next few weeks and months.  Marijuana, Cryptos, Metals, Miners, Financials & Real Estate appear to be leading opportunities related to sector trends.  If these trends continue throughout 2021, we may see a revaluation/capital shift to propel these trends higher.

For those who believe in the power of trading on relative strength, market cycles, and momentum but don’t have the time to do the research every day then my BAN Trader Pro newsletter service does all the work for you with daily market reports, research, and trade alerts. More frequent or experienced traders have been killing it trading options, ETFs, and stocks using my BAN Hotlist ranking the hottest ETFs, which is updated daily for my premium subscribers.

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

Have a great rest of the week!

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

 

Cannabis, Alternative Agra, Mushrooms, and Cryptos – All ALTs are HOT

The recent rally in Marijuana and Alternative Pharma/Agriculture stocks has been impressive, to say the least.  One thing we have to remember about this sector is that it rallied to highs in 2018 and 2019, then fell out of favor for many months.  The anticipation of this new sector emerging within the US, and across many areas of the globe, prompted quite a bit of excitement after 2016 when many US states voted to legalize Marijuana. Even before this date, the alternative medicine and consumer product use related to Marijuana has been heavily speculated on by investors/traders.

If we were to consider the out-of-favor phase of this sector over the past 15+ months, after the rally/hype phase which took place in 2017 and early 2018, we’ve seen many cannabis stocks collapse 70% to 85% or more recently.  This downward price trend likely set up a number of incredible opportunities based on expanded marketplace opportunities, enterprise valuations, and longer-term consumer/pharmaceutical use applications for CBD and other chemical extracts.  Additionally, we need to also consider what would happen if a consolidation phase were to take place in this industry – how would cannabis leaders play a role in acquiring smaller, yet important, firms with innovative technology/solutions.

The MJ Alternative Harvest ETF Weekly chart below highlights the incredible decline in the cannabis sector after the August 2018 peak. MJ fell from a high of $45.40 to a low of $9.34 – representing a -86% decline.  Aurora Cannabis (ACB) peaked at 150.34 in October 2018 and recently bottomed near $3.71 – representing a massive -97.5% decline.

Over the past two months or longer, this sector has started to heat up again with a moderately strong rally setting up.  Over the past 14+ days, a big upside rally initiated pushing price levels upward by +80% to +150% or more from recent lows.  Historically, when one considers the longer-term potential for growth, revenues and consolidation within this industry sector, we believe this rally may be just starting.

If we were to consider a potential continued focus on the Cannabis/Alternative Agriculture supply and industry sector over the next 4+ years, we would have to take a look at the deep decline in price levels recently and the opportunity for some type of industry consolidation over the next 5 to 10+ years.  Obviously, this industry/sector is here to stay, and, much like the Alcoholic Beverage industry in the 1960s to early 2000s, we are in a very early stage of the legalization, expansion, and consolidation phase of this sector.

Using these two sectors for comparison, the first question is just how big is the Cannabis/Alt marketplace compared to similar types of markets?  The Cannabis sector currently makes up about 1/10th of the total US Alcoholic beverage annual sales ($25.3B Cannabis: $252.82B Alcohol – https://www.statista.com/topics/1709/alcoholic-beverages/).  From a conservative standpoint, Cannabis consumers very likely cross-over into the Alcoholic beverage consumer market on a fairly high basis.  This means the consumer market for Cannabis is very likely 60% to 75%, or more, of the Alcoholic-beverage market.

The second question should be what additional advantages does the Cannabis/Alt sector have that differentiate it from the Alcoholic-beverage industry?  That answer lies in an unknown factor – the pharmaceutical/consumer product use that is currently in its infancy.  CBD has already shown great promise, but the long-term capabilities, use, and application of various alternative chemical compounds found in various strains of plants, mushrooms, and other organic sources are still part of the “X-Factor”.

The third question in our minds becomes, how long before these unknowns/X-Factor components become a reality?  We can’t attempt to put the answer into dates or predictions, but we do believe the speed at which these organic compounds will be introduced and mapped-out into potential medical-use solutions has been clearly illustrated by the speed at which the COVID-19 vaccines/medical advancements have been delivered.  These solutions only took “months” to come to market.  If the same type of capabilities were applied to the Cannabis/Alternative marketplace, and thus toward the multiple supply/innovation companies within this sector, a massive boost of growth, innovation, and consolidation within this sector over time. Let’s take a look at some current statistics & data below.

Marijuana Tax Revenues by state appear to be strong and growing.  One thing to consider about this Tax data is that a relatively large portion of actual sales are still going unreported (as illicit transactions).

Source: https://loudcloudhealth.com/resources/marijuana-tax-revenue-by-state-map/

Legalization & Acceptance of Marijuana within the US has now reached almost every state – with only six states still showing Marijuana is fully illegal.  All other states have adopted Marijuana use in some form over the past 5+ years.

Source: https://disa.com/map-of-marijuana-legality-by-state

The US Cannabis Consumer Market is expected to increase by more than 15 to 20% in 2021 after more than doubling in 2020.  From 2018 to 2021, the total consumer market was expected to increase by more than 350%.  By the end of 2022, that ratio increases to levels beyond +450% compared to the 2018 levels.

Source: https://mattermark.com/vc-investment-sparks-high-times-american-cannabis-industry/

Obviously, the deep price decline in the Marijuana sector, which recently ended, did not properly reflect the market capabilities and expectations for future growth and earnings.  We believe this sector could become one of the hottest sectors for growth over the next 2+ years and it may prompt a massive consolidation phase within this industry which will create potential behemoth conglomerate Cannabis firms – very much like the Alcoholic Beverage industry.

For those who believe in the power of trading on relative strength, market cycles, and momentum but don’t have the time to do the research every day then my BAN Trader Pro newsletter service does all the work for you with daily market reports, research, and trade alerts. More frequent or experienced traders have been killing it trading options, ETFs, and stocks using my BAN Hotlist ranking the hottest ETFs, which is updated daily for my premium subscribers.

In the second part of this article, we’ll explore various Marijuana sector charts showing where traders may find real opportunities for profits if the current rally phase continues.  This exciting industry sector may become one of the hottest sectors for traders and may prompt a massive consolidation phase within this industry over the next 5+ years.  Get ready for some big trends and opportunities.

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

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

 

Russell 2000 ETF Initiates New Rally Trend

Last week my team and I alerted our readers to the current trends and shifting sectors that are getting hotter every day.  Technology, Energy, Financials, Industrials and others are experiencing bullish trends we haven’t seen in years.  The Russell 2000 ETF, URTY, is starting a new breakout uptrend just after our BAN Trader Pro system suggested the SPY may initiate a new bullish rally.  You can read relevant research posts here: Recent triggers in these sectors suggest US Stock Markets may enter a rally phase.

As we can see in the chart below, the Russell 2000 has been one of the top performers since just after the November 2020 elections. Originating a breakout trigger on November 3, near $43.46, and confirming a “New High Breakout” on November 9, near $51.37, the Russell 200 sector has been rallying very strongly over the past 60+ days. The current “New Price High” breakout suggests this rally may continue.  Fibonacci price extensions show a peak may target levels near $125~$130 – nearly 20%+ higher than current prices.

These sector trends that initiated in early November 2020 are a result of capital being deployed in sectors that are expected to benefit from new policies, Q4:2020 earnings, and renewed investor interest in 2021. Billions in capital have been redeployed into the markets with very high expectations.  This will result in big trends, increased volatility and even more opportunities for efficient traders.

The strength of this uptrend in URTY, breaking above the January 2020 highs, suggests any continued rally from this point may be reflective of the incredible -$80.34 collapse that took place as a result of COVID-19.  Using this range as a basis for future upside price expansion, Fibonacci Price Theory suggests a $130 to $141 upside target level. If these levels are accurate, we may see another 25%+ upside move in the Russell 2000 ETF, URTY.

With so much opportunity in ETFs and other stocks/sectors, it is important for traders to be able to identify the best setups, triggers and trends.  Our BAN Trader Pro newsletter service is designed to help you accomplish that with our easy to follow trade alerts and my daily pre-market report.  The daily BAN Hotlist, also included in the BAN Trader Pro newsletter service, provides a very clear ranking and trigger system that shows you to trade the very best trend setups given their relative strength and momentum for more active traders who want to enhance their own strategies.

I publish these articles and research posts to teach our readers the importance of using efficient trading strategies to grow their wealth, achieve financial goals, and have more free time.  2021 is going to be full of great trading opportunities for those who know how to take advantage of sector rotations, relative strength and momentum. Quite literally, hundreds of these setups and trades will be generated over the next 3 to 6 months for those subscribers using BAN strategy.  Sign up now and I will teach you how to create and trade your own hotlist in my FREE (less than) one-hour tutorial on the Best Asset Now.

Happy Trading!

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

Technology & Energy Sectors Are Hot – Are You Missing Out?

We have seen some really big moves in various S&P sectors over the past 60+ days and these trends look like they may continue for a while.  Near the end of 2020, in October and November, the markets seemed to stall a bit before the US elections, but they have really started to trend much higher over the past 60+ days.  Technology and Energy seem to be leading the charge in some respects. The most important thing for traders is to find decent breakout trends in stocks and sectors that have a real potential for strong continued trending.  When we find these types of longer-term trends, we can scale in and out of the typical up/down price trends, over time, to generate some incredible returns.

Technology Heating Up Again

The move in the IXN Global Technology ETF charted below, looks like it is starting to accelerate higher.  It has already moved +17% over the past 60+ days, but there is a real potential that global investors are starting to pile back into technology ahead of the Q4:2020 earnings reports.  This may prove to be one of the hottest sectors in 2021 – so keep an eye on this new breakout rally.

Energy and Exploration Setting Up For Another Move Higher

One of the biggest movers over the past few months has been the recovery of the Oil/Gas/Energy sector after quite a bit of sideways/lower price trending.  You can see from this XOP chart, below, a 44% upside price rally has taken place since early November, and XOP has recently rotated moderately downward – setting up another potential trade setup if this rally continues.  Traders know, the trend if your friend.  Another upside price swing in the XOP, above $72, would suggest this rally mode is continuing.

Recently, we published a research article suggesting a lower US Dollar would prompt major sector rotations in the US and global markets where we highlighted the fact that the Materials, Industrials, Technology, and Discretionary sectors had been the hottest sectors of the past 180 days, but the Energy, Financials, Materials, and Industrials had shown the best strength over the past 90 days.

Technology, Healthcare, Financials, Energy, Consumer Products/Services, Foreign Markets have all been hot over the past 4+ months, but what is trending right now?  We believe the best performing sectors are likely to be sub-sectors of the SPY and QQQ. My research team and I believe Technology and Energy still have lots of room to run.  Financials could be a big winner too if the recent upside trend continues. We rely on the BAN Hotlist to rank the “Best Assets Now” and tell us when new trade entry triggers are generated.

I am teaching my BAN trading strategy in a 1-hour FREE webinar. The webinar is 100% educational and you will get everything you need to trade my powerful strategy on your own, with no proprietary trading tools or indicators, and with no strings attached. Learn this strategy now and join me in my webinar at https://joinnow.live/s/EPdGTI.

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

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

 

Why You Shouldn’t Get Excited About Gold’s Mini-Rally

Gold seems to be sleeping off its latest mini-rally and lacks the momentum to reach new highs. What happens from here? Has the USD bottomed? And what does it mean when we factor in the EUR/USD pair and poor economic indicators from Europe into the equation?

Not much happened yesterday (Jan. 21), but what happened was relatively informative. And by “relatively” I mean literally just that. Gold moved lower yesterday and in today’s pre-market trading, doing so despite another small move lower in the USD Index. The moves are not big, but they are meaningful. They show that gold’s inauguration-day rally was likely a temporary blip on the radar screen instead of being a game-changer.

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Figure 1 – COMEX Gold Futures

Looking at the above gold chart, I marked the November consolidation with a blue rectangle, and I copied it to the current situation, based on the end of the huge daily downswing. Gold moved briefly below it in recent days, after which it rallied back up, and right now it’s very close to the upper right corner of the rectangle.

This means that the current situation remains very similar to what we saw back in November, right before another slide started – and this second slide was bigger than the first one. Consequently, there’s a good reason for gold to reverse any day (or hour) now.

Besides, there’s also a declining resistance line just around the corner.

And that’s not even the most important thing. The most important thing is that based on the similarity to how things developed between 2011 and 2013, gold’s downward trajectory is likely to have periodic corrections at this time – up to a point where it simply plunges.

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Figure 2 – GOLD Continuous Contract (EOD)

When the current situation is compared to what we saw about a decade ago, it shows what one should expect, assuming that the history repeats itself.

Gold kept on declining with corrections along the way until April. In April, the decline accelerated profoundly. The biggest problem with the latter was that practically nobody expected this kind of volatility. Those who were thinking that it’s just another move lower that will be reversed were very surprised.

Right now, you know in advance that a bigger move lower is likely just around the corner, and you won’t be surprised when it comes. Whether we have to wait an additional few days or first see gold rally by $10 or $30 is not that important, if it’s about to slide $150 and then another $200 or so.

I would like to add that gold is declining today and based on the similarity to the November consolidation, it’s exactly the day when we should expect to see a decline. Of course, the similarity doesn’t have to persist, and the history doesn’t have to repeat itself to the letter, but what’s happening right now seems to be confirming the analogy in a considerable way. This means that more declines are likely just around the corner. If not immediately, then shortly.

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Figure 3 – COMEX Silver Futures

Silver turned south after reaching (approximately) the price level that stopped the rally in July and November 2020, and also earlier this year. This seems relatively natural and the outlook for silver remains bearish for the next several weeks.

Silver corrected a bit more of this year’s downswing than gold, which is normal given the bearish outlook. The same goes for miners’ underperformance. Let’s keep in mind that silver’s “strength” is temporary – once the decline really starts, and it moves to its final part, silver is likely to catch up big time.

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Figure 4 – VanEck Vectors Gold Miners ETF

As far as the miners are concerned, mining stocks didn’t correct half of their 2021 decline. They didn’t invalidate the breakdown below the rising support line, either. In fact, the GDX ETF closed yesterday’s session below the 50-day moving average. Technically, nothing changed yesterday.

Please note that the November – today consolidation is quite similar to the consolidation that we saw between April and June (see Figure 4 – green rectangles). Both shoulders of the head-and-shoulder formation can be identical, but they don’t have to be, so it’s not that the current consolidation has to end at the right border of the current rectangle. However, the fact that the price is already close to this right border tells us that it would be very normal for the consolidation to end any day now – most likely before the end of January.

If we see a rally to $37, or even $38, it won’t change much – the outlook will remain intact anyway and the right shoulder of the potential head-and-shoulders formation will remain similar to the left shoulder.

However, does the GDX have to first rally to $37 or $38 to decline? Absolutely not. It could turn south right away, thus surprising most market participants.

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Figure 5 – USD Index

In Tuesday’s (Jan. 19) analysis , I commented on the above USD Index chart in the following way:

The USD Index is after a major breakout above the declining resistance lines and this breakout was confirmed. Consequently, the USD Index is likely to rally, but is it likely to rally shortly? The answer to this question is being clarified at the moment of writing these words, because the USD Index moved back to its rising short-term support line that’s based on the 2021 bottoms.

If the USD Index breaks below it, traders will view the 2021 rally as a zigzag corrective pattern and will probably sell the U.S. currency, causing it to decline, perhaps to the mid-January low or even triggering a re-test of the 2021 low.

If the USD Index performs well at this time and rallies back up after touching the support line, and then moves to new yearly highs, it will be then that traders realize that it was definitely not just a zigzag correction, but actually the major bottom. In the previous scenario, they would also realize that, but later, after an additional short-term decline.

It’s now clear that the former scenario is being realized. The support levels that could trigger the USD’s reversal are based on the potential inverse head-and-shoulders pattern – the red line that’s slightly above 90, and the horizontal line that’s slightly below it. It’s also possible that the USD Index tests it yearly lows. None of the above would be likely to change the outlook for the precious metals sector, at least not beyond the immediate term.

Later yesterday (Jan. 21) and also in today’s overnight trading, the USD Index moved to the upper of the above-mentioned support lines. Is the bottom already in? This seems likely, but it’s not crystal-clear yet. However, it doesn’t really matter, because the precious metals market responded to the USD’s strength for just one day (in a meaningful way that is) and taking a closer look at that day reveals that it was not the USDX’s performance that gold reacted to, but to the underlying news – the inauguration-day-based uncertainty. So, even if the USD Index declines some more here before soaring, gold doesn’t have to move significantly higher. In fact, it would be unlikely to do so.

Stocks have rallied, and based on this rally, the weekly RSI moved close to 70 once again.

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Figure 6 – S&P 500 Index

This is important because the last two major declines were preceded by this very signal. We saw the double-top in the RSI at about 70, exactly when the stock market started its big declines, and we’re seeing the same thing right now. If this was the only thing pointing to much lower stock values on the horizon, I would say that the situation is not so critical, but that’s not the only thing – far from it. Before moving to these non-technical details, let’s recall why the stock market analysis and the USD index analysis matters for precious metals investors and traders.

The analyses matter because gold, silver, and mining stocks are likely to decline in parallel with a decline in stocks and the USD’s rally. This is likely to take place up to a certain point, when precious metals show strength and refuse to decline further despite the stock market continuing to fall and the USDX continuing to rally. This kind of performance happened many times, including in the first half of last year.

Since the S&P 500 futures are down in today’s overnight trading, perhaps we have indeed seen a top. Even if not, it doesn’t seem that one is very far away, based on how excessive the situation looks from the fundamental point of view. Let’s discuss some of those non-technical issues.

Mind Over Matter

Despite Janet Yellen’s recent assertion that “the United States does not seek a weaker currency,” her tongue-in-cheek comments are actually doing just that. The newly minted U.S. Treasury secretary urged lawmakers to “act big” with regard to prospective stimulus, saying that the benefits “far outweigh the costs.”

And since her worst-kept secret became public on Jan. 18, the USD Index has been under fire ever since. Furthermore, as her words instill the EUR/USD with borrowed confidence, the precious metals are displaying the same bold behavior.

Please see below:

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Figure 7

However, despite the narrative overpowering reality, the Eurozone fundamentals don’t support the recent rally. And why is this important? Because as you can see from the chart above, as goes the EUR/USD, so go the PMs.

Yesterday, European Central Bank (ECB) President Christine Lagarde revealed that the Eurozone economy likely shrank in the fourth quarter – all but sealing a double-dip recession.

Please see below:

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Figure 8 – (Source: Bloomberg/ Holger Zschaepitz)

In contrast, the Federal Reserve Bank of Atlanta’s GDPNow forecasting model (as of Jan. 21) has the U.S. economy expanding by 7.5% in Q4. Furthermore, even if we take the Atlanta Fed’s estimate with a grain of salt, the Blue Chip consensus (forecasts made by private-sector economists) is for growth of nearly 4.0% (tallied as of early January). And even more telling, economists with a bottom 10% Q4 GDP forecast ( see Figure 9 – the shaded light blue area below) still expect positive growth.

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Figure 9

The bottom line?

We can now add the Eurozone GDP to the long list of relative underperformances.

Expanding on the above, European consumer confidence (released yesterday) went backwards again in January and is now less than 10 points above its April low. Furthermore, the current reading is still well-below the long-term average.

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Figure 10

On Jan. 8, I highlighted the significant divergence between European CPI and U.S. CPI (inflation). For context, European CPI was – 0.30% in December (negative for five-straight months), while U.S. CPI was 0.40% in December (positive for seven-straight months).

I wrote:

“Weak CPI is a precursor to a weaker euro. Why so? Because since asset purchases fail to produce any real economic growth, the ECB will be forced to lower interest rates to stimulate the economy. As a result, the cocktail of paltry economic activity and lower bond yields leads to capital outflows as foreign (and domestic) investors reallocate money to other geographies (like the U.S.). Thus, capital will likely exit the Eurozone and lead to a lower EUR/USD.”

And today?

Well, it’s exactly what the ECB is doing.

Due to the economic malaise confronting Europe, the ECB is targeting its bond-buying activity toward financially weaker counties (like Italy) as opposed to financially stronger countries (like Germany). Essentially, it’s conducting a shadow operation of yield curve control (YCC).

Please see below:

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Figure 11

If you analyze the red box above, you can see that Europe’s weighted-average bond yield has increased in 2021. And why is this happening? Because as Europe’s economic deterioration merges with Italy’s fiscal plight, this cocktail has made European bonds riskier, and thus, investors demand a higher interest rate. And while higher interest rates are bullish for a country’s currency when they’re a function of economic growth, a crisis-like spike in yields (due to solvency concerns) means the exact opposite.

Furthermore, if you follow the gray bars at the bottom-half of the chart, the ECB actually decreased its bond purchases toward the end of December (2020), Then, once January hit (2021), it was back to business as usual.

As a result, the ECB’s attempt to scale back its asset purchases was (and will be) short-lived. And as the economic conditions worsen, the money printer will be working overtime for the foreseeable future.

To that point, Bloomberg Economics expects the ECB to purchase €15 billion worth of bonds per week until 2022 – more than doubling its pandemic emergency purchase program (PEPP) to nearly €1.85 trillion.

Please see below:

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Figure 12

And in real-time?

Well, the ECB’s balance sheet hit another record-high on Friday (Jan. 15) – with total holdings still at 69% of Eurozone GDP (nearly double the U.S. Fed’s 35%).

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Figure 13

And why does all of this matter?

Because, as I highlighted on Jan. 12, the ECB’s relative outprinting is a precursor to a lower EUR/USD.

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Figure 14

I wrote:

“Turning to the second chart (Figure 6 – on the right), notice how the EUR/USD tracks the FED/ECB ratio? To explain, the ratio (the light blue line) is calculated by dividing the U.S. Federal Reserve’s (FED) balance sheet by the European Central Bank’s (ECB) balance sheet. Essentially, its direction tells you which monetary authority is printing more money. If you analyze the EUR/USD (the dark blue line), it trades higher when the FED is out-printing the ECB (the light blue line is rising) and trades lower when the ECB is out-printing the FED (the light blue line is falling). The key takeaway? With the light blue line falling, it means that the ECB is outprinting the FED . And if this dynamic continues, the EUR/USD (the dark blue line) should move lower as well.”

The top in the FED/ECB total assets ratio preceded the slide in the EUR/USD less than a decade ago and it seems to be preceding the next slide as well. If the USD Index was to repeat its 2014-2015 rally from the recent lows, it would rally to 114. This level is much more realistic than most market participants would agree on.

In conclusion, the EUR/USD’s recent strength is built on a foundation of sand. Instead of following the hard data, traders are letting the narrative cloud their judgment. Moreover, due to their strong correlation with the EUR/USD, gold and silver are falling into the same trap. However, once the semblance of strength evaporates, a decline in the EUR/USD is likely to usher a move lower for the PMs. Furthermore, with gold already approaching the upper trendline of its November consolidation channel, the momentum may wane sooner rather than later.

Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.

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

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Emerging Markets Stocks and ETFs for 2021

There’s not a rigid definition of what an emerging market is. For example, China is still the leading country in many emerging market ETFs and funds. But is it fair to consider China an emerging market any longer? It has nearly 1.4 billion people and was the only major economy globally to see GDP growth in 2020.

That’s like calling Giannis Antetokounmpo an up and coming superstar despite winning the last two NBA MVP awards.

But even if I did see China as an emerging market, it wouldn’t be my top choice for 2021.

If you’ve been reading my newsletters, you know that I love emerging market exposure this year. The dollar is weakening and should continue to weaken with trillions more in stimulus and rising commodity prices.

Meanwhile, emerging markets are perfectly positioned to exploit this and grow as a result.

You also know that I’ve been talking about specific emerging markets like Taiwan, Thailand, and Russia.

But in this special emerging markets newsletter , I will aim to further talk about what to look for when investing in a country, what other emerging markets to consider, and why I think they are set to outperform the US markets this year, after many years of underperformance.

Why emerging markets?

For several reasons!

For one, did you know these facts about emerging markets? They have:

-85% of the world population

-77% of the land mass

-63% of global commodities

-59% of global GDP (using PPP)

-12.5% of world’s market cap

Consider this for long-term investing too. Advanced economies are aging rapidly while emerging economies have youthful demographics.

That’s why PWC believes that emerging markets (E7) could grow around twice as fast as advanced economies (G7) on average.

For emerging markets, this could be very advantageous in the coming decades.

With American debt building up at an alarming rate, and the U.S. Dollar set for broader declines, this trend could begin sooner than we realize.

U.S. investors also usually have >5% exposure to emerging markets, making this an even more untapped opportunity.

Aren’t emerging markets risky?

Of course, you have to consider political risk, credit risk, and economic risk for emerging markets.

But did you see the U.S. Capitol two weeks ago? Have you noticed how its currency has performed since March?

Figure 1- U.S. Dollar $USD

Have you also seen the Fed’s balance sheet? Have you seen the S&P’s valuation and the tech IPO market?

I would even argue that emerging markets could hedge against America’s political, economic, and currency risks right now. The pandemic only exacerbated this.

Furthermore, if you look at the returns of the emerging markets I will discuss today: Taiwan (EWT), Russia (ERUS), Thailand (THD), Vietnam (VNM), South Korea (EWY), Indonesia (EIDO), Chile (ECH), and Peru (EPU), you will see that all have outperformed the S&P 500 (SPY) since September.

Figure 2-SPY, EWT, ERUS, THD, VNM, EWY, EIDO, ECH, EPU comparison chart- Sep. 1, 2020-Present

Taiwan iShares ETF (EWT)

Figure 3-iShares MSCI Taiwan ETF (EWT)

The Taiwan iShares ETF (EWT) has overheated more than the other emerging market ETFs based on its RSI that I will discuss. But if you’ve been reading my newsletters, you know I love Taiwan.

Taiwan has also arguably been the best call I’ve made since starting these newsletters.

I have been consistently calling Taiwan a better buy than China, despite China’s undeniable upside. Taiwan has the same sort of regional upside, without the same kind of geopolitical risks.

Consider this too. Despite China’s robust economic response to COVID-19, retail sales still fell 3.9% over the full year, marking the first contraction since 1968. Lockdowns have also returned to China with a vengeance thanks to a new wave in COVID-19 infections.

Ever since I called the EWT a buy on December 3rd, it has gained nearly 16% and outperformed the MSCI China ETF (MCHI) by approximately 3%.

It has also outperformed the SPY S&P 500 ETF by nearly 11%.

Taiwan also is unique for a developing country because of its stable fundamentals. It has low inflation, low unemployment, consistent trade surpluses, and high foreign reserves.

It also has a diverse and modern hi-tech economy, especially in the semiconductor industry. With a diverse set of trade partners, Taiwan could only be scratching the surface of its potential.

Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter – it’s absolutely free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

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

Thank you.

Matthew Levy, CFA
Stock Trading Strategist
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research, and information found above represent analyses and opinions of Matthew Levy, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Matthew Levy, CFA, and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Levy is not a Registered Securities Advisor. By reading Matthew Levy, CFA’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading, and speculation in any financial markets may involve high risk of loss. Matthew Levy, CFA, Sunshine Profits’ employees, and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

ESG Flows Drive Clean Energy to Fresh Highs

The ESG theme has taken the capital markets by storm in 2020. Fund flows into this space have been relentless, helping to drive the clean energy sector to fresh highs. In the first half of 2020, 23-new exchange-traded funds were launched under the ESG umbrella. By the end of the Q3, ESG index funds hit $250 billion in value. The ESG umbrella focuses on many different areas and has flourished during the pandemic. With a vaccine on the horizon, the question for investors is whether this sector will remain sustainable.

What is ESG and ESG Investing

The term ESG stands for:

  • Environmental
  • Social
  • Governance

The term brings to mind concepts like climate change, diversity and inclusion, and resource scarcity. While these are forms of ESG, it also covers social practices, including labor and talent management and data security and product safety. It includes employee experience, executive pay, and ethics. There is a wide divide amongst stakeholders on what the term means and how to communicate and manage the concept.

ESG investing appears to be a derivative of socially responsible investing (SRI), which has been in existence for decades. While profits have always been considered the “mothers milk” of stocks, modern investors have realized that shortchanging stakeholders is a high price for society to pay. A company’s stakeholders include its employees, customers, suppliers, as well as the environment, which play a crucial role in the functioning of the corporation.

There is a fine line between ESG investing and SRI. ESG investors actively look for companies that show robust environmental, social, or governance attributes. SRI focuses on excluding industries that have failed to demonstrate compliance in socially responsible areas. ESG provides broader flexibility into specific companies’ practices and the different management attributes that make up a corporate initiative.

Inflows Into ESG Have Been Impressive

Inflows to ESG have been robust. ESG ETFs surged to $22 billion in the first half of 2020, which was more than 3X the 2019 total, according to Bloomberg. One of the issues that regulators face is that there is no clear definition of what constitutes ESG.

The Concept is Here to Stay

Some corporate actions show me that ESG is here to stay. Stakeholders at public companies are getting assurances from management that their contributions will remain an essential aspect of management’s focus. In 2020, Starbucks Corp. announced that the company would mandate antibias training for executives and tie their compensation to increasing minority representation in its workforce. Their diversity and inclusion mandate’s target is to have 30% of corporate employees be minorities by 2025. While profits at any level are key, it’s hard to imagine that an executive will allow their bonus to be eroded by failing to meet a corporate ESG mandate.

The Best Asset Now Process

I have mentioned this before and I have not wavered. I like to use a BAN strategy (Best Asset Now) to find leading sectors. Two ETFs have largely outperformed the rest that conforms to the ESG concept. These ETFs represent sectors that have shown leadership and are currently two of the top-5 best performing ETFs in 2020. These ETFs have generated bullish chart patterns that point to much higher prices following their recent breakouts.

There is a reason to be bullish. President-elect Joe Biden named former Secretary of State John Kerry to lead his administration’s climate change efforts. Kerry will be the “climate czar” and will be in charge of coordinating programs that are expected to stretch across multiple agencies. This could include executive orders issued by the new President-Elect to provide avenues beyond Congress to advance climate priorities. This is positive news for clean energy ETFs. If you are a stock trader, these are the BAN ETFs to look at which will outperform.

(*source – etfdb.com)

TAN Hits Fresh Highs

The Invesco Exchange-Traded Fund Solar ETF accelerated to multi-year highs in November and is poised to test resistance near the 2011 highs at $91.70. This would add another 11% to its already robust 162% return in 2020. While prices could temporarily consolidate near this $92, a close above this level would lead to a test of the 2010 highs at $115. A close above $115 could lead to a test of the all-time highs near $307. Momentum is positive as the MACD (moving average convergence divergence) histogram is printing in positive territory with an upward sloping trajectory which points to higher prices.

*source Tradingview

PBW Invesco Exchange-Traded Wilderhill Clean Energy ETF

Has broken out and is poised to test the 2008 highs near $119.50. Support is seen near the 10-week moving average of $71.70. Momentum is positive as the MACD (moving average convergence divergence) histogram is printing in positive territory with an upward sloping trajectory, which points to higher prices.

*source Tradingview

Do you want to stay ahead of these sector trends and learn which sectors are the best opportunities for your trades?   Learn how our BAN Trader Pro education and alerts can help you keep focused on the best trading opportunities in 2021 and beyond while helping you protect and grow your wealth.  Go to www.TheTechnicalTraders.com to learn more about BAN Trader Pro, or let me teach you how to trade this strategy yourself by watching my FREE webinar! Scroll below to register for your seat now and make 2021 your year to PROFIT!!

I wish you all a healthy and profitable New Year!!

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

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

 

Pfizer Begins UK Rollout; Markets Reverse Midday, Hit Record Highs

After opening the day in the red, markets reversed midday and hit fresh record highs as the UK began its vaccine rollout with doses of Pfizer and BioNTech’s offering.

News Recap

  • The Dow Jones gained 104.09 points, or 0.4%, to close at 30,173.88 and hit an intraday record of 30,246.22. The S&P 500 rose 0.3% to 3,702.25 and closed over 3,700 for the first time ever. The Nasdaq also closed at a record and climbed 0.5% to 12,582.77. The Russell once again outperformed all the indices and closed 1.40% higher.
  • Pfizer began to roll out its COVID-19 vaccine in the U.K. and boosted optimism of an economic reopening in 2021. The U.K. ordered enough vaccines for 20 million of its residents to start getting.
  • The U.S. FDA said Pfizer’s vaccine provides some protection after the first dose, also adding that it found no safety concerns. It could be approved by the weekend.
  • Pfizer (PFE) shares rose 3.3% on this news and reached their highest level in about two years. BioNTech (BNTX), which partnered with Pfizer on the vaccine, also rose 1.8%.
  • Investors sharply monitored stimulus negotiations on Tuesday as well. At this point, legal immunity for businesses and aid for state and local governments are holding up the deal. However, Democrats and Republicans apparently have found consensus in some areas such as PPP loans.
  • Republican and Democrat leaders said Monday that Congress is trying to extend government funding for an additional week to try and strike a deal on the new stimulus before the end of the year.
  • More than 14.8 million coronavirus cases have been confirmed in the U.S., according to data from Johns Hopkins University. The U.S.’s seven-day-average daily infection rate is also at an all-time high.
  • Several states and cities have reimposed stricter measures as a result of the spike in cases. New York Gov. Andrew Cuomo said Monday that New York City could lose indoor dining next week among other more severe restrictions if hospitals become overwhelmed.
  • Dow Inc. (DOW), Johnson & Johnson (JNJ) and 3M (MMM) were among the Dow leaders, rising more than 1% each. Energy led the S&P 500 higher, popping more than 1.5%.

In the short-term, there will be optimistic days where investors rotate into cyclicals and value stocks, and pessimistic days where there will be a broad sell-off or rotation into “stay-at-home” names. During other days like Tuesday’s session, there will be a broad rally due to optimistic catalysts.

In the mid-term and long-term, there is certainly a light at the end of the tunnel. Once this pandemic is finally brought under control and vaccines are mass deployed, volatility will likely stabilize, while optimism and relief will permeate the markets. In fact, CNBC personality Jim Cramer said that beating COVID-19 would feel like “the end of prohibition.” Stocks especially dependent on a rapid recovery and reopening such as small-caps should thrive.

Markets will continue to wrestle with the negative reality on the ground and optimism for a future economic reopening. More positive vaccine news seemingly trickles in by the day despite discouraging COVID-19 news, economic news, and political news. While short-term downside pressure could certainly persist based on days where bad news outweighs good news, due to this “tug of war” between sentiments, any subsequent move downwards would likely be modest in comparison to the gains since the bottom in March and since the U.S. election at the start of November. It is truly hard to say with conviction that another crash or bear market will come. If anything, the mixed sentiment could keep markets trading relatively sideways.

Therefore, to sum it up:

While there is long-term optimism, there is short-term pessimism. A short-term correction is very possible. But it is hard to say with conviction that a big correction will happen.

The analysis of this morning will showcase a “Drivers and Divers” section that will break down some sectors that are in and out of favor. Dear readers, do me a favor and let me know what you think of this segment! It’s always a pleasure to hear from you.

Driving

Materials (XLB)

The materials sector, as represented by the XLB ETF , has been one of the largest beneficiaries of the vaccine rally. Investors have been so bullish on materials and any resulting vaccine prospect, that the XLB ETF briefly touched its 2020 high in November. However, since then, it has traded relatively sideways. Some things in this chart are concerning for me.

Cyclical sectors such as materials are set to be the biggest winners from an economic reopening in 2021. However, ever since peaking at $72.41 a share, the ETF’s volume has plummeted and has stayed very low. There are simply not enough strong fundamentals to justify calling this a BUY. I question the formidability of a short-term rally in materials. If anything, the sector could pull back somewhat, or stay in a sideways pattern. For the materials ETF to come back, exceed its 52-week high, and pierce that $72 resistance level, a COVID-19 vaccine must be proven to be safe and especially scalable. The 2021 economic outlook must also be positive. If this happens and a near-term economic slowdown can be somewhat averted, then materials could benefit.

But for the time being, there is too much uncertainty to make a conviction call. Therefore, this is a HOLD for the short-term. However, I am considerably more bullish on materials in the long-term.

Diving

US Dollar ($USD)

The world’s reserve currency, the US dollar, is still hovering around its two-year low, and has plunged in excess of 12% since March. Since the election alone, the dollar index has also declined approximately 4%. I have been calling this dollar weakness for weeks despite the low level and expect the decline to continue.

Further illustrating the dollar’s decline has been its performance relative to emerging markets. Just compare the performance of the iShares MSCI Emerging Market ETF (EEM) relative to the Invesco DB USD IDX Bullish ETF (UUP) since January.

Many believe that the dollar could fall further as well due to a multitude of headwinds.

If the world returns to relative normalcy within the next year, investors may be more “risk-on” and less “risk-off.” Which means that the dollar’s value will decline further.

Additionally, because of all of the economic stimulus combined with record low-interest rates, the dollar’s value has declined and could have more room to fall. Do not forget that the Fed plans on holding interest rates this low for at least another two years. For the dollar’s value, rates remaining this low for two years is an eternity.

As the world’s reserve currency, this plunge in value is concerning both in the short-term and mid-term for the US economy. A declining dollar means the strengthening of other foreign currencies- and this has already been happening. Since Nov. 2, the New Zealand dollar has surged 7%, the Australian dollar has climbed 5.5%, the Korean won has advanced 4%, and the Chinese yuan has risen 2.5% – and this may not be the end either.

The plunge of the dollar has been so severe that it is currently trading below both its 50-day and 200-day moving averages. Furthermore, its 200-day moving average is considerably higher than its 50-day, further illustrating the sharp decline.

While the dollar may have more room to fall, according to its RSI, it is comfortably in oversold territory. This MAY be a good opportunity to buy the world’s reserve currency at a discount. But I just have too many doubts on the effect of interest rates this low, government stimulus, strengthening of emerging markets, and inflation to be remotely bullish on the dollar’s prospects over the next 1-3 years.

For now, where possible, HEDGE OR SELL USD exposure.

Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter – it’s absolutely free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

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

Thank you.

Matthew Levy, CFA
Stock Trading Strategist
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research, and information found above represent analyses and opinions of Matthew Levy, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Matthew Levy, CFA, and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Levy is not a Registered Securities Advisor. By reading Matthew Levy, CFA’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading, and speculation in any financial markets may involve high risk of loss. Matthew Levy, CFA, Sunshine Profits’ employees, and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

ESG Flows Drive Clean Energy to Fresh Highs

The ESG theme has taken the capital markets by storm in 2020. Fund flows into this space have been relentless, helping to drive the clean energy sector to fresh highs. In the first half of 2020, 23-new exchange-traded funds were launched under the ESG umbrella. By the end of the Q3, ESG index funds hit $250 billion in value. The ESG umbrella focuses on many different areas and has flourished during the pandemic. With a vaccine on the horizon, the question for investors is whether this sector will remain sustainable.

What is ESG and ESG Investing

The term ESG stands for:

  • Environmental
  • Social
  • Governance,

The term brings to mind concepts like climate change, diversity and inclusion, and resource scarcity. While these are forms of ESG, it also covers social practices including labor and talent management as well as data security and product safety. It includes employee experience, executive pay, and ethics. There is a wide divide amongst stakeholders on what the term means and how to communicate and manage the concept.

ESG investing appears to be a derivative of socially responsible investing (SRI) which has been in existence for decades. While profits have always been considered the “mothers milk” of stocks, modern investors have realized that shortchanging stakeholders is a high price for society to pay. A company’s stakeholders include its employees, customers, suppliers, as well as the environment, which play a key role in the functioning of the corporation.

There is a fine line between ESG investing and SRI. ESG investors actively look for companies that show robust environmental, social, or governance attributes. SRI focuses on excluding industries that have failed to show compliance in socially responsible areas. ESG provides broader flexibility into the practices of specific companies and the different management attributes that make up a corporate initiative.

Inflows Into ESG Have Been Impressive

Inflows to ESG have been robust. ESG ETFs surged to $22 billion in the first half of 2020 which was more than 3X the 2019 total, according to Bloomberg. One of the issues that regulators face is that there is no clear definition of what constitutes ESG.

The Concept is Here to Stay

Some corporate actions show me that ESG is here to stay. Stakeholders at public companies are getting assurances from management that their contributions will remain an important aspect of management’s focus. In 2020, Starbucks Corp. announced that the company would mandate antibias training for executives and tie their compensation to increasing minority representation in its workforce. The target of their diversity and inclusion mandate is to have 30% of corporate employees to be minorities by 2025. While profits at any level are key, it’s hard to imagine that an executive will allow their bonus to be eroded by failing to meet a corporate ESG mandate.

The Best Asset Now Process

I have mentioned this before and I have not wavered. I like to use a BAN strategy (Best Asset Now) to find leading sectors. Two ETFs have largely outperformed the rest that conforms to the ESG concept. Each of these ETFs represents sectors that have shown leadership and are currently two of the top-5 best performing ETFs in 2020. These ETFs have generated bullish chart patterns that point to much higher prices following their recent breakouts.

There is a reason to be bullish. President-elect Joe Biden named former Secretary of State John Kerry to lead his administration’s efforts on climate change. Kerry will be the “climate czar” and will be in charge of coordinating programs that are expected to stretch across multiple agencies. This could include executive orders issued by the new President-Elect that will provide avenues beyond Congress to advance climate priorities. This is positive news for clean energy ETFs. If you are a stock trader, these are the BAN ETFs to look at which will outperform.

*source – https://etfdb.com/compare/highest-ytd-returns/

TAN Hits Fresh Highs

The Invesco Exchange-Traded Fund Solar ETF accelerated to multi-year highs in November and is poised to test resistance near the 2011 highs at $91.70. This would add another 11% to its already robust 162% return in 2020. While prices could temporarily consolidate near this $92, a close above this level would lead to a test of the 2010 highs at $115. A close above $115 could lead to a test of the all-time highs near $307. Momentum is positive as the MACD (moving average convergence divergence) histogram is printing in positive territory with an upward sloping trajectory which points to higher prices.

*source Tradingview

PBW Invesco Exchange-Traded Wilderhill Clean Energy ETF

Has broken out and is poised to test the 2008 highs near $119.50. Support is seen near the 10-week moving average of $71.70. Momentum is positive as the MACD (moving average convergence divergence) histogram is printing in positive territory with an upward sloping trajectory which points to higher prices.

*source tradingview

As we move towards 2021, pay attention to how the markets react to the continued recovery efforts and global banking/policy issues.  A variety of sectors could become a very profitable sector for traders. We can help you find and identify great trading opportunities so visit www.TheTechnicalTraders.com to learn about my exciting ”Best Asset Now” strategy and indicators. Sign up for my daily pre-market video reports that walk you through the charts of all the major asset classes every morning.

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

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com


NOTICE AND DISCLAIMER: Our free research does not constitute a trade recommendation or solicitation for readers to take any action regarding this research.  We are not registered financial advisors and provide our research for educational and informational purposes only.

Critical Price Level Could Prompt A Big Move After The Holiday Weekend

As technical traders and researchers, we’ve been paying very close attention to the GREEN ARC Fibonacci resistance level on the SPY as a key level for the US stock market and any hope of a continued upside price rally.  The SPY has traded near this level for the past three weeks and appears to be attempting a bit of an upside breakout right now.  Yet, we understand a long holiday weekend is upon us in the US, Memorial Day, and after a big upside GAP on Monday, the US stock market has stalled over the past few days.

SPDR S&P500 ETF WEEKLY CHART

Our researchers believe this GREEN ARC is still acting as critical price resistance and believe the SPY may sell off into the end of the week resulting in a failed attempt to breach this key resistance level.  If this happens, the failed attempt to break this resistance could prompt a change in price trend and initiate a new downside price trend.  If this resistance level is broken by the end of this week, then we have a pretty solid indicator that continued bullish price trending may continue.

Absent of any real news that may drive the market trend this holiday weekend and with most of the US still in shutdown mode, we believe the US stock market has continued to trade within this no man’s land area for many weeks now.  From the end of April till now, we’ve seen moderate upside price action in certain sectors, yet other sectors continue to show signs of weakness.

TRANSPORTATION INDEX WEEKLY CHART

This Transportation Index Weekly chart is a perfect example of the weakness that is evident away from the S&P500, NASDAQ, and Dow Industrials.  Compare the last 6+ weeks of trading on this TRAN chart to the SPY chart above.  Notice that the TRAN chart shows a very congested sideways price channel (highlighted in YELLOW) as well as a much deeper upside price move from the lows near March 20.  While the US major indexes have rallied substantially, the broader market indexes are not experiencing the upside price advance and continue to suggest overall weakness.

This disconnect in the markets suggests speculation is driving the US major indexes higher and not real fundamental appreciation based on earnings and revenues.  When this speculation ends, typically when speculators realize the price has been driven a bit too high compared to reality, then the trend can change in an instant.

ISHARES RUSSELL 2000 ETF WEEKLY CHART

This IWM Russell 2000 ETF Weekly chart highlights a similarly week upside price rally since the March 20th bottom.  The WHITE LINE on this chart represents a support/resistance level from early trading low price levels in 2017.  Our research team believes these levels represent a very important support/resistance level for the Russell 2000 ETF as this level coincides with the GAP in price that was generated within the recent selloff on March 9, 2020.  That GAP cleared this key support/resistance level with a very big downside price move.  We believe this level will act as intense resistance as price attempts to fill the GAP.

Concluding Thoughts:

Overall, the US stock market has continued to trade within this no man’s land recently.  There have been some pretty decent upside price moves in certain sectors over the past few weeks.  Precious metals, certain travel/leisure stocks, and, of course, technology and services stocks.  Yet, we continue to warn our friends and followers to be very aware that the US stock market is far from immune to more downside price activity.  A deep selloff like we experienced will very often react with a “recovery move” – a dead cat bounce type of move.  While the NQ has been a big mover, these other sectors suggest we may be nearing a tipping point and we urge technical traders to stay very aware of the risks as we head into this long holiday weekend.

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.

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com