European Equities: A Month in Review – July 2020

The Majors

It was a mixed month for the European majors, with a final week sell-off reversing gains from earlier in the month.

The DAX30 ended the month up by just 0.02%, while the CAC40 and EuroStoxx600 fell by 3.49% and by 2.98% respectively.

Disappointing economic data from the Eurozone and the U.S, together with a mixed bag on the earnings front weighed late in the month.

Away from the economic calendar, U.S – China tensions and a 2nd wave of the COVID-19 pandemic added to the market angst.

For the European majors, EU member state agreement on the structure of the COVID-19 Recovery Fund had provided some support.

Coupled with news of progress towards a COVID-19 vaccine and positive economic data, the DAX30 had been up by as much as 7% before falling back to sub-13,000 levels.

The Stats

It was a busy month on the Eurozone economic calendar. July’s prelim private sector PMIs and 2nd quarter GDP number were the headline stats of the month.

While June had delivered a less gloomy picture, July delivered a mixed set of stats for the markets to consider.

In the early part of the month, economic data from Germany continued to deliver positive numbers, with factory orders and industrial production seeing further upside.

Mid-month prelim July private sector PMIs from France, Germany, and the Eurozone had also given the majors a boost.

The Eurozone’s Composite PMI rose from 48.5 to 54.8, according to prelim figures.

Late in the month, however, 2nd quarter GDP numbers for France, Germany, and the Eurozone weighed on the majors.

Germany’s economy contracted by 10.10%, France’s by 13.80%, and the Eurozone’s by 12.10% in the quarter.

From the U.S

While nonfarm payrolls, the weekly jobless claims, and private sector PMI numbers had provided support early in the month, it was the weekly jobless claims, consumer confidence, and 2nd quarter GDP numbers that weighed late in the month.

2 consecutive weekly jobless claims increases and a 32.9% contraction in the U.S economy weighed on risk appetite at the month-end.

Consumer confidence also weakened in July as the U.S struggled with a 2nd wave of the COVID-19 pandemic.

Geopolitics and a failure by the U.S government to pass through the 2nd COVID-19 stimulus package was also market negative.

Monetary Policy

On the monetary policy front, there were no surprises as the ECB left monetary policy unchanged. There had been reports of discord amongst members ahead of the meeting.

The FED also left monetary policy unchanged, while assuring the markets of continued and unwavering support.

The Market Movers

For the DAX: It was a bearish month for the auto sector. Continental and Volkswagen slid by 6.49% and by 7.78% respectively to lead the way down. BMW and Daimler saw more modest losses of 4.14% and 2.64% respectively.

It was a mixed month for the banks, however. Deutsche Bank slid by 10.51%, while Commerzbank ended the month up by 9.63%.

From the CAC, it was a bearish month for the banking sector. BNP Paribas and Credit Agricole fell by 3.53% and by 3.56% respectively, while Soc Gen slid by 12.30%.

It was also a bearish month for the auto sector. Peugeot fell by 5.80%, with Renault tumbling by 11.16%

Air France-KLM and Airbus SE also saw red, with the pair seeing losses of 13.49% and 2.38% respectively.

Corporate earnings contributed to the moves.

On the VIX Index

The VIX slid by 19.62% in July, delivering a 3rd month in the red out of 4. Reversing a 10.61% rise in June, the VIX ended the month at 24.46.

The VIX had seen 4 consecutive months in the green before the downward trend began in April.

Across the U.S equity markets, the S&P500 rose by 5.51%, with the Dow and NASDAQ gaining 2.38% and 6.82% respectively.

The FED and bank and tech stock earnings provided support amidst a rising number of new COVID-19 cases in the month.

The Month Ahead

It’s another busy month ahead on the Eurozone economic calendar.

An upward trend in the private sector PMIs through to August would need to continue to ease concerns of a further slowdown in the recovery.

The markets would need to continue to see a further pickup in both business and consumer confidence to support consumption.

Consumers would need to see improved labor market conditions, however, to fuel consumption and a service sector-driven economic recovery.

On the monetary policy front, expect the ECB to continue to assure the markets of further support.

From elsewhere, we continue to expect stats from the U.S and China to also garner plenty of attention and have plenty of influence.

Geopolitics and COVID-19 will also remain in focus. In July, Trump had looked to distract U.S voters, which led to a diplomatic spat with China. More of the same could be on the cards in the coming month.

On the Presidential Election front, Trump remains behind in the polls, which suggests more spin and distraction. In the final week of July, Trump had even tweeted a desire to delay the Presidential Election…

Precious Metals Fire Warning Shot Across The Bow – Part II

This second part of our multi-part article researching the massive upside price move in Silver recently should cause skilled technical traders to begin sweating a bit.  In our opinion, nothing moves metals more than fear and a move like this in Silver, recently, is a very clear indication that global traders fear the current global economic ability to sustain market valuation levels in the face of bigger and more sustained economic and COVID-19 virus crisis events.

WILL THE NEXT SHOT BE A DIRECT HIT?

A series of potentially destructive economic events are lining up over the next 6 to 12+ months and they all relate to the efficiency of the economic recovery many traders have banked their long positions on.  Will the COVID-19 virus subside before the end of 2020?  Will the US consumers/workers resume their ability to earn incomes?  Will the US and global businesses survive the contraction event taking place throughout the globe?  Will local city, state, and other entities survive the contraction in tax revenues, fees, and extended costs related to this massive destructive economic event?  Will the stock market continue to rally in the face of all of these issues and what other “unknowns” are about to befall us?

The reality of the situation is that Precious Metals have already fired a massive warning shot across our Bow and skilled technical traders need to start paying attention.  Precious Metals don’t move higher by 12% to 15% like Silver just did for no reason at all.  A massive new level of fear must have hit causing global traders to push Silver prices above $23 recently.  Silver, the “other precious metal” has been stalled below $19 for many months – even while Gold pushed well above the $1750 level and higher.  This big breakout in Silver is nothing more than a phenomenal warning for all traders and investors – BE WARNED: RISKS ARE SKYROCKETING HIGHER.

We want to highlight a few of our recent research posts to help you better understand what is happening with precious metals and what to expect in the future…

September 24, 2019: IS SILVER ABOUT TO BECOME THE SUPER-HERO OF PRECIOUS METALS?

May 29, 2020: METALS NEARING CRITICAL MOMENTUM FOR NEW PARABOLIC RALLY

July 13, 2020: GOLD & SILVER MEASURED MOVES

SILVER DAILY CHART

This Daily Silver chart highlights the series of “measured moves” our research team wrote about on July 13, 2020.  These $5.40 price advances seem to happen with some degree of regularity and we believe they will continue until an upside parabolic break out of this range takes place.  That means when an upside move extends beyond the $5.40 measured move level and price attempt to move dramatically higher, then the continuation of these measured moves may be over.

Ultimately, our earlier research into technical patterns in Silver suggests a $25.50 to $26 upside price target. Yet, broader market research suggests a move above $75 to $85 in Silver ($3750 to $4995+ in Gold) is not out of the question.  What would it take for Silver to rally above $70 per ounce you may ask?  Our research team believes a broader economic, credit, and consumer event would likely have to take place for Precious Metals to rally to these levels.  Fear drives a lot of price action in metals and when investors fear valuation levels or future expectations, they often hedge their portfolios by investing in Precious Metals.  When a big move happens, like what we’ve just seen in Silver, we interpret it as “fear has materialized”.  What are traders so fearful about?  They are likely fearful of the current high price levels in the US stock market and future expectations related to consumers, trade, credit/debt, and other factors of the global economy.

SPY MONTHLY CHART

We’ve been writing about the potential for a series of economic events to unfold over the next 6+ months where consumers, cities/states, and businesses simply collapse because of the lack of earning capabilities associated with the COVID-19 virus event.  Many years ago, we wrote that “isolated economic events that disrupt smaller segments of the markets are more manageable than prolonged destructive events”. We believe the current COVID-19 virus event will transition into a prolonged economic event where a 20% to 30%+ extended contraction in revenues for many businesses, consumers, and city/state/federal governments could produce massive future risks that are still somewhat “unknown”.

We’ve also written about Super-Cycle events and warned all of our followers in August 2019 to prepare for a massively destructive Super-Cycle event to take place late in 2019 and early in 2020.  We authored this research post in July 2019 warning all of our followers of the pending collapse in the US and global markets related to Super-Cycles and other technical patterns.  What we expect to happen now is an extension of the crisis event until a bottom is established.

This SPY Monthly chart highlights some of the research our team recently completed and also suggests that a broader market failure (downside price rotation) event may take place over the next 3+ months (prior to the US Presidential Elections), where new deeper lows may be established.  The GREEN ARCING LINE on this chart represents our proprietary Fibonacci Price Amplitude Arcs, an adaptation to traditional Fibonacci Price Theory, which suggests price levels are already 7% to 9% above major resistance.  If the US stock market falters near current levels and begins to move broadly lower, we should expect a series of moderately violent downside price moves to target the $208 level on the SPY while Gold and Silver extend their upside price advance.  Fear will drive metals higher while the potential downside price event in the SPY takes place.

SILVER WEEKLY CHART

Our next upside price targets in Silver are near $28 (a full 24%+ higher than current price levels).  These measured price moves act as a stair-step process for the price to consolidate/base, begin a moderate upside move, peak, then repeat the process all over again.  Beyond the $28 price target level, the next measured move target is $32.50.  If Silver reaches the $28 or $32.50 level, you can assume fear is very present in the global markets and Gold should already be trading above $2100 (or higher).  The combination of Gold and Silver moving higher in unison should be a very clear warning that global traders don’t trust the current valuation levels of the global stock markets.

This Weekly Gold chart highlights the next measured move targets for Gold.  Although Gold has yet to reach the current measured move target, we don’t believe it will take more than 3 to 4 weeks for Gold to print a price level above $1950.  After this big move in Silver, we are moderately confident that Gold will continue to rally as well.  The bigger question for Gold is what happens after $2000?  Will it rally to $3750 as we predict?  Will it rally to $5500 or higher?

Ultimately, the upside price peak levels in Gold will relate to the extent of the fear and uncertainty that is present as a result of the continued fallout from the COVID-19 virus event and the series of revenue/earnings-based contractions we believe are just below the surface right now.  Over the next 6+ months, we believe a series of new crisis events till unfold which will highlight just how destructive the COVID-19 crisis has been.  When consumers and businesses lose 25% to 35% of their earning capacity (or more) and more than 15% of the total US population has been displaced from work/business because of these economic shutdowns – one has to expect some type of economic contraction to take place.  Honestly, it would be foolish to think the US Fed can offset 150+ million US consumers spending activities, home buying, rentals, loan payments, and other activities.  25% of the normal US GDP levels represent over $5.5 trillion – that’s a big hit to the markets if it turns out to be real.

GOLD WEEKLY CHART

We urge all of our followers to stay very cautious and to properly position your portfolios to address the risks that we feel are pending.  Yes, the US stock market has rallied substantially recently, but if you were paying attention to Precious Metals and what was really happening to US businesses and US consumers, you’ll suddenly realize the US Fed and foreign investors piling into technology stocks is not the same things as a healthy and robust US economy (like we had in 2017 and 2018).

The ultimate peak in the US economy took place in January/February 2018.  After that peak, our proprietary price modeling systems continue to suggest the US stock market and economy has been contracting.  The longer-term Super-Cycles suggest the real bottom in the markets won’t happen until somewhere between 2021 and 2023.  We have a long way to go before we see where this ultimate bottom is really going to set up.

Get our Active ETF Swing Trade Signals or if you have any type of retirement account and are looking for signals when to own equities, bonds, or cash, be sure to become a member of my Passive Long-Term ETF Investing Signals which we are about to issue a new signal for subscribers.

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

 

Chris Vermeulen
Chief Market Strategies
Founder of Technical Traders Ltd.

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

 

Gold During Covid-19 Pandemic and Beyond

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

The Virus That Sent Crude Oil Prices on a Jolly Ride

COVID-19 changed global oil markets in Q1 and Q2 of 2020, sending crude oil prices on a jolly ride and disrupting global energy supply chains and oil traders.

Crude Oil began 2020 trading higher than $60 a barrel. Then came in COVID-19 the worst pandemic known to man, shutting down global demand for energy that the price of crude plunged below $0 for the first time in history. In Oil futures, contracts also went parabolic in late April due to a lack of available storage tanks to store crude oil thereby depressing the price of crude oil.

Though within several days crude oil prices rebounded, ending the first half of the year at $40 per barrel.

Crude Oil prices have rebounded in recent weeks with drivers returning to roads and suppliers curtailing production.

Behind the recent surge is the return of energy demand among major economies, as to loosen economic restriction and record production cuts by OPEC, allies including Russia.

As a result of these, there were many oil futures contracts outstanding to have oil delivered several months to the future date a rare market condition that has calmed oil traders ‘anxiety after April’s chaos.

America’s crude oil production also stuttered as energy companies were forced to close their productive wells, trend oil traders say could most certainly alter the shale boom that made the United States the world’s largest producer of gas and oil.

“However, rising cases of COVID-19 in some US states could keep oil prices in check and will most definitely temporary overly zealous bullish ambitions.

“From a trader’s perspective, there is always a concern when the data is too good; especially beneath the fog of the current Covid-19 headlines that suggest de-risking playbooks remain in play ahead of the US long weekend said Stephen Innes, Chief Global Market Strategist at AxiCorp.

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

 

European Equities: A Month in Review – June 2020

The Majors

It was another bullish month for the European majors in June, as the markets continued to recover from The Meltdown.

The DAX30 and CAC40 rallied by 6.25% and 5.12% respectively to lead the way, with the EuroStoxx600 gaining 2.85%.

Themes throughout the month included the reopening of economies across the EU and the U.S and stimulus…

Central banks and governments stepped in to provide much-needed support, as the markets digested post lockdown economic indicators.

Late in the month, a threat of U.S tariffs on EU goods and a pause in the easing of lockdown measures tested risk sentiment.

In the U.S, news of U.S states hitting pause on reopening questioned the more optimistic outlook on the economic recovery.

It was not enough to sink the markets, however. Continued support from the FED and other central banks propped up the markets late in the month.

While June’s gains may seem minor, the 2nd quarter rebound was more impressive. The DAX30 rallied by 23.9%, with the CAC40 and EuroStoxx600 rising by 12.28% and 12.59% respectively.

Optimism coupled with monetary and fiscal policy support and the easing of lockdown measures fuelled the gains in the quarter.

The Stats

It was a busy month on the Eurozone economic calendar. June’s prelim private sector PMIs were the headline stats of the month, which led to a less gloomy economic outlook for the Eurozone.

Following an uptick in May, further improvement in June was key to the upside in the European majors.

Supporting the uptick in service sector activity was a pickup in both business and consumer confidence. For the economic recovery, consumer confidence and spending remained key to supporting a service sector-driven recovery.

From the U.S

Private sector PMIs reflected a similar trend, with both the manufacturing and services sectors seeing a slower pace of contraction. This was coupled with a rebound in durable and core durable goods orders.

While retail sales also bounced back from April’s, there was evidence, however, that labor market conditions would likely take longer to recover.

In spite of May’s nonfarm payrolls impressing at the start of the month, the weekly jobless claims continued to report high numbers.

From an economic and service sector perspective, however, improving consumer confidence was key. At the end of the month, June’s CB Consumer Confidence Index jumped from 85.9 to 98.1.

Monetary and Fiscal Policy

In the June monetary policy decision, the ECB left interest rate and deposit rates unchanged, which was in line with market expectations. The ECB did crank up the size of the emergency purchasing program of bonds to €1.35tn and extended it by an additional 6-months to 30th June 2021.

Outside of the monthly policy meeting, the ECB also delivered a Eurosystem repo facility for central banks outside of the Eurozone. The move provided further support to the European majors late in the month.

Perhaps the FED’s move to begin acquiring individual corporate bonds was most impressive in June. Mid-month, the FED announced that it would purchase up to $250bn in individual corporate bonds. Named the Secondary Market Corporate Credit Facility, eligible bonds had to be rated investment grade as at March 22nd, 2020.

The Market Movers

For the DAX: It was another mixed month for the auto sector. Continental fell by 2.17% to buck the trend in the month. BMW and Daimler rallied by 7.47% and by 7.67% respectively, while Volkswagen rose by 2.16%.

It was another bullish month for the banks. Deutsche Bank rallied by 11.74%, with Commerzbank up by 13.31%.

Deutsche Lufthansa rose by a more modest 7.79%.

From the CAC, it was a bullish month for the banking sector. BNP Paribas and Credit Agricole rose by 9.64% and by 7.80% respectively. Soc Gen rallied by 11.87%, however, to lead the way.

It was also a bullish month for the auto sector. Peugeot and Renault rallied by 13.04% and by 11.78% respectively.

Air France-KLM and Airbus SE had a mixed month. While Air France-KLM fell by 0.74%, Airbus SE rallied by 12.03%.

On the VIX Index

In June, COVID-19 and geopolitics provided some upside in the VIX following the pullback in May.

The VIX rose by 10.61% in June to bring to an end 2 consecutive months in the red. Partially reversing a 19.44% slide from May, the VIX ended the month at 30.43.

The VIX had seen 4 consecutive months in the green before the reversal began in April.

Across the U.S equity markets, the S&P500 rose by 1.84%, with the Dow and NASDAQ gaining 1.69% and 5.99% respectively.

FED support and plenty of fiscal stimulus delivered the upside. Late in the month, U.S states began hitting pause on reopening as new COVID-19 cases began to spike.

The Month Ahead

It’s another busy month ahead on the Eurozone economic calendar.

An upward trend in the private sector PMIs through to July would need to continue for the markets to find a further upside.

The markets would also need to see a further pickup in both business and consumer confidence to support consumption.

Consumers would need to see improved labor market conditions to fuel consumption and a service sector-driven economic recovery.

On the monetary policy front, the ECB will need to continue to assure the markets of further support. Brussels and EU member states will also need to be on the same page vis-à-vis distribution of funds to support COVID-19 stricken economies.

From elsewhere, we continue to expect stats from the U.S and China to also garner plenty of attention.

Geopolitics and COVID-19 will also remain in focus. In June, Trump looked to distract U.S voters, by threatening the EU with tariffs. There had also been the talk of the U.S – China trade agreement being “over”.

With Trump on the back foot, election wise, expect more of the same if not more in the month ahead. Politically, the U.S President couldn’t have got things more wrong in June. Racism also took center stage, with protests and riots gripping the U.S following the unlawful killing of Floyd George.

If that’s not enough to keep the markets busy, it’s also corporate earnings season…

Gold Price Forecast – A June Top Followed by A July Drop

Several weeks ago, I noted that gold was repeating its 2016 and 2018 consolidation patterns. In line with our forecast, gold reached $1796.10 on Wednesday, and an interim top is becoming likely. Next, we are looking for a breakdown in July, followed by the next great buying opportunity.

As a technician, I am continually on the lookout for recurring or repeating patterns. In April, I noticed gold was setting up for a repeat of the 2016/2018 consolidations. Meaning, as long as gold stays below $1800, then a decline back towards $1500 is likely.

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Gold Price Forecast

Typically, intermediate consolidations last anywhere from three and four months. If prices peak around $1800, this is what I will expect over the next several weeks.

1) A breakdown below $1660 in the last half of July.

2) A bounce off the 200-day MA and failed attempt to recapture $1660 – $1670.

3) A final decline towards $1500 and the next great buying opportunity.

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Gold Big Picture

Longer-term, I am are very bullish on gold. The above forecast dovetails nicely with our larger 10-year pattern. To maintain symmetry (on the right side), gold should consolidate between $1500 and $1800 into 2021 before breaking decisively above $2000. Ultimately, I think gold could reach $8,000 – $10,000 later this decade.

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Conclusion

Fundamentally the case for gold has never been better; prices are in a bull market. However, as volatility increases, attempting to time each swing will become increasingly more difficult. One mistake could cripple your trading account. Consequently, I shifted to a long-term accumulation strategy aimed to reduce stress and improve long-term gains.

Our Gold Cycle Indicator is at 440 and within maximum topping. A cycle peak is becoming likely.

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

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

 

US Stock Market Enters Parabolic Price Move – Be Prepared, Part I

After the recent COVID-19 virus event and the global market concerns that will warrant caution for skilled traders and investors, the US stock markets have entered an upside parabolic trend that will likely end with a massive price collapse – extremely volatile and aggressive in nature.  Our research team continues to warn of the unpredictable nature of the current price rally and the fact that the upside parabolic price trend appears more prominent in the NASDAQ sector.  If history has taught us anything, it is that these types of parabolic moves can last a while and that they always end in a deep downside price correction – usually 61% to 75% of the last upside price trend.

Our research and trading team has been advising friends and followers to stay very cautious of the current markets (excluding Gold, Miners, and certain other protective sectors).  We don’t believe this rally warrants any exposure greater than 15 to 20% given the current global economic environment and the hyper-parabolic nature of the current price move.  We believe the opportunity presented by the upside advances does not negate the potential risks of a massive collapse event taking place in the near future.  In other words, we’re more cautious of how ugly and aggressive the end of this parabolic move will be than willing to try to find some opportunities in an already hyper-extended parabolic upside price trend.

Still, there are opportunities to be had in this trend for skilled short-term technical traders.  A number of sectors continue to perform quite well and using proper position sizing for trades may allow for quick targets of 5% to 10% or more.  We urge all of our friends and followers to be cautious of the current rally in the markets as we’ve only seen this happen three other times over the past 100 years: 1927~29, 1986~87, 1996~99.  The collapse after the 1929 peak resulted in a 90% decline in prices.  After 1987, the markets collapsed by nearly 36%.  After the DOT COM market peak in 1999, the markets collapsed near 51%.  Are the markets preparing for a massive collapse event right now with this hyper-parabolic upside price trend?

NASDAQ MONTHLY CHARTS

This monthly NQ, NASDAQ E-Mini Futures, chart highlights the upside parabolic price move that is currently taking place.  It also highlights the similar type of price movement that took place in the late 1990s.  In theory, the buying power driving the markets higher can last more than 12 to 15 months in some cases.  Prior to the peak in 1929, the parabolic move started near June 1926 and peaked in July 1929 – approximately 3 years.  In 1986, the rally in price was shorter – only lasting from November 1985 to August 1987 – about 21 months.  The rally to the DOT COM peak in 1999 started near March 1995 and lasted a total of approximately 51 months (just over 5 years).

The current rally, as we identify the start of the parabolic price trend, started after the 2015~16 sideways price range.  Our research team considers the start of this current upside move as initiating near July 2016 and continuing through to today – totaling almost 4 years in length.  If we discount the 2015~16 sideways price channel and consider the 2012 to 2020 Fed-induced price rally as the “total scope” of the parabolic range, then we can easily total more than 7 years into this incredible parabolic price move.  This move is truly unlike anything we’ve seen in the recent history of the US stock market – and the crazy component to all of this is it is happening at a time when the global markets have just been derailed by a global virus pandemic.

What comes next?  Well, if history is any teacher – a peak in price sets up, volatility starts to explode and a collapse in price initiates at some point in the future that completely deflates the bubble.

The most prominent example of a price bubble that many traders are familiar with is the story of the South Sea Company (1719 to 1721).  Prior to the peak in this bubble story, the South Sea Company began as an act of English Parliament (source: https://engl3164.wordpress.com/2012/10/31/the-south-sea-bubble/ ).  As stated from our source…

At this time, the English government was deeply in debt.  Harley, the Earl of Oxford, came up with a scheme to free England of this debt while capitalizing on what was perceived as a largely untapped gold and silver market in South America.  Harley proposed that Parliament could create an independent company that would assume all of England’s debt and, in exchange, would be able to charge the government yearly interest until the original sum was repaid.  The company would be able to afford to assume this debt because England would grant it a monopoly on trade from South America.  The company would prosper, English influence would be extended further into the New World, and the English government would become free of debt.  This plan was so popular that it was called “the earl of Oxford’s masterpiece” (Carswell, 1969).

It took several years to form the company and work out the details of the agreement.  By 1720, the South Seas Company was formed and received £30,981,712 in debt from the English government in exchange for a promise that the English government would pay £600,000 per year interest.  However, the plan had already begun to show major weaknesses, even before taking on this huge debt.  The success of the plan rested on the assumption that a monopoly on English trade with Latin America was worth almost limitless profit.  Certainly, Spain was enjoying great profit in extracting gold and silver from this area.  Yet a major problem was that Spain owned the rights to South American trade and would allow England only one ship’s worth of trade per year for the entire continent and only on the condition England pay 25% of the profits to Spain in addition to a 5% tax.  Even this small concession ceased entirely in 1718 when England declared war on Spain (Carswell, 1969).

We want all of our readers to understand the psychological aspect of this past bubble – the idea that the plan could not fail and would provide almost limitless success if executed as planned set off a “no fear rally” that eventually resulted in a massive price bubble.

The next major point that is critical to the understanding of how a price bubble function is the following statement from the same source…

Regardless of the fact that the South Seas company was an unproven company already sunk deeply in debt, with no realistic prospects of profit, it was perceived as an almost infallible opportunity.  As with all economic bubbles, the public’s perception of its potential was far greater than its actual value.  For this reason, stock prices soared.  Modern economists have argued that some investors may have been fully aware that this was an artificial market that was bound to fail.  However, realizing that stock prices would continue to climb until the bubble burst, it would still have been profitable to buy stock with the intention of selling before prices inevitably plummeted (Temmin and Voth, 2003).

What could go wrong with this plan for investors?  It seemed as if nothing could fail – there was almost no risk and everyone had incredibly high expectations of future success and profits…  Then, more good news for traders and investors..  More shell companies promising future greatness to continue to hype the markets…

Unfortunately, investors in the South Seas Company were not the only individuals to lose money during this time.  Many businessmen, realizing the potential for profit in such an artificial market, began similar schemes to create companies with inflated stock prices.  Hundreds of companies were formed within only a few months, with thousands of individuals rushing to buy stock.  Ultimately, these companies went the way of the South Sea Company.  Countless investors lost fortunes while many dishonest market speculators became rich (Carswell, 1969).

Eventually, when reality set back into the minds of these investors, many had lost entire fortunes, families, and futures.  Some of these company founders were hunted down and killed because of the anger and frustration of many investors and others.  The reality of the situation is that nothing is without risk – just like the stock market valuations today.

In the second part of this research article, we’ll continue to explore the potential price bubble that is setting up in the US and global stock markets as a result of the US Fed and global central banks pushing speculative investments into the global equities markets (primarily the US stock market).  It is essential that all skilled traders and investors learn to understand what is happening and to understand the severe risks that are currently in play in the markets right now.  Stay cautious, stay protected, and stay safe.

Get our Active ETF Swing Trade Signals or if you have any type of retirement account and are looking for signals when to own equities, bonds, or cash, be sure to become a member of my Passive Long-Term ETF Investing Signals which we are about to issue a new signal for subscribers.

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

Chris Vermeulen
Chief Market Strategies
Founder of Technical Traders Ltd.

 

Gold Bull Miners Breakout, and the USD Analysis for June 19, 2020

This video shows you the monthly stage analysis and new bull markets emerging, and a bear market that directly affects gold, silver, miners, and the US Dollar.

Gold, Silver, Miners and USD Video Analysis 19.06.20

The most recent analysis is posted in this full article:  https://www.fxempire.com/forecasts/article/gold-has-finally-cleared-major-resistance-time-for-liftoff-656175

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

European Equities: A Month in Review – May 2020

The Majors

It was a bullish month for the European majors in May. The DAX30 rallied by 6.68% to lead the way, with the CAC30 and EuroStoxx600 gaining 5.64% and 3.00% respectively.

Through the early part of the month, economic data and lockdown measures had weighed on the majors. There was also disappointment over the COVID-19 aid package and rising tensions between the U.S and China.

Sentiment shifted, however. The DAX30 reversed a 3.65% loss from the 1st half of the month.

Economic data, an easing in lockdown measures, and progress towards a COVID-19 vaccine delivered the rebound in the 2nd half of the month.

While member states eased lockdown measures through May, a downward trend in new coronavirus cases continued until a marginal rise at the end of the month.

The trend allowed governments to announce plans to remove border controls, which drove demand for travel and tourism stocks.

Banks were also on the move as hopes of a pickup in economic activity provided support.

In the final week of the month, the EU announced a €750bn recovery fund that also gave the majors a boost. For the European majors, the lion’s share of the gains came from the final week. The recovery fund will not only support the economic recovery but also pour cold water on any doubters of the EU project that had come into question…

The Stats

It was a busy month on the Eurozone economic calendar. While the numbers continued to reflect a dire economic environment, the stats did suggest that the economies had seen the worst in April…

Key stats in the month included April’s final and May’s prelim private sector PMIs and business and consumer confidence figures.

The Eurozone’s composite PMI increase from 13.6 to 30.5 in May, according to prelim figures.

According to the prelim May survey:

  • The Composite Output Index rose from 13.6 to a 3-month high 30.5.
  • Service and manufacturing sector activity hit 3-month and 2-month highs respectively.
  • While service sector activity contracted at a slower pace, it was still the 3rd steepest decline on record. Social distancing and lockdown measures continued to weigh on businesses including hotels, restaurants, and travel tourism.
  • Jobs continued to be cut at an unprecedented rate, with both sectors contributing.
  • Inflows of new business fell to the 3rd greatest extent ever recorded. In spite of this, the smallest decline in new business in 3 months suggested that the downturn had bottomed out.

The key take away was that April had been the bottom and economic activity should pick up as economies reopen.

Consumer and business confidence improved, as a result, supported by the easing of lockdown measures. There was no major rebound, however, as labor market conditions remained a concern across member states.

The ZEW Economic Sentiment Index for the Eurozone jumped from 25.2 to 46.0 in May. By contrast, the flash consumer confidence index saw a more modest increase in May, rising from -22.0 to -18.8.

While the markets were able to brush aside particularly dire GDP numbers, they are also worth highlighting.

The German economy contracted by 2.2% in the 1st quarter, with the Eurozone economy contracting by 3.8%, quarter-on-quarter.

From the U.S

While there was plenty of influence from the private sector PMIs, it was labor market numbers that drew the greatest attention.

Unprecedented increases in weekly jobless claims weighed on risk appetite early in the month. A downward trend late in the month provided support, however, in spite of claims continuing to hit the 2m mark…

Monetary and Fiscal Policy

In April we had seen the market’s disappointment as EU member states came up short with a €540bn COVID-19 Bailout Fund.

It was a different story in May, however, with the €750bn beating market expectations… Combined with the EU Budget also announced in the final week that delivered in excess of €2trn to support the economic recovery.

More than 60% of the total €820 Recovery Fund would be made available as grants, with the remainder available as repayable loans.

On the monetary policy front, there was no monetary policy decision within the month of May. The ECB did release the financial stability review and economic bulletin, however.

Both continued to paint a gloomy picture of the economic outlook, with ECB Lagarde pointing out that the economic meltdown was likely to be closer to the ECB’s worst-case scenario…

The Market Movers

For the DAX: It was a mixed month for the auto sector. Continental rallied by 15.47% to lead the way, with and Volkswagen and Daimler rising by 4.13% and by 6.50% respectively. BMW bucked the trend, however, with a 1.81% loss.

It was also another bullish month for the banks. Deutsche Bank rallied by 12.13% following a 16.35% jump from April, while Commerzbank saw a more modest 3.76% gain.

Deutsche Lufthansa managed to reverse April’s 4.66% loss, with a 14.55% gain. A 17.13% rally in the final week delivered the upside for the month.

From the CAC, it was another mixed month for the banking sector. BNP Paribas and Credit Agricole rose by 12.52% and by 7.42% respectively. Soc Gen bucked the trend for a 2nd month with a 7.22% loss.

It was also a mixed month for the auto sector in May. Peugeot fell by 1.99%, while Renault rallied by 11.54%. A 17.17% surge in the final week delivered the upside, which came off the back of plans for Nissan and Renault to strengthen ties.

Air France-KLM and Airbus SE saw red for a 2nd month, however, with losses of 12.57% and 2.04% respectively.

On the VIX Index

In May, market fear continued to melt away, with the VIX falling by 19.44%. Following on from a 36.22% slide in April, the VIX ended the month at 27.5. The VIX had seen 4 consecutive months in the green before the reversal began in April.

After April’s best month since the 1980s, it was a relatively bullish month for the U.S equity markets in May. The S&P500 and Dow saw gains of 4.53% and 4.26% respectively, with the NASDAQ rallying by 6.75%.

For the NASDAQ the 6.75% gain completed the current year recovery, with the index up 5.76% year-to-date. The Dow and S&P500 still have some way to go, however, with the pair down by 11.06% and by 5.77% respectively.

Through May, the majors found support from the continued easing of lockdown measures. It wasn’t plain sailing, however, with geopolitics and some quite dire economic data testing the markets in the month.

The S&P500 managed to recover a 3% loss from earlier in the month to close out the month in the green.

For the VIX, while the easing of lockdown measures weighed, the sheer number of unemployed also limited the downside.

VIX 30/05/20 Monthly Chart

The Month Ahead

It’s another busy month ahead on the Eurozone economic calendar.

While we had seen the PMIs and business and consumer confidence as the key drivers, May and June stats will have a material influence.

The markets will need to see employment conditions improve and confidence across businesses and consumers to rise.

For the June PMIs, a fall back from May’s finalized figures due out in the week ahead will be a test for the majors.

This would support a pickup in consumption to spur a service sector fueled economic recovery. It is worth noting that, prior to the COVID-19 pandemic, the ECB had looked towards the services sector and consumer spending for economic support. We can expect this to continue.

On the monetary policy front, the ECB will need to continue to assure support on Thursday. Perhaps more significantly, however, will be the progress by Brussels to disperse funds from the COVID-19 recovery fund.

From elsewhere, expect stats from the U.S and China to also garner plenty of attention.

Geopolitical risk will also likely remain a key driver, however, with tensions between the U.S and China unlikely to ease any time soon. We may even see the markets begin to consider the U.S Presidential Election.

In relation to COVID-19, that downward trend in new cases will need to persist to the point of no new cases. Progress towards a vaccine would also support a more marked pickup in economic activity that would support riskier assets.

Small-Cap Stocks (Russell 2k) Is Headed For A Double Dip?

Our research team believes the Russell 2000 is leading the way in terms of technical analysis and future expectations.  While the NASDAQ has rallied as a result of US Fed stimulus and foreign investor activity, the Russell 2000 has set up a very clear price resistance level near $131~132 that presents very real potential for a double-dip downward price trend in the near future.

Monthly IWM ETF Chart

The resistance level near $131~132 suggests the IWM may rotate downward, creating a right-shoulder, and likely attempt to move down to the $96 previous lows.  If this resistance area can’t be breached by further upside price activity, then the price will likely attempt to rotate lower and rests multiple levels as price collapses back below $100 again.  The lack of upward price activity in the Russell 2000, and other market sectors, suggests the rally is isolated to the NASDAQ and certain other symbols – not broad-based.

Daily IWM ETF Chart

This Daily IWM chart highlights the multiple levels of support below the current price levels.  Each of these may act as some form of a soft floor in price as price attempts to move lower.  Again, the lack of price to attempt to rally above the RED Resistance level on this chart suggests the Russell 2000 may have found a top and may begin to “rollover” as momentum diminishes.

If stocks are set to fall something else should start to rally. Check out my trade idea on silver!

Concluding Thoughts

Technical Traders watch for these types of patterns because they provide an A or B type of scenario for profits.  Either, A, upper Resistance will be broken and the IWM will really past $140 and attempt a further upside price rally..  or, B, this resistance level will hold price below $140 and present a very real downside price opportunity where price may attempt to fall well below $110.

Our concern is that the initial downside price move in the markets, as a result of the COVID-19 virus event and global shutdown event, was followed by a Fed-induced “relief rally” that may be ending.  Most of the time, these big impulse moves result in a “relief recovery” before further trending takes place.  We believe the relief recovery is nearly over and the global markets may be setting up for a much bigger trending move.

If you are using our free public research for your own trading decision-making and/or using it as an opportunity to find and execute successful trades, please remember you are the one ultimately making the decisions to trade based on our interpretation and free research posts.  We, as technical traders, will continue to post new research articles and content that we believe is relevant to the current market setups.

If you want to improve your accuracy and opportunities for success, then we urge you to visit www.TheTechnicalTraders.com to learn how you can enjoy our research and our members-only trading triggers (see the first chart in this article).  If you are managing your retirement account or 401k, then we urge you to visit www.TheTechnicalInvestor.com to learn how to protect your assets and grow your wealth using our proprietary longer-term modeling systems.  Our goal is to help you find and create success – not to confuse you.

In closing, we would like to suggest that the next 5+ years are going to be incredible opportunities for skilled traders.  Remember, we’ve already mapped out price trends 10+ years into the future that we expect based on our advanced predictive modeling tools.  If our analysis is correct, skilled traders will be able to make a small fortune trading these trends and Metals will skyrocket.  The only way you’ll know which trades to take or not is to become a member.

Chris Vermeulen
Chief Market Strategist
Founder of Technical Traders Ltd.

 

Gold Investors Shouldn’t Be Losing Focus

The recent volatility in most markets was really extreme, which means that it was easy to lose focus on the things that matter the most in case of the gold market. It was relatively easy to keep one’s focus as far as the fundamental outlook for gold is concerned – it’s quite obvious that the economies around the world are in deep trouble and that the various QEs and money-printing mechanisms are likely to be inflationary, which together is likely to result in stagflation – which gold loves.

On the other hand, it was easy to lose focus with regard to one of gold’s key short- and medium-term drivers – the USD Index. If the USD Index soars, then gold is likely to plunge in the short run, regardless of how favorable other fundamentals are.

Consequently, in today’s free article, we’ll discuss the situation in the USD Index, with emphasis on two key similarities.

The USD Index was previously (for the entire 2019 as well as parts of 2018 and 2020) moving up in a rising trend channel (all medium-term highs were higher than the preceding ones) that formed after the index ended a very sharp rally. This means that the price movement within the rising trend channel was actually a running correction, which was the most bullish type of correction out there.

If a market declines a lot after rallying, it means that the bears are strong. If it declines a little, it means that bears are only moderately strong. If the price moves sideways instead of declining, it means that the bears are weak. And the USD Index didn’t even manage to move sideways. The bears are so weak, and the bulls are so strong that the only thing that the USD Index managed to do despite Fed’s very dovish turn and Trump’s calls for lower USD, is to still rally, but at a slower pace.

We previously wrote that the recent temporary breakdown below the rising blue support line was invalidated, and that it was a technical sign that a medium-term bottom was already in.

The USD Index soared, proving that invalidation of a breakdown was indeed an extremely strong bullish sign.

Interestingly, that’s not the only medium-term running correction that we saw. What’s particularly interesting, is that this pattern took place between 2012 and 2014 and it was preceded by the same kind of decline and initial rebound as the current running correction.

The 2010 – 2011 slide was very big and sharp, and it included one meaningful corrective upswing – the same was the case with the 2017 – 2018 decline. Also, they both took about a year. The initial rebound (late 2011 and mid-2018) was sharp in both cases and then the USD Index started to move back and forth with higher short-term highs and higher short-term lows. In other words, it entered a running correction.

The blue support lines are based on short-term lows and since these lows were formed at higher levels, the lines are ascending. We recently saw a small breakdown below this line that was just invalidated. And the same thing happened in early 2014. The small breakdown below the rising support line was invalidated.

Since there were so many similarities between these two cases, the odds are that the follow-up action will also be similar. And back in 2014, we saw the biggest short-term rally of the past 20+ years. Yes, it was bigger even than the 2008 rally. The USD Index soared by about 21 index points from the fakedown low.

The USDX formed the recent fakedown low at about 96. If it repeated its 2014 performance, it would rally to about 117 in less than a year. Before shrugging it off as impossible, please note that this is based on a real analogy – it already happened in the past.

In fact, given this month’s powerful run-up, it seems that nobody will doubt the possibility of the USD Index soaring much higher. Based on how things are developing right now, it seems that the USD Index might even exceed the 117 level, and go to 120, or even higher levels. The 120 level would be an extremely strong resistance, though.

Based on what we wrote previously in today’s analysis, you already know that big rallies in the USD Index are likely to correspond to big declines in gold. The implications are, therefore, extremely bearish for the precious metals market for the following months.

On the short-term note, it seems that the USD Index has finished or almost finished its breather after the powerful run-up. While the base for the move may be similar to what happened between 2010 and 2014, the trigger for this year’s sharp upswing was similar to the one from 2008. In both cases, we saw dramatic, and relatively sudden rallies based on investors seeking safe haven. The recent upswing was even sharper than the initial one that we had seen in the second half of 2008. In 2008, the USDX corrected sharply before moving up once again, and it’s absolutely no wonder that we saw the same thing also recently.

In fact, on March 23rd, just after the USDX closed at 103.83, we wrote that “on the short-term note, it seems that the USD Index was ripe for a correction.

But a correction after a sharp move absolutely does not imply that the move is over. In fact, since it’s so in tune with what happened after initial (!) sharp rallies, it makes the follow-up likely as well. And the follow-up would be another powerful upswing. Just as a powerful upswing in the USD Index triggered gold’s slide in 2008 and in March 2020, it would be likely to do the same also in the upcoming days / weeks.

Please note that the 2008 correction could have been used – along with the initial starting point of the rally – to predict where the following rally would be likely to end. The green lines show that the USDX slightly exceeded the level based on the 2.618 Fibonacci extension based on the size of the correction, and the purple lines show that the USDX has approximately doubled the size of its initial upswing.

Applying both techniques to the current situation, provides us with the 113 – 114 as the next target area for the USD Index. A sharp rally to that level (about 13-14 index points) would be very likely to trigger the final sell-off in gold, silver, and mining stocks.

On a short-term basis, we just saw a daily move lower in gold, while the USD Index declined and reversed before the end of the day. This – by itself – is a sign of gold’s weakness, but it’s a sign of strong weakness, when one takes into account gold’s recent technical development.

Namely, gold recently moved above its declining resistance line – the upper border of the triangle / pennant. A decline in the USD Index was a bullish factor for gold and it should have easily held ground. Namely, it should have rallied further and confirmed the breakout. Gold didn’t manage to do that. Instead, it declined and invalidated the breakdown. This is a profound sign of weakness.

Interestingly, while gold showed weakness, silver showed daily strength by rallying higher despite a move lower in gold. That’s exactly what we quite often see right before big declines in the precious metals market.

The above is the most important short-term technical development in gold, so we don’t discuss it separately from this point of view, but we would like to draw your attention to the following monthly gold chart.

In 2008, after the initial plunge, and a – failed – intramonth attempt to move below the rising support line, gold came back above it and it closed the month there. The same happened in March 2020.

During the next month in 2008, gold rallied and closed visibly above the rising support line. The same was the case in April, 2020.

In the following month – the one analogous to May 2020 – gold initially moved higher, but then it plunged to new lows and finally closed the month below the rising support line. We might see something very similar this month.

Speaking of this month in particular, let’s check how gold usually (seasonally) performs in May.

In short, gold usually tops in the first half of the month, and bottoms in its second half. It then recovers, but moves to new highs only in June. This more or less fits what we expect to see later this month also this year.

All in all, the outlook for the USD Index is bullish, which is likely to trigger a decline in the price of gold. Ultimately, gold is likely to recover and soar in the following years, but the opposite seems more likely for the following weeks.

Thank you for reading today’s free analysis. Please note that it’s just a small fraction of today’s full Gold & Silver Trading Alert. It also includes the fundamental analysis of the Great Lockdown with the emphasis on the dramatic changes on the US jobs market, as well as technical discussion of silver, mining stocks, USD Index, platinum, and palladium. They say that the partially informed investor is just as effective as partially trained surgeon… You might want to read the full version of our analysis before making any investment decisions.

If you’d like to read those premium details, we have good news. As soon as you sign up for our free gold newsletter, you’ll get 7 access of no-obligation trial of our premium Gold & Silver Trading Alerts. It’s really free – sign up today.

Przemyslaw Radomski, CFA

Editor-in-chief, Gold & Silver Fund Manager

Sunshine Profits: Analysis. Care. Profits.

* * * * *

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.

 

Technical Analysis Points To Key Reversal Of Global Markets

Recently, we received a number of email messages and comments regarding our recent Bitcoin article and how we attempted to explain the market trend/technical analysis.  It appears we were not making our interpretation very clear for our friends and followers.  This article should help to clear up our interpretation of the major market trends and our advanced technical analysis tools and utilities.

As purely technical traders, there are certain things we want to make clear.  First, we do pay attention to what is happening to the fundamentals and global economic data when it posts.  We’ve authored many previous articles stating our belief that “capital is like a living/breathing entity which attempts to survive (generate ROI with little risk) in various global market environments”.  In order for us, as technical traders, to identify real opportunities for superior trades, we must be aware of what is happening in the “environment” that surrounds us.

A perfect example is a recent collapse in oil.  We continue to read articles of how thousands of traders believed super-low oil prices were a GIFT and these traders piled into long trades expecting oil to rebound higher.  This happens when technical traders fail to understand the environment in which the instrument is trading within.  At this time, the supply side for oil vastly outweighs the demand-side – so the environment is skewed towards much weaker price activity.  The chance that any moderate price recovery would take place is minimal until the supply glut is diminished.

One of the easiest ways to think of a truly technical trader is that we don’t care if the price goes up or down, we just care that our technical triggers and indicators present clear opportunities that are superior to more traditional methods of trading.

To accomplish this, we believe we must understand the environment in which we are trading and the technical conditions that are present within the charts.  Technically, the price may be going up within a defined bearish/downtrend. This does not mean the upside price move is a technically valid “trade trigger”.  The opposite may be true for a move down in a bullish trending market.  Without proper confirmation of the overall technical bias, environment, and shorter-term technical triggers – one might as well throw a dart at a wall and hope for the best.

In our view, we issue many published research reports for our friends and followers to read and review every week.  We show both bullish and bearish potential outcomes and depending on which way the market breaks we will execute trades in that direction. What we do not do, is trade based on forecasts/predictions. Instead, we follow the price.

Our interpretation of the technical triggers, economic data, forward expectations, and other setups are designed to help you learn how we conduct our research and to help you find opportunities in the markets.  Our members receive this same research and more – they receive our hand-selected trade triggers.  These are the best technical setups/trade triggers known as BAN Trades (Best Asset Now) so we can find that provide superior opportunities for skilled traders.

This chart, below, shows our historical results for the past 2.5 years.  You’ll notice that we do sometimes take losses – yes.  You’ll also notice the consistency of the profits – yes.  We hope you’ll also notice that we work very hard to make sure our member’s success is the first priority in everything we do.

2020 has been a slow year for overall portfolio gains simply because of the market crash and extreme volatility. My #1 goal is to trade when risk is manageable, and the market is predictable. Don’t get me wrong, we have made money on the SPY, over 20% in TLT, 9.5% in GDXJ, and yesterday we locked in 11% on natural gas, so we are trading. But position sizes are small in comparison to our overall portfolio value so we don’t get oversized portfolio growth. When indexes, sectors, and commodities are moving 10-90% a day, it’s a time when position sizing becomes curial for survival.

You will not notice the market crash this year had no impact on our account because we did one of the best trades during the unexpected and unpredictable crash, we moved to 100% cash. Our results are based on a $20K account and over the past 2.5 years we are averaging 33% ROI with very little drawdowns.

Now, back to technical analysis…

Our research team believes the markets have set up a massive downside price advance (creating a much deeper low that confirms Fibonacci price theory and aligns with our Fibonacci Price Amplitude Arcs), which sets up a very unique technical pattern.  Until the price is capable of establishing a series of new higher-high points through consecutive upside price advances AND until the Weekly and Monthly charts confirm a new high price breakout – technically speaking, we’re still in a bearish price trend.

Weekly S&P 500 (SPY) Chart

This Weekly SPY chart, below, shows you three key technical factors that tell us there is a greater risk of a breakdown in price than any upside price trend continuation…

A.  The recent low/bottom price level broke below the December 2018 low price level (new lower low).

B.  The GREEN ARC price level is a massive 1.618 Fibonacci Price Amplitude Arc that suggests massive resistance exists at this level.  Price moving above this level then falling back below it suggests a “scouting pattern” type of event took place and FAILED.

C.  Recent price activity has rallied from recent lows too, again, reconfirm the GREEN ARC resistance level.  We believe this Fibonacci Price Amplitude Arc will present a major price ceiling as Q2 and Q3 economic data pushes forward – driving the price lower over time and eventually targeting the RED support level near $208 in July or August.

You may remember that we’ve been suggesting a bottom will not complete until sometime after July or August 2020 in previous research posts.  Now you know where we derive these projections and expectations, we use technical analysis and our advanced predictive modeling tools to “see into the future”.  Believe it or not, we’ve already mapped out SPY price activity 10+ years into the future.

Weekly Transportation Index (TRAN) Chart

This TRAN Weekly chart also helps to confirm our technical analysis research.  We are deploying the same types of technical analysis tools on all of these charts to show you how our research team attempts to identify trends and opportunities.  You can see the heavy LIGHT RED Fibonacci Price Amplitude Arc near the peak in February 2020.  This Arc represents a massive price resistance channel.  You may also notice the thinner ORANGE Fibonacci Price Amplitude Arc that touches recent lows?  This arc acts as Support in its current form.

Our proprietary Adaptive Fibonacci Price Modeling System is drawing a CYAN projected target level from recent lows where the heavy CYAN line is displayed on this chart.  Additionally, a previous BLUE target level is also displayed on this chart which originated from the recent PEAK in February 2020.  Now, pay attention to where the TRAN price has found recent resistance and stalled…  RIGHT AT THOSE LEVELS.

We believe the failure of the SPY and TRAN to move above the ARCs and Fibonacci price targets suggests a critical upward price trend failure.  A failure of this nature will prompt a new downside price move in the near future as price must always attempt to establish new price highs or new price lows based on the Fibonacci Price Theory (technical analysis).

Monthly Dow Jones Industrial (INDU)

This last chart, the Monthly INDU, is probably the most impressive one so far.  Clear Fibonacci Price Amplitude Arcs suggest massive resistance near the February 2020 peak levels.  A very clear downward price channel originating from the February 2018 lows and transitioning across the December 2018 lows and into current lows.  An Adaptive Fibonacci Price Modeling System target price (CYAN) near 8108 (very near current price levels) and a very clear technical price pattern (Dojis) suggesting a potential top or price reversal is setting up.  Lastly, the recent deep low price stalled very near to the historical YELLOW DASHED price channel that spans the 2000 and 2007 price peaks.

Pulling all of this technical analysis together with simple Fibonacci Price Theory suggests that until the markets can prove to us that price is capable of establishing we upside price structures, the recent deep new price low (near 18,265) suggests future price action may collapse even further and attempt to establish a new, deeper, “new price low” before the real bottoms set up in the markets.  On this INDU chart, it suggests that a “deeper price low” may result in a move well below the YELLOW DASHED price channel from 2000/07 and attempt to move to the RED Fibonacci Price Target level near 14,000.

Concluding Thoughts:

Obviously, we are still very bearish in terms of the current overall market trend.  No technical analysis technique has shown us that the intermediate and longer-term trends have changed direction to Bullish.  Yes, our Daily systems did identify a bullish trigger within this bearish trend on the SPY which we executed successfully for our members.  There is an opportunity to take a bullish trade within a bearish price trend when technical analysis confirms the trigger and it is executed properly.

If you are using our free public research for your own trading decision-making and/or using it as an opportunity to find and execute successful trades, please remember you are the one ultimately making the decisions to trade based on our interpretation and free research posts.  We, as technical traders, will continue to post new research articles and content that we believe is relevant to the current market setups.

If you want to improve your accuracy and opportunities for success, then we urge you to visit www.TheTechnicalTraders.com to learn how you can enjoy our research and our members-only trading triggers (see the first chart in this article).  If you are managing your retirement account or 401k, then we urge you to visit www.TheTechnicalInvestor.com to learn how to protect your assets and grow your wealth using our proprietary longer-term modeling systems.  Our goal is to help you find and create success – not to confuse you.

Our researchers will generate free research on just about any topic that interests them.  As technical traders, we follow price, predict future price moves, tops, bottoms, and trends, and attempt to highlight incredible setups that exist on the charts.  What you do with it is up to you.  Visit www.TheTechnicalTraders.com/FreeResearch/ to review all of our detailed free research posts.

In closing, we would like to suggest that the next 5+ years are going to be incredible opportunities for skilled traders.  Remember, we’ve already mapped out price trends 10+ years into the future that we expect based on our advanced predictive modeling tools.  If our analysis is correct, skilled traders will be able to make a small fortune trading these trends and Metals will skyrocket.  The only way you’ll know which trades to take or not is to become a member.

Chris Vermeulen
Chief Market Strategist
Founder of Technical Traders Ltd.

 

ADL Predictive Modeling Suggests US Stock Market Recovery In Q4 2020

Our research team has put together these charts of our ADL modeling system (Advanced Dynamic Learning), which shows a very clear upside price recovery starting to take place in late September or early October of this year. The ADL system also suggests the recovery may last through most of Q4:2020 before the markets collapse again in early 2021.

This predictive modeling system has become somewhat of a hit with our members and our followers.  We continue to get requests from members for selected ADL research related to Oil, the NASDAQ, or other symbols. The idea that we can attempt to see into the future with a certain degree of accuracy would certainly appeal to any trader/investor.

These updated ADL charts show that the US stock market may stay under some downward/sideways pricing pressure until last September 2020 – prompting a Q4 “Santa Rally”, before the markets appear to find a new extreme weakness in early 2021.  This suggests a brief uptick in consumer activity and economic engagement centered around the November 2020 elections and the 2020 Christmas Holiday season, then back to a more contracted economic mode in early 2021.

YM Monthly Chart

This YM Monthly chart highlights our ADL predictive modeling system’s results from a September 2019 origination point.  The one thing we want to add about the ADL system and the current Covid-19 virus event is that our ADL system attempts to map historic price activity into “DNA markers” and uses those DNA markers to attempt to identify and predict future price activity.  Obviously, there has been nothing like the Covid-19 virus event in recent history.  Thus, the ADL predictive modeling system is attempting to apply price DNA to an event that is unprecedented in 80+ years of price history.

Our researchers believe the ADL system will be able to pick up inherent price rotations and trends that relate to existing price DNA markers, yet the scale and scope of the price moves related to the current Covid-19 event may be much larger and more volatile than the ADL predictive modeling system is capable of indicating.  For example, take a look at the YM chart below and realize that price moved well beyond the ADL predictive price markers on this chart.  This is not an anomaly in price, this is an extreme moment in time that the ADL predictive modeling system is incapable of modeling accurately.

Thus, as we are showing you the ADL predictive modeling results, remember that extreme volatility related to the global market event could push the price 6% to 15% further away from these predicted price levels very easily as volatility increases.  Thus, a bottom shown on this chart near 24,000 with the ADL system could actually result in a price bottom near 22.460 or 20,400 (6% to 15% below the projected price level).

Monthly NQ Chart

This Monthly NQ chart shows that the tech-heavy NASDAQ may provide a more stable sideways market rotation over the next 6+ months than the S&P500 or the Dow Industrials.  The ADL system is suggesting that the NQ will likely move lower over the next 3+ months before recovering back to the 9,000 price range in September/October 2020.  Again, we see moderate weakness in price in early 2021 for a short period of time before price attempts to resettle near 9,200 in Q2:2021

This suggests the NASDAQ will continue to attract foreign investment and show more restrained price volatility than the Dow or the S&P.  Again, pay attention to the extreme volatility in the markets and how the price has extended 5% to 15%+ beyond the ADL predictive price levels.  Until the volatility subsides, continue to expect this extreme price rage volatility.

Our ADL system accurately predicted the month gold started a new bull market last year which Eric Sprott talked about, and we predicted the month oil was going to crash as well.

Concluding Thoughts:

Overall, it appears September/October of 2020 is setting up for a moderate US stock market price recovery. Until then, it appears we have a bit of additional price rotation and volatility to contend with.  The interesting take-away from all of this is that our original expectation for a price bottom near or after June or July 2020 seems very accurate.

Technical traders should wait for the price to confirm these predictions before taking any actions.  This is a great market for skilled short term traders to find opportunities.  But it is also very dangerous for traders to chase trends.

The next few years are going to be full of incredible opportunities for skilled traders and investors.  Huge price swings, incredible revaluation events, and, eventually, an incredible upside rally will start again.

I’ve been trading since 1997 and I’ve lived through numerous market events.  The one thing I teach my members is that risk is always a big part of trading and that’s why I structure all of my research and trading signals around “finding profits while reducing overall risks”.  Sure, there are fast profits to be made in these wild market swings, but those types of trades are extremely risky for most people – and I don’t know of anyone that wants to risk 50 or 60% of their assets on a few wild trades.

I’m offering you the chance to learn to profit, as I do with my own money, from market trends that I hand-pick for my own trading.  These are not wild, crazy trades – these are simple, effective, and slower types of trades that consistently build wealth.  I issue about 4 to 8+ trades a month for my members and adjust trade allocation based on my proprietary allocation algo – the objective is to gain profits while managing overall risks.

You don’t have to spend days or weeks trying to learn my system.  You don’t have to try to learn to make these decisions on your own or follow the markets 24/7 – I do that for you.  All you have to do is follow my research and trading signals and start benefiting from my research and trades.  My new mobile app makes it simple – download the app, sign in and everything is delivered to your phone, tablet, or desktop.

I offer membership services for active traders, long-term investors, and wealth/asset managers.  Each of these services is driven by my own experience and my proprietary trading systems and modeling systems.  I have a small team of dedicated researchers and developers that do nothing but research and find trading signals for my members.  Our objective is to help you protect and grow your wealth.

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
Technical Traders Ltd.

 

European Equities: A Month in Review – 01/05/20

The Majors

It was a bullish month of April for the European majors, with the DAX30 rallying by 9.32% to lead the way. The CAC40 and EuroStoxx600 saw more modest gains of 4.00% and 6.24% respectively.

Following the March sell-off across the majors, economic data took a back seat throughout the month.

The market focus was on COVID-19 numbers, the global lockdown, the government plans to ease lockdown measures, and fiscal and monetary policy.

Through the month of April, the number of new COVID-19 cases peaked and eased back through the final week.

The numbers supported moves by EU member states to begin easing lockdown measures that delivered much need support to the majors.

It certainly wasn’t plane sailing, however. The economic calendar delivered some alarming numbers, with the IMF also giving the markets a reality check with its 2020 economic growth forecasts.

In spite of all the negativity on the economic data front, however, the markets were able to avoid a full reversal.

The Stats

It was a hectic month on the Eurozone economic calendar in April. While the markets tended to show little interest in the historic numbers, there were some noteworthy stats…

The Eurozone’s April Composite and Services PMIs both fell to record lows, with business and consumer confidence in Germany also sliding to record lows.

For the manufacturing sector, the Eurozone manufacturing PMI fell to a 134-month low…

Following some quite dire stats and the IMF’s economic forecasts, the markets were somewhat prepared for the 1st quarter GDP numbers.

According to 1st estimates, the Eurozone’s economy contracted by 3.8% in the 1st quarter, which was the worse contraction in the Eurozone’s history. The French economy contracted by 5.8%, also a record, with the Spanish economy contracting by 5.2%.

Monetary and Fiscal Policy

While EU member states managed to agree to a €540bn COVID-19 Bailout Fund, it fell well short of ECB and market expectations.

A failing by EU member states, less adversely impacted by the virus, to agree to a more meaningful sum was a red flag. While the broader market is expecting an agreement to a sizeable package to be reached, failure will bring into question the EU project itself.

EU member states including Italy and Spain will likely question their membership to the EU and the EUR.

On the monetary policy front, things were not much better if you compare the ECB response to that of the FED. At the month-end, Lagarde called on EU member states to deliver more fiscal support, as the ECB held back from expanding its bond-buying program. The ECB did cut funding costs for banks but stopped there…

Both the FED and the U.S administration continued to deliver throughout April, which added to the upside for the equity markets.

The Market Movers

For the DAX: It was a particularly bullish month for the auto sector. Continental and Volkswagen surged by 20.22% and by 21.68% to lead the way. BMW and Daimler weren’t far behind with gains of 17.24% and 16.76% respectively.

It was also a bullish month for the banks. Deutsche Bank rallied by 16.35%, while Commerzbank surged by 19.80%.

Deutsche Lufthansa struggled, however, with liquidity concerns and a negative outlook delivering a 4.66% loss. The downside came in spite of a sharp rise through the final days of the month.

From the CAC, it was a mixed month for the banking sector. BNP Paribas and Credit Agricole rose by 4.22% and by 8.82% respectively. Soc Gen bucked the trend with a 7.09% loss.

The auto sector found support, with Peugeot and Renault gaining by 7.44% and by 2.77% respectively.

Air France-KLM and Airbus SE saw red, however, with losses of 8.85% and 2.46% respectively.

On the VIX Index

In April, market fear melted away, with the VIX sliding by 36.22%. Reversing a 33.48% gain in March, the VIX ended the month at 34.2. The April reversal brought to an end a run of 4 consecutive months in the green. The VID had a March high 85.5 before the reversal began.

It was the best month since the 1980s for the U.S equity markets. Fiscal and monetary policy support were both key to the upside.

Plans to reopen parts of the U.S economy also provided support, though the gains could have been more significant. Progress in finding an effective COVID-19 treatment drug was key alongside the falling numbers and plans to reopen.

At the end of the month, earnings and disappointing economic data did weigh, however.

In spite of a Thursday pullback, the S&P500 ended the month up by 12.68%, which was the 3rd largest monthly gain on record.

VIX 01/05/20 Monthly Chart

The Month Ahead

It will be another busy month on the Eurozone economic calendar. We will expect particular interest in the private sector PMIs for May, unemployment figures, and business and consumer confidence figures.

Following the record low PMIs in April, the markets will be looking for a less marked contraction in May.

As EU member states reopen for business, the badly hit services sector should see some improvement. The PMIs will give the markets an idea, however, of just how quickly the respective economies can rebound.

Looking at April’s gains, there are lingering hopes of a v-shaped economic rebound. This hope comes in spite of the economic data suggesting otherwise.

On the monetary and fiscal policy front, EU member states will need to deliver a sizeable stimulus package. Failure to reach an agreement will raise further questions over the continued viability of the EUR and the EU Project…

While we will expect chatter from the U.S to also influence throughout the month, COVID-19 news will remain key.

At a minimum, positive updates on the COVID-19 treatment drug remdesivir will be needed. Any positive updates will need to be accompanied by a continued fall in new cases.

A worst-case scenario would be negative updates on the effectiveness of remdesivir and a jump in new cases resulting from the easing of lockdown measures.

US Stock Market Enters Twilight Zone

The US stock market has rallied substantially since the bottom on March 23, 2020.  Our Adaptive Fibonacci Price Modeling system is showing us just how fragile the US stock market and certain sectors of the markets really are right now.  What’s going to happen next and how should you prepare for the next big move?  Let us try to explain our beliefs.

First, the US stock market bottom just as the US Senate and Fed announced major stimulus packages designed to support the collapsing markets.  Everything done prior to the March 23 date was “fodder” as the risk to the global markets was far greater than anything the US Fed or global central banks could muster.  On March 23, the US Fed initiated an unlimited asset purchase program to support the failing markets.  This changed the perspective of traders/investors immediately – but it also created a massive risk factor that few even considered. For a complete timeline on the US Fed actions, review this link.

Our own research team was calling for a breakdown in the US and global markets many months in advance of this move – even before the world knew about the Chinese/Wuhan virus event.

Today, we are posting this research article to highlight the unique setup in many of the major US stock indexes and sectors.  Using our Adaptive Fibonacci Price Modeling system, two things become clearly evident in the charts…

A.  Price must hold above support levels (the upper TRIGGER ZONE level and/or the GREEN Fibonacci Trigger level on the right side of the chart) in order for the uptrend to continue.

B.  Price has already reached (in most cases) the CYAN Fibonacci projected target level and this level may turn into major resistance pushing the price back into a downtrend.

Daily SPY Chart

This first Daily SPY chart clearly highlights the setup we are describing.  First, take a look at the CYAN line on the chart near the 282.97 level.  This Fibonacci target level becomes support when price moves above it and becomes resistant when price moves below it.  Currently, the SPY is trading very near to the 283 level and we believe this level may turn into massive resistance over the next 5 to 10+ days.

Secondly, take a look at the TRIGGER ZONE on this chart (a price zone drawn between the Bullish and Bearish Fibonacci price trigger levels).  This zone represents a very dangerous price area where the overall price trend may change directions and where volatility could explode. As long as the price stays above this zone, then moderate bullish price activity should be expected.

If the price falls below this zone, then moderate to strong bearish price activity should be expected.  The reason why the downside risk is much greater than the upside potential is because of the recent downtrend in the market that sets up a “recent higher high” near 295.50.

Monthly SPY Chart

This Monthly SPY chart highlights the longer-term Fibonacci price analysis.  The extreme breakdown in price has already broken below the RED Fibonacci Bearish price trigger level near $300 and broken through the BLUE initial target level near $279.00.  The next downside price target levels are GREY, near $173.40, and RED, near $128.00.  Currently, the SPY price has rallied back above the BLUE target level and is stalling near $282~285.  This price level is already below the $300 Bearish Trigger level – which suggests further downside price activity in our future.

Additionally, pay attention to the “arcs” that are on this Monthly chart.  These are our proprietary Fibonacci Price Amplitude Arcs that show us where price may target based on a theory that each price trend creates “price amplitude waves” into the past and future.  Currently, the “4D” area on this chart is our most likely bottom area.  There is also a “1.618” GREEN price arc that is just above the current price level (near $292).  We believe this Green 1.618 level is acting as major resistance and that price will reverse back to the downside within a 5 to 10-day window.

Weekly Transportation Index Chart

This Weekly TRAN, Transportation Index, chart highlights a similar pattern but also shows how much downside pricing pressure is still evident across different sectors of the markets.  Even though the ES, NQ, and YM have rallied to near 50% to 61% of the initial downside price move, the Transportation Index has only recovered to the 38.2% Fibonacci Retracement level.  This suggests that the US Fed and global central banks have poured capital into the blue chips and technology sectors while leaving much of the broader market bloodied and on the sidelines.

A similar type of setup is appearing in this TRAN chart.  The CYAN target level has been reached and the price has stalled just above this level.  The TRIGGER ZONE is clearly evident on the chart and the price is slightly above that level right now.  Very clear downside price targets are evident (RED, Blue and GREY) and any price move below $7565 will likely prompt a much bigger downside price move.  What we are seeing in the markets is that any substantial downside price rotation will potentially set up a much bigger downside price collapse in the US and global markets.

Weekly XLF Chart

This Weekly XLF chart, the Financial Sector SPDR ETF, sets up almost identical to the TRAN chart.  Deeper price targets, the price has already reached the CYAN target level and stalled recent downside price rotation, and a very real possibility that any downside price move could breach the Fibonacci Bearish Price Trigger Level near $21.

What happens if, suddenly, the US and global markets roll lower by 5% to 10% and a new wave of selling panics the markets?

Concluding Thoughts:

The answer is that the US and global markets will attempt to reach the most recent low price levels, or one of the deeper Fibonacci bearish target levels on these charts, and attempt to find support (or true market value) before attempting any move higher.  One must understand that until price shows us that it is capable of rallying above all-time highs, there is still a very real risk that another downside price move could take place.

These TRIGGER ZONES are key to understanding where the fragile balance in price is located on these symbols. As long as price stays above this zone, then continued bullish price action should be expected. If the price falls below this zone, then more downside price activity should be expected.

If you pay very close attention to almost all of these charts, you’ll notice that the next Fibonacci upside price targets (above the CYAN level) are well above the most recent all-time high levels.  This suggests that price will have to rally well above these all-time high levels to qualify the next bullish price target.  It could happen if the global markets recover much quicker than we expect and the earnings/GDP damage is minimal.  But given what we believe is really happening throughout the world right now, the downside targets seem more realistic outcomes (unless the US Fed and global banks absorb $40 to $50 Trillion in global risk assets over the next 60 days.

Watch how the markets react to these price levels and how the longer-term price pivots setup on these Weekly/Monthly charts.  The price will tell us where it wants to go.  We just have to be on the right side of the move so we don’t get slaughtered by a sudden price move.

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

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

Ride my coattails as I navigate these financial markets and build wealth while others watch most of their retirement funds drop 35-65% during the next financial crisis.

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

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

Chris Vermeulen
Chief Market Strategies
Founder of Technical Traders Ltd.

 

Is Natural Gas Ready For An April Rally?

Our researchers have been following Natural Gas for many months and believe the current price level, near $1.65, is acting as a continued historical support level (a floor in price).  Our researchers also used one of our data mining tools to attempt to identify if any opportunity exists in NG over the next 30 to 60+ days for skilled traders.  The purpose of this data mining tool is to explore historical price activity and to determine if there is any true price “bias” that exists within certain months.

For example, if we could determine that Natural Gas tends to rally in April by a 2:1 ratio (historically) and that the rally in NG is typically somewhere between $0.50 and $1.50 to the upside, then we could attempt to use this information to set up a trade that allows us to attempt to profit from this potential future trend bias.  A 2:1 ratio would indicate that, historically, the price rallied 10 times and didn’t rally 5 times over a span of 15 instances.

Our data mining utility reported the following data for April, May, and June in Natural Gas.

Monthly Natural Gas Price Chart

If we look at the APRIL data, the POS bars = 17 and the NEG bars = 8 – that sets up a slightly greater than 2:1 ratio of advancing price over declining price in April.  The “Total Monthly Sum” across 25 instances of data is $1.12 whereas the Average for the POS price activity comes to just $0.24.

This suggests that in April, we have a fairly high opportunity for some upside price activity in Natural Gas based on this data – a nearly 2:1 advancing price ratio (historically).  Yet it also means that advancing price may only rally $0.35 to $0.75 from any price bottom – so we have to be aware of risks that may exists with a small price advance from the current low levels.

If we take a look at the MAY data, the POS bars = 13 and the NEG bars = 11 – that sets up a 1.18:1 ratio that suggests a very slight advantage to the possibility that continued upside price activity will happen in May.  Yet, the upside price advantage shown my the “Total Monthly Sum” data suggests a very big opportunity for a breakout rally in May (+$2.40).  The way I interpret this data is to understand that May is roughly 60/40 biased to the upside whereas if any upside move takes place in April, a continuation of that trend in May could be incredibly profitable with a proper strategy.

Take a look at the JUNE data and try to come up with an interpretation yourself.  The POS bars / NEG bars represent a less than 1:1 ratio.  The Total Monthly Sum ($0.21) is not a very substantial price advance.  The data is somewhat indecisive or inconclusive in suggesting any real price advantage in June for trading.

Yet, we have a very clear advantage in April and May.  So, how are we going to approach this trade setup?

Weekly Natural Gas Chart – Cycles & Support

Currently, NG is testing very deep price levels within the BLUE support range box.  Aggressive traders can attempt to look for opportunities within this range but must understand risks are still high for continued moderate price decline before a bottom sets up in April.  Skilled traders would wait for the bottom to set up and possibly look for opportunities in ETFs as a means to limit risks on initial positions – attempting to scale into the trade comfortably.

Once the rally in NG really sets up and breaches the $1.98 level moving higher, then we believe we have a very real rally on our hands that may see price levels back above $2.75 eventually.  The $1.85 to $1.99 price level will act as resistance as price attempts to move higher.

Why are these types of setups so important to skilled traders?  Historical price structures and patterns, like this data mining pattern, help to clearly illustrate strategic advantages in certain markets for skilled traders. Determining how to set up a proper trade knowing this data is also important.  Risks exist with every trade you make and I’m sure we’ve all learned a lesson or two about making a hasty trade and not thinking about it?

Our research team believes April and May 2020 could be very exciting for Natural Gas.

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

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

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

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

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

Chris Vermeulen
Chief Market Strategies
Founder of Technical Traders Ltd.

 

Gold Update – A Stress Free Strategy for Volatile Markets

Today’s markets move faster than ever. A profitable trade one day can turn into a substantial loss overnight. Protective stops are smart but trigger unnecessarily with high volatility. You could have three perfectly executed trades in a row, and the fourth could wipe out everything.

I grew tired of the instability and blatant manipulation in precious metals, over the next few weeks, I’ll be switching to an Accumulative Metals Portfolio (AMP). The strategy will be simple, easy to follow, and in theory, should improve long-term gains. But best of all – I’ll sleep better.

ACCUMULATION STRATEGY

An accumulation strategy works best in long-term bull markets. In my article Gold Price Forecast for The Next Decade, I explained how gold could exceed $8000. At that time, I wasn’t sure what would kick off the decade long bull market. Now, it’s clear to see the coronavirus is the perfect trigger.

An accumulation strategy is simple. Select high-quality investments and add to them regularly (weekly or monthly). Some may choose to buy when prices fall below a specific level, say the 50-day EMA. For me, I’ve decided to buy/accumulate when our Gold Cycle Indicator falls below 100 (currently 132).

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WEIGHTED PORTFOLIO

Here is an example of an equally weighted portfolio. Depending on your risk tolerance, you may choose to be overweight or underweight certain areas. In my strategy, I’ll look to add to whatever stocks are underperforming on a percentage basis. As the bull market advances, I may need to eliminate or add different stocks. Below is an example using google docs.

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All-in-all, I don’t think the world will ever be the same after COVID-19. As governments continue to print money and debase their currencies, the rush to precious metals will only intensify. My long-term target of $8000 in gold may be conservative. Physical bullion is favored and should be the first thing you buy…if you can find some. After that, you may want to consider high-quality miners.

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

Three Charts Every Trader and Investor Must See

Understanding the stock market and its potential through the use of technical analysis and historical price events has been proven repeatedly to outperform all forms of fundamental trading styles. The following is a story that walks you through my experience, the shift in my mindset and how I came to the conclusion that the three charts I share in this article are critical to your understanding of to make money in today’s market!

When I first learned to trade, I got all caught up with researching companies and finding the ones with the best earnings and future growth. I did that for several years after studying and following many “professional traders” who said it was the best way to trade and invest long term. We lost our shirts during the 2000 bear market by continuing to trade on fundamentals as stocks fell in value week after week. Even the companies that showed quarterly earnings growth fell in value – none of it seemed to make any sense to me, and it was very frustrating.

Losing money when buying the best companies made no logical sense, making me step back from the markets and ask myself, ‘what am I doing wrong here‘. People today are asking themselves the same question given today’s dizzying markets:

· Telsa shares fell from $971 a share down to $347, whopping 63% drop, in only a few weeks and then rebounded again too xx

· Netflix is down 30%, even though people are stuck at home desperately trying to find things to watch)

· Amazon has fallen 26% in the past couple of weeks despite soaring demand for their delivery services

· GDXJ, the gold miners sector that is typically a safe haven during times of volatility, crashed 57% even though gold is usually a safe haven during times of volatility.

So, what was I doing wrong? I started calling and visiting traders who were making money during the bear market to see what they were doing, and 100% of them were doing the same thing – Trading with Technical Analysis. I wasn’t doing anything wrong, per se. I was simply using the wrong tools and analysis for success!

What is Technical Analysis? In short, it’s the study of price, time, and volatility of any asset using price charts and indicators. Traders use technical analysis to find cycles and patterns in the market and trade on the analysis of preferred indicators as opposed to the fundamentals of a company and/or the economy in general.

When you start studying technical traders, you will notice every trader has a particular time frame, a preferred set of indicators, and trading frequency that fits their unique personality and lifestyle. Their brains can see the charts in ways you and I may not see them to predict future price direction over the next few hours, days, weeks, or months ahead. I quickly learned there are infinite ways to trade using technical analysis.

I was very surprised by how much these pro traders allowed me. While standing over their shoulders, I was looking at their charts to try to divine their high-level strategies and learn how they think, analyze, and trade. It was amazing how different each of them traded the market. Some traded currencies; others traded stocks, indexes, options, futures, etc. Most were day traders, swing traders, or a mix of the two. But none of them gave me their secret sauce. That is why I turned 100% of my focus to technical analysis. I was excited at the prospect of being able to profit from both rising and falling prices and no concern for anything other than price action reduced my research time dramatically. It was and is the biggest AH-HA moment of my life and a turning point for my career as a trader.

The year was 2001, when I made the shift to technical analysis. I unsubscribed from everything fundamental based. I canceled my CNBC, stopped listing to news, and stopped reading other people’s reports altogether. My goal was to create my own technical trading strategy that best suited my personality and lifestyle. I would have to discover the securities I was most comfortable trading, the frequency I would trade, and the type and amount of risk I was prepared to take.

I traded options, covered-calls, currencies, stocks, ETFs, and futures. From day trading to position trading (holding several months), I tried it all, hoping something would click for me to pursue at a much deeper level. Day trading, momentum, and swing trading were my sweet spots. Having three of them was a bonus as I know some traders only ever master one in their lifetime if they are lucky. I grew a liking for trading the major indexes like the DJIA, S&P 500, and Nasdaq… great liquidity with big money always at play.

Along my journey, I realized that if I could predict the overall market trend direction for the day or week, then I could day-trade small-cap stocks in the same direction as the index, knowing 80+% of the stocks follow the general stock market trend. I could generate much larger gains in a very short period of time. As time went on, I became comfortable predicting, trading, and profiting from the indexes, and my new trading strategy began to emerge.

I was fortunate enough to start learning about the markets and trading in college with a $2,000 E-Trade account, and then retiring (kinda) in 2009 at the age of 28. I built my dream home on the water, bought cars and boats, and spent time traveling with my growing family. I love trading and sharing my analysis with others – it is better than I had ever imagined and why I continue to help thousands of traders around the world.

I contribute 100% of my trading success and lifestyle to the fact that I embraced technical analysis, where my strategy involves nothing more than price movement, position-sizing, and trade risk management techniques. All these allow me to easily reduce exposure, drawdowns, and losses with proper position sizing and protective strategies. My strategy is represented by human psychology and historical trading, as expressed in the three charts below.

Chart 1 – Human Psychology Is What Drives Price Action

This chart is my favorite as it explains trader and investor psychology at various market stages. It also includes a simplified market cycle in the upper right corner, letting you know where the maximum financial risk is for investors and the highest opportunity for a trade.

Chart 2 – 2000 Stock Market Top & Bear Market That Followed

The chart may look a little overwhelming, but look at each part and compare it to the market psychology chart above. What happened in 2000 is what I feel is happening this year with the stock market sell-off.

In 2000, all market participants learned of at the same time was that there were no earnings coming from their darling .com stocks. Knowing they were not going to make money for a long time, everyone started selling these terrible stocks, and the market collapsed 40% very quickly.

What is similar between 2000 and 2020? Simple really. COVID-19 virus has halted a huge portion of business activity, travel, purchases, sporting events, etc. Everyone knows earnings are going to be poor, and many companies are going to go bankrupt. It is blatantly clear to everyone this is bad and will be for at least 6-12 months in corporate earnings; therefore, everyone is in a rush to sell their stock shares and are in a panic to unload them before everyone does.

Chart 3 – The 2020 Stock Market Top Looks To Be Unfolding

As you can see, this chart below of this year’s market crash is VERY similar to that of 2000 thus far, it’s based on a similar mindset, which is the fear of losing money, which causes everyone to sell their positions.

I am hopeful that we get a 25-30% rally from these lows before the market starts to fall and continue the new bear market, which I believe we are entering. Only the price will confirm the direction and major trend to follow, and since we follow price action and do not pick tops or bottoms, all we have to do is watch, learn, and trade when price favors new low-risk, high reward trade setups.

It does not matter which way the market crashes from here, we will either profit from the next leg down, or will miss/avoid it depending on if we get a tradable setup. Either cause is a win, just one makes money, while the worst-case scenario just preserves capital in a cash position, you can’t complain either way if you ask me.

Before you continue, be sure to opt-in to our free market trend signals 
before closing this page, so you don’t miss our next special report!

Concluding Thoughts:

In short, is if you lost money during the recent market crash, then you likely have not mastered a technical trading strategy and do not have proper trade management rules in place. All traders must manage risk and trades to be sure you lock in profits and limit losses when prices start pullback or collapse. Without either of these, you will not be able to achieve long term success/gains, and that’s a fact.

While we can all make money during a bull market when stocks are rising, if you cannot retain or grow your account during market downturns, then you may as well be a passive buy and hold investors. You are better at riding the emotional investor rollercoaster without wasting your time and effort as a trader if you are not going to spend the time and money to learn to follow someone to become a successful trader. Without proven trading strategies or someone to follow, you are more likely to underperform a long-term passive investor.

I get dozens of emails from people every week trying to trade this wild stock market and use leveraged ETFs, which doing so during these unprecedented market conditions is absolute craziness if you ask me.

These people think that because there are big moves in the market, they should be trading. That big money should be made trading them, which drives me crazy because it could not be further from the truth unless you are a scalp or day trader. To me, in this market condition, it’s about preserving capital, not risking it, in my opinion.

A subscriber to my market video analysis and ETF trading newsletter said it perfectly:

“Always intrigues me how many amateur surfers get to the north shore beaches in Hawaii, take one look at monster waves and conclude it’s way too dangerous. Yet the amateur trader looks at treacherous markets like these and wants to dive right in!!” Richard P.

I have to toot my own horn here a little because subscribers and I had our trading accounts close at a new high watermark for our accounts. We not only exited the equities market as it started to roll over we profited from the sell-off in a very controlled way.

I hope you found this informative, and if you would like to get a pre-market video every day before the opening bell, along with my trade alerts, visit my ETF swing trading visit my website at www.TheTechnicalTraders.com.

Chris Vermeulen
Founder of Technical Traders Ltd.

 

Is Gold Mirroring 1999 to 2011 Again?

Our research team continues to dig into underlying patterns and set up in the global markets to assist skilled technical traders in understanding the current Covid-19 virus event and other key technical data.  Recently, we’ve authored a number of detailed research articles that we believe helped prepare traders for the events of the past 30 to 90+ days.

Today, we are writing about a pattern our research team is seeing in the Gold/Silver ratio which is correlated to the price movement of Gold.  What does this mean and how can we profit from this setup?  Let’s get started trying to explain this chart pattern/setup.

Gold:Silver Ratio Chart From a New Angle

This first chart highlights the pattern we have identified and how we believe a similar pattern is setting up again in the current market.  The setup of the pattern is explained in the text below, but quickly scroll down and look at the first chart and the pink shaded areas “A” to get an idea of what we are talking about.

Prior to “A” Pattern Setup

_ After a moderate price decline in Gold (1996 through 2001), a bottom sets up as the price of Gold begins to base near support.

_  The Gold/Silver ratio (BLUE), falls throughout this pattern setup as both Gold and Silver prices decline somewhat in unison.

The Setup “A”

_  Gold prices begin to rally moderately while pushing the Gold/Silver ratio higher over an extended period of time (from 1999 to 2003: about 4 years).

_ The Gold/Silver ratio peaks and begins to decline in mid-2003 as the price of Gold continues to rally at a bit more accelerated rate.

_ Gold prices begin a parabolic upside price advance in early 2006 after the Gold/Silver ratio collapses about 18% to 20% from the peak level near 82.50.

We believe a similar type of pattern is setting up right now in the metals market and we believe both Gold and Silver will engage in a price advance over the next 10+ months that may be similar to the post-A set up in mid-2003.  If you are familiar with what happened in the metals market at that time, Silver began to advance at a faster rate than the price of Gold advanced.  This is what caused the Gold/Silver ratio to begin to collapse.

Silver Monthly chart from 1993 to 2004

This Silver chart from 1993 to 2004 clearly shows how the price of Silver was reacting throughout the setup prior to “A” and after “A” in the chart (above).  Silver began a moderate price advance in 1993 from a level near $3.50 and advanced to a level near $7.50 in 1998.  Then, it began a downside price move to reach new lows in 2002.  At that point, the markets changed.  Gold and Silver began to advance almost in unison with Gold still advancing slightly more than Silver until early/mid-2003.  Once Silver broke dramatically higher, in late 2003-04, the Gold/Silver ratio started breaking downward instead of upward.  This is the pattern we are seeing in the metals market right now.

We believe the recent rotation in the metals market and the dramatic price divergence between Gold and Silver are setting up another similar type of pattern that could prompt both Silver and Gold to rally upward from current levels by at least 200%.

Current Silver Monthly chart

The extremely deep price retracement on this Monthly Silver chart (below) highlights what we believe is a deep washout low price rotation that is setting up the “disconnect” as we have tried to explain in the Gold/Silver ratio chart and historical Silver chart (above).  Yes, Gold also moved dramatically lower over the past 2+ weeks illustrating the shock to the markets that took place as the Covid-19 virus event disrupted the US and global markets.  But our researchers believe this dramatic washout low in Silver is setting up a much bigger pattern, longer-term than most people understand.

Recently, news that global precious metals suppliers have received a tremendous surge of orders for the physical stock over the past 2+ weeks (source: https://www.msn.com).  In fact, many global suppliers and mints are simply “out of stock” at the moment.  This surge in demand changes the dynamics of the market and how we look at the washout low in Silver.

If demand continues to surge, which we have no reason to doubt at this stage of the Covid-19 virus event, and Silver begins to rally as it did in 2002~2005, then the Gold/Silver ratio will begin to collapse just as it did in 2003~2007 (see the first chart – Post “A”).  This means the demand for metals is skyrocketing and Silver has suddenly become a more “in demand” physical metal than Gold.

Current Gold Weekly Chart

We believe the next phase of price action in Gold is a move above $1990 as demand for metals continues to surge.  This would represent a 100% Fibonacci price expansion of the last price rally from the lows set in September 2018 (near $1168).  It would also represent a rally from the current level of at least +22.50% in Gold.  Subsequently, if Silver begins to rally at a greater rate than Gold over this same span of time, Silver could rally to levels above $22 representing a +53% price rally according to our Adaptive Fibonacci Price Modeling system (the CYAN target on the chart above).

Pay attention to the Gold/Silver ratio and the price of Silver compared to Gold over the next 30 to 60+ days.  If our research is correct, the current low price of Silver will be a distant memory in less than 60 days and a tandem price advance in both Gold and Silver will propel the metals much higher.  How much higher?  From 2003 to the peak in 2011, Gold rallied 450% (from $350 to over $1900).  Over that same span of time, Silver rallied 1024% (from $4.50 to just under $50).

If we are right about this pattern setup and the future opportunities it may present, we could see Silver trading above $160 per ounce within 4 to 7 years.  Can you guess where Gold would likely be trading if Silver rallied 1000% from current levels?  We already have our positions established and our targets setup.  Don’t miss this next big move in the metals.

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

Visit my ETF Trading Newsletter and if you like what I offer, and ride my coattails as I navigate these financial markets and build wealth while others lose nearly everything they own during the next financial crisis.

Chris Vermeulen
www.TheTechnicalTraders.com

 

Gold Forecast – The Last Great Buying Opportunity of This Decade

The paradigm shift I spoke about last year is unfolding before our very eyes. Precious metals will emerge from this crisis as the premier asset class for investors.

Investment Themes

If you look closely, you’ll notice each decade has a distinct investment theme. As the decade unfolds, one asset class rises to the top and outperforms everything else. Below are some examples.

  • During the 1990s, the stock market was the place to be. An explosion in Internet stocks headed the dot.com bubble. The Nasdaq rallied from 330 in 1990 to 5100 by 2000.
  • During the 2000s, precious metals and commodities were the best performing assets. Gold rallied from a low of $255 in 2001 to $1923 by 2011.
  • During the 2010s (until now), money flows switched to the stock market. Low and negative interest rates fueled record buybacks and rising earnings multiples. The DOW bottomed at 6469 in 2009, and prices likely peaked in March 2020 at 29,600.

Of course, it’s impossible to get in and then out at the exact bottom. The transition period from one asset class to another takes several months, sometimes longer – the key is recognizing it. Here’s a clue… it’s happening NOW.

After an 11-year bull market in stocks, the next asset shift has begun. The 2019 breakout in gold combined with loose monetary policy and negative bound interest rates suggests 2020 – 2030 will be a decade that heavily favors precious metals. Gold first, then silver and platinum will follow – palladium likely peaked.

Massive Demand Spike

The crashing stock market and global pandemic have triggered sudden and irreversible demand for precious metals. In the US, coin dealers sold out of ALL American Eagle coins (gold, silver, platinum) last weekend. Premiums have skyrocketed. There’s no putting the genie back in the bottle – an unprecedented shift to precious metals has begun.

Monthly Gold Target 

If gold comes back to test the $1350 – $1400 breakout area, that could be the last great buying opportunity of this decade. By the end of this decade, we expect gold to reach $7,500 – $10,000.

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A $7,500 – $10,000 price target for gold sounds absurd, I know. Before you dismiss it, let’s think about the potential triggers that could yield such lofty prices.

  • Loss in Confidence – A total collapse in confidence in Governments and their ability to manage. —> Very possible
  • Widespread Money Printing – Governments may resort to debt monetization and currency depreciation to inflate away record debt levels. —> Already occurring.
  • Speculation- A surging uptrend and new all-time highs in precious metals leads to the fear of missing out and sparks a speculative bubble. —> Likely, but probably years down the road.

Currently, our Gold Cycle Indicator is at 42 and entered maximum bottoming – suggesting gold may be approaching a bottom. I think it could drop further and perhaps reach a perfect score of zero in April or May.

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AG Thorson is a registered CMT and expert in technical analysis. He believes we are in the final stages of a global debt super-cycle. For more information, please visit https://goldpredict.com/