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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Hang Seng Index May Foretell A Collapse In The Making

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

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

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

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

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

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

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

Have a great day!

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

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Have a great day!

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

 

Eight Do’s and Don’ts For Options Traders

Options are very different from stocks and there are more factors that go into the pricing.  Many view it as a get-rich-quick scheme while others think it is gambling. I am here to say it is neither but you have to know the rules before you can trade them if you want to be successful.  Last week I covered some little-known basic facts. This week I am covering 8 Do’s and Don’ts for options traders.

1. Do not always swing for Home Runs or put all your money into one position

Do not buy options contracts way out of the money with hopes that it will turn $100 into $5,000.  When you do this you have a very small chance of winning long-term and most would say this is gambling.  If by chance you do strike it rich, you will give it back eventually as this is not a winning strategy.

2. Do go for base hit trades with a consistent and steady return

These trades have a high probability of winning and a low chance of losing.  Stick with 5%-10% allocation per trade.  Make sure you properly hedge or one bad trade could result in giving back all your profits.

3. Do not change your strategy based on commissions your broker may charge or to accommodate a small account

If you take a trade or don’t take a trade because you don’t have a big enough account, wait until you have the proper funding to execute your trading strategy.

4. Prove out your trading strategy with a sim account

This is always the best practice.  I have seen new traders lose lots of money just trying to understand the platform with which they are trading on.  Also, they make strategy mistakes.  Go in sim until you are profitable for consecutive months.  Don’t go to the school of hard knocks and lose money while you learn.

5. Do not trade on margin if you don’t understand it

If you don’t know how margin works do not use it to trade.  Early on I had a margin call and these are never fun trying to find the money to make your brokerage whole.  It can mess up a lot of your existing trades if you have to liquidate.

6. Fund your account over what you intend to trade with

Give yourself a buffer here.  If you intend to trade $5,000 put $7,000 in your account.  The more the buffer the better off you will be especially if your first few trades are losers.

 7. Do not expect to get rich quickly or any significant income from a small account

Start little, save, then get big as you grow.  Too many times I have seen new traders put everything into one trade. When that trade goes south, they lose lots of money then double down with higher risk. When this to is lost, they are done trading.  Don’t be that person!

8. Move on from losing trades – do not chase

If you see a big move that a stock has already made and you want to join the party, think twice.  Once an underlying is extended, there are low-risk trades. If you are leveraged with options, it is an even lower chance to win.  Many traders make money by jumping on the train late. Sooner or later, if you do make money this way, you will give it back over time.  This is a losing strategy.

Options when BOUGHT are purchased at a DEBIT to the buyer and should be considered assets. So when you buy options, the money is debited from your brokerage account. It’s exactly like buying a stock.

As mentioned above you can also sell an Option, without owning the shares. Options when SOLD are sold at a CREDIT to the seller. When you sell an option it should be considered a liability and money is added to the brokerage account at the time of sale. Not many things are guaranteed in the market, but this is.  However, you can’t withdraw this money until the trade has been closed. Usually, this money is used to offset the margin required for selling the options.

Every day on  Options Trading Signals we do defined risk trades that protect us from black swan events 24/7.  Many may think that is what stop losses are for.  Well, remember the markets are only open about 1/3 of the hours in a day.  Therefore, a stop loss only protects you for 1/3 of each day.  Stocks can gap up or down.  With options, you are always protected because we do defined risk in a spread.  We cover with multiple legs which are always on once you own.

Enjoy your weekend!

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

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

 

Bitcoin Enters Stage #4 Excess Phase Peak Breakdown – Where Next?

Over the past few months, I’ve been interviewed in podcasts and on Kitco where I’ve discussed the US and global market setups and trends based on my unique understanding of Technical Analysis and price patterns.  Even though I’ve heard/read some comments from viewers sharing their own opinions which may not always agree with my interpretation of the market setups, I like to let the market trends do their thing and ultimately someone will be proven correct at the end of the day.  Today, we’ll revisit some research I completed back in November 2020 and see how that research played out to today with Bitcoin.

Attempting to predict any future trend in any market is a difficult task, to say the least.  The markets do what they do and part of my experience is to understand technical analysis setups and the underlying psychological aspect to the market cycles.  I’m never 100% accurate in my predictions or expectations either – no one is 100% accurate in predicting any future event.  All we can do is try our best at identifying these setups and take trades when the opportunity strikes for profits.

Our November 27 Bitcoin Predictions Prove To Be Incredibly Accurate

On November 27, 2020, I published a research article that highlighted a fairly common pattern which I call the “Excess Phase Peak” and I highlighted a number of charts/setups at that time while warning readers that the current US/global market trends were entering a “blow-off” topping phase that would likely end in this type of Excess Phase Peak type of pattern.  I also highlighted past Excess Phase Peak setups to provide clear examples.

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

Over the course of the last 6+ months, I’ve continued to share updates to the Bitcoin setup as it continued to progress through the different stages of the Excess Phase Peak setup.  Most importantly, the breakdown at Stage #3 where the initial sideways flagging price trend breaks down – setting up the final support/floor in the markets before the last phase of selling takes place (Phase #5).  You can read one of these articles (below):

Excess Phase Peak Pattern Repeats – Creating Price Cycle Waves

Let’s go back to the original chart from that November 27 article that started all of this.  This chart highlighted the 2018 Bitcoin peak and how the Excess Phase Peak patter setup and progressed to an ultimate bottom in price.

https://www.thetechnicaltraders.com/wp-content/uploads/2021/07/Chart3-4.png

I defined the structure/process of an Excess Phase Peak breakdown months ago as :

  1.  The Excess Phase Rally must push price levels to new highs.
  2.  A breakdown in price from the Excess Phase Peak sets up a FLAG/Pennant recovery phase. This represents the first attempt at a recovery that eventually fails.
  3.  A breakdown in price from the FLAG/Pennant price recovery phase creates the real first opportunity for short traders or those that executed timely Put options. This represents the first real downward price trend after the FLAG setup.
  4.  Phase 3 sets up the Intermediate-term support level. This becomes the last line of defense for price – an intermediate-term price floor. This phase can take quite a while to complete as traders often still believe a new rally will resume. Thus, this support level often has quite a bit of momentum to breakdown before it eventually fails.
  5.  The final breakdown of price below the Phase 4 support level usually begins a much deeper sell-off.  This is usually when other factors in the markets have finally resulted in the realization that the excess phase is over.

Initially, Phase #1 and Phase #2 are common setups within a price rally.  What I feel is critical in confirming this Excess Phase Peak setup is the Phase #3 breakdown of the sideways price flagging pattern (#2), which will ultimately setup the lower intermediate support level.  Once this Phase #2 breakdown takes place, that is enough confirmation for me to continue to believe that the Excess Phase Peak pattern will play out completely to ultimately establish some lower bottom in price.

Current Bitcoin Breakdown Sets Up A Rush To The Final Bottom In Price

In this BTCUSD Weekly chart, we move to current price levels which highlight the breakdown of the Stage #4 Intermediate Support level (near $30,000).  As continued price weakness pressures price to move below this critical $30,000 level, Bitcoin traders will start to shift their expectations once recent lows are breached near $28,600.  Crypto traders are very strong believers in the ultimate upside targets of $100k or more and are often unable to see the downside risks associated with Technical Analysis setups and patterns.

Therefore, my team and I believe a flood of new selling pressure will initiate once the $28,000 level is breached to the downside. This is where Bitcoin traders suddenly shift away from the buy/hold position and start to reduce holdings because of downside risks. Those traders that purchased above $40k and are still holding, waiting for the rally, may want to reconsider their plans as the Excess Phase Peak pattern suggests. Phase #4 breakdown suggests an ultimate bottom level exists somewhere near between $9500 and $16,000 – a full -50% to -68% below the Stage #4 support level (near $30,000).

https://www.thetechnicaltraders.com/wp-content/uploads/2021/07/Bitcoin_W_S4_F.png

Eventually, price and selling pressure will dictate where the Ultimate Bottom will setup for Bitcoin.  Our estimate of a $9500 to $16,000 bottom target range is based on the initial support level setup in September/October 2020.  If this level is breached as selling pressure may continue to drive price levels much lower, then we would fall back to the next key low in price from March 2020, near $3,850.

While a collapse to $3,850 would certainly burst a lot of enthusiasm for Bitcoin and the $100k expected bullish price target level everyone believes will eventually happen, we, as Technical Analysts, believe the current Phase #4 breakdown is just starting and any of these ultimate downside targets are very valid levels for price to attempt to find some future support.

In closing, I want to urge Bitcoin and Crypto traders to understand these setups and trends because you will see them in the future.  Be aware of the setups, phases, and trends that are likely to develop within this pattern and learn to use them to your advantage.  I’m excited to get back onto the recent podcasts, interviews, and get invited back to Kitco again to discuss this current breakdown in Bitcoin.  In most cases, you just have to identify the setups/phases of market trends let the market trend tell you what to expect – instead of trying to “hope” for an unrealistic outcome.

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

Have a great day!

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

Chris Vermeulen

Chief Market Strategist

www.TheTechnicalTraders.com

Emotional Traders React To Recent Market Rotation – Are You Ready For What’s Next?

Most traders don’t really have a solid strategy in place to protect assets and assist them in knowing when to pull risk capital away from market trends.  If you are trading on MEME stock content, variable technical strategies or flying by the seat of your pants when making trading decisions, you are probably very concerned and emotional about the recent downside price rotation in the major markets right now.

What is happening is that the markets are attempting to potentially start a reversion event – a price rotation.  This rotation in price may turn into a bigger price correction or downtrend at some point in the near future. But right now, we are only seeing moderate price rotation in the US and global markets.  Should you be concerned about this spike in volatility and the timing of this correction? This a good and valid question. Let my team and I try to help you regarding what may happen in the near future.

First, we’re going to point you to one article that predicted this volatility event may take place near the middle of 2021 and other key data. These are as follows:

The US and Global Markets have started to reprice expectations related to the post COVID-19 rally/growth capabilities.  We’ve highlighted this in recent articles that current economic data, price appreciation, and inflation growth are well within an excess phase peak level.  The normal reaction to this excess phase rally stage is a moderate reversion event – a price reversion that eliminates these excesses in the markets and in price valuations.

Currently, we do not have any signals from our proprietary stategies that this is a confirmed downward price trend.  At this point, it is simply a price correction taking place – nothing more.

Major Market Cycles Will Drive Price Trends

One of our recent articles highlighted this cycle phase chart and we suggested traders needed to prepare for the current high peak level to roll over into weaker economic growth and data expectations.  It is very likely that global traders and investors have suddenly woken up from their high-flying expectations and are now pulling risk capital away from the peaks in the markets.

Our research suggests that during the end of 2021 and possibly well into 2022, the downward price cycle reversion process may attempt to unwind the extreme (excess phase) rally trend we’ve experienced since the COVID-19 bottom in March 2020.

https://www.thetechnicaltraders.com/wp-content/uploads/2021/07/CovidSineStructre-2.png

Major Appreciation Cycle Phase Ended In December 2019 – New Depreciation Cycle Phase Is Dominant

Our extended cycle research continues to highlight the major Depreciation cycle phase that started in December 2019 and we’ve been suggesting a “blow-off” excess phase peak trend was likely setting up over the past 16+ months. It is important to understand the bigger cycle trends that drive investor sentiment as trading tries to navigate the shorter term trends.  The flip from an Appreciation cycle phase to a Depreciation cycle phase suggests global equities will likely weaken and struggle until 2028~29 while precious metals will likely begin to rally.  This new cycle phase also suggests a bigger “blow-off” (excess phase) cycle peak would take place after December 2019. This may act as a hyperbolic bubble rally phase lasting 12 to 24 months after the cycles changed into Depreciation.

This means a bubble rally phase very likely started in January 2020 and may last until January 2022 – setting up a huge rally event, a major market peak/top, and a big sell-off phase (the bursting of the bubble).

https://www.thetechnicaltraders.com/wp-content/uploads/2021/07/Chart2_DepreciationPhase.png

Lastly, even bigger market cycle trends and Elliot Wave theory suggests the SPY would reach a peak near $440 and the S&P 500 would reach a peak near $4400 that would end the Wave 5 rally – ultimately setting up an ABC corrective price wave targeting new support below the $2800 level on the S&P 500.  Are we at this stage of the market trend where we have confirmation of the Wave 5 peak and should start to expect a bigger downside price trend?  No.

We are at the early stage potential top near the $440/$4400 level and we are waiting for confirmation.  Yes, our strategies are actively protecting capital and pulling some trades off as the markets enter a weaker price trend. However, we do not have any solid technical confirmation of these bigger cycle phases or of any major global market price collapse taking place (yet).

https://www.thetechnicaltraders.com/wp-content/uploads/2021/07/Chart3-1.png

Our research and trading strategies will alert us to proper confirmation of these trends within a few more days or weeks depending on how the markets react and trend.  As of right now, we can clearly tell you that the markets appear to be starting a reversion event and that we believe the overvalued markets have clearly been telegraphing this setup for many months.

The likelihood of a broad market collapse targeting the March 2020 COVID-19 lows is still quite high.  The confirmation of the Wave 5 peak is all that is needed to confirm a potentially broad downside ABC price trend/wave that may target $2800 or lower.  Should you protect your assets and learn to better prepare for these types of technical setups? Yes.  Learning how to identify and trades these bigger cycle phases while using proven trading strategies is the key to success for anyone wanting to efficiently trade these markets for many years.

If you are simply speculating in the markets and want to “play with your money” while you are chasing the wild trade setups, you’ll quickly learn how dangerous that type of trading can be.  Yes, you may see some really big wins at times, but eventually you’ll realize you need a strategy that is more consistent than just guessing at what to buy.

Right now, near what appears to be a market peak, traders want to stay ahead of these trends and opportunities related to what may become the next big disruptive technology gains.  As we move further into the 21st Century, it is very likely that space will become the DOT COM/Internet disruptive technology over the next 20 to 40+ years (or longer).  That means traders need to start considering how this exciting new sector fits into their investment portfolio and where new industry leaders will settle.

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

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

Have a great day!

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

 

Post-Covid Stimulus Payouts & The US Fed Push Global Investors Deeper Into US Value Bubble – Part II

In this second part of our research into how capital is being deployed across the globe and why traders/investors continue to pour capital into the US equities markets, we’ll explore how the US major indexes have reacted to the continued investments by the US and foreign investors compared to foreign market trends.

Using methods like this to determine where capital is being allocated and why traders/investors decide to move capital into and out of various global indexes, suggests one of the most important aspects of swing trading is to stay keenly aware of how capital is moving and deploying across the globe.

In October of 2019, we attempted to highlight how capital is shifting and how trends are setting up in currencies, global major indexes, and other global sectors.

While reviewing our past research posts, we found this one particularly interesting because it was posted only 4 months before the COVID-19 peak and indicated our long-term predictive modeling system suggested a volatility surge may take place in late 2019 or early 2020.

October 29, 2019: LONG-TERM PREDICTIVE SOFTWARE SUGGESTS VOLATILITY MAY SURGE

Even though our predictive modeling system can’t attempt to predict unknown outside global events, like COVID or wars, it can make some really uncanny and accurate predictions related to price activity and volatility in the markets that come true.

GLOBAL CUSTOM SMART CASH INDEX CONTINUES TO FLATTEN

This first chart shows our Custom Global Smart Cash Index Monthly Chart. The point we want you to focus on with this chart is the sideways and weaker price action over the past 6+ months as well as the +84.25% rally from the COVID lows.

This chart reflects a fairly even and global response by traders after the March 2020 COVID lows to expect a global reflation rally bringing global indexes back up to the pre-COVID-19 peaks. In this case, that rally phase completed by September/October 2020. After the November 2020 US elections, a second rally phase was initiated that pushed the Custom Global Smart Cash Index to recent highs (near $210). These current highs represent a new high price valuation level, even higher than the 2018 peak levels, which suggests that large amounts of capital shifted back into the global markets after the November 2020 election.

Currently, though, this chart shows a broad sideways weakening price trend that may suggest an early stage peak has setup – similar to the peak in 2018. As capital seems to be fleeing the global market indexes and sectors, it is likely to move away from risks related to this inflated secondary rally phase and into assets that provide better safety and security.

C:\Users\pc\Desktop\Technical Traders\Articles\CustomSmartCashIDX_M_F.png

Custom US Stock Market Index Chart Shows A +34.42% Greater Rally Than Global Index

This second Custom US Stock Market Index chart shows an incredible rally phase after November 2020 that includes an additional +34.42% extended rally to the current $1266.42 highs. Comparatively, the Custom US Stock market index, which includes the NASDAQ, Russell 2000, SPY, Real Estate, and Retail Sales, highlights the incredible strength and resilience of the US economy and consumer over the past 12+ months. While the Global Custom Index has stalled over the past 6+ months, the US Custom Index has rallied an additional 13.5% higher.

At this stage of the rally, though, we need to see the Custom US Stock Market Index find support above the May 2021 lows, near 1164.38, and attempt to setup a new momentum base for any further upside price trending. The fact that the Global Custom Index is weakening while we’ve seen a fairly broad breakdown in commodities and the Russell 2000 recently suggests this extended rally may be pausing.

Normally, price moves in a rotational manner setting up new peaks and troughs as it trends. Recently though, the continued stimulus and global central bank actions have prompted a type of rally that we’ve not seen in many years – a hyper speculative rally based on expectations of very strong economic and recovery trends. As this phase of the post-COVID rally phase completes, the next phase may be much more difficult for traders to navigate going forward.

C:\Users\pc\Desktop\Technical Traders\Articles\CustomUSStockMktIdx_M_F.png

Post-COVID Recovery Cycles Will Change How Capital Seeks Opportunities In The Future

Recently, I shared a new research article related to the “Transitory Inflation” expectations that have been stated by Jerome Powell, and others, and how traders need to prepare for fairly broad rotations in the recovery data over the next 12 to 24+ months.

C:\Users\pc\Desktop\Technical Traders\Articles\CovidSineStructre.png

I strongly believe the global markets are going to contract into a sideways, slightly downward trend before the end of 2021 in alignment with the post-COVID cycle phases. Over the next 8+ months, my analysis of these phases suggests we will start to see weaker economic data, weaker consumer engagement, and eventually, the potential for another round of moderately negative economic data as the Month-over-Month and Year-over-Year data transitions into lower/weaker representation of the cycle phase (see the chart above).

Given the amount of capital deployed throughout the globe and within the US equities markets, this may prompt a series of fairly large price rotations over the next 18 to 24 months (or longer) and may not settle until after 2024. What the global central banks do, or don’t do, over the next 24+ months could compound these cycle phases and trends.

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

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

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

Have a great day!

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

 

The US Continues To Dominate The World Stock Exchanges – Can This Last Forever? Part I

Not only has the capitalization of global market exchanges changed, but the attitudes of traders/investors have changed as well.

As the reflation/recovery trade setup and as global central banks continued to make efforts to support the post-COVID-19 recovery efforts, it appears that the focus of capital was initially fairly evenly disbursed across multiple global exchanges.  Traders and investors seemed to believe opportunity existed in nearly all global market indexes and exchanges.  Yet, it appears something changed as the world neared the September/October 2020 time frame.  Suddenly, capital started shifting away from growth expectations and into hedging and Risk-Off assets.  Then, in November/December 2020, global traders and investors shifted focus again – targeting US equities, technology, healthcare, and other sectors. The new focus drove an incredible rally phase that has carried into 2021.

In this article, we’re going to explore this shift in how traders/investors perceive opportunities, and why the past 7+ months may have setup a global shift away from continued rally expectations as we move into the second half of 2021.

The US Continues To Dominate Global Investing Focus

First, let’s explore the current global (world) stock market capitalization levels and try to gain some insight into how the global markets have shifted over the past 12+ months.

This graphic shows how the US stock market continues to dominate the global market and how it relates as a driver of global wealth and economic stability.  Comparatively, the US stock market is nearly 10x to 12x larger than than the average of the next largest 5 or 6 global foreign stock market exchanges.

In comparison, there is no other single comparable growth of the global economy than the US – in terms of stock market capitalization, wealth creation, and/or single source/focus of global dynamics.  In short, the US stock market and economy continue to dominate the world in comparison to how money is deployed into investments and related to future expectations for opportunities.  Global traders are making a statement with their own money that they believe the US economy, stock market, and capabilities far exceed any other Nation’s ability to create wealth and opportunity.

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

Global Stock Market Capitalization Continues To Climb Higher

This next chart, even though the data ends in 2019, suggests the global stock markets continue to grow in total market capitalization at rates that far exceed the 2000 and 2008 market peaks.  As the US Fed and global central banks have poured more capital into the markets, traders and investors have continued to seek out the best environment for the best returns and safety.  I believe the US stock market and economy have clearly moved to the forefront of all other global markets and that global traders and investors continue to pour capital into the US Dollar-based US stock market exchanges.

This dynamic has really amplified over the past 4+ years as Emerging Markets, Foreign Markets, and global traders have continued to seek out the safest and most secure investments on the planet.  The end result is that no other global stock market exchange and/or investing environment beats the US stock market and economy.

Because this chart ends in 2019, I’ve drawn a MAGENTA line which my team and I believe represents the increase in the world stock market capitalization throughout 2020 and into 2021.  The current global stock market capitalization, which reflects a possibly 55% to 60% US stock market dominance, suggests global capitalization is possibly 85% to 110% higher than the peak in 2007-08 (the Housing Crisis peak).  This suggests that total global market leverage and risk exposure may be 200% to 300% higher than at any time in recent history.  In short, global market risks are likely 2x to 3x higher than at any time over the past 75+ years.

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

US Dominates Top 10 World Stock Exchanges

This recent list of the Top 10 World Stock Exchanges, showing Market Cap, clearly shows the US continues to dominate.  This clearly shows the US economy, stock market, and consumer market is driving the global economic activity.  No matter how you try to slice up the data, the US economy and stock market continue to outpace the nearest global stock market exchanges by more than 3x to 5x total capitalization levels.

Combined, the New York Stock Exchange (NYSE) and the NASADAQ total more than 45 Trillion US Dollars.  Comparatively, a combination of the exchanges ranked 3~10 total $39.64 Trillion US Dollars.  That’s a pretty big comparison when you realize the total of the Shanghai Stock Exchange, Japan Exchange Group, Hong Kong Stock Exchange, Euronext, Shenzen Stock Exchange, London Stock Exchange, Toronto Stock Exchange, and India National Stock Exchange (representing more than ½ of the total world population), equates to only 87.6% of the US NYSE and NASDAQ stock exchange market capitalization.

The world has decided that the US stock market, economy, consumer engagement, and corporations are the driving force behind almost all of the global economic activity and wealth creation anywhere in the world right now.  Nothing is even close to equaling the total capitalization and potential for wealth creation and opportunity as the US.

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

In Part II of this article, we’ll explore how the dynamics of the US vs global market indexes are showing how this divergence in market capitalization could be driving very big trends over the next 2+ years.  We’ll also show how vulnerable certain foreign market exchanges may be to broad market rotation events over the next 5+ years.

Simply put, the rotations over the past 20+ years in the US stock market, and the actions of the US Federal Reserve, have strengthened the position of the US consumer, economy, valuations, and future expectations.  If another broad market rotation/reversion event were to take place, we believe the disruption in capital flows and creation will continue to propel the shift towards the US stock market and economy even further.  Leaving many foreign market stock exchanges in very perilous market capitalization and liquidity positions.

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

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

Have a great day!

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

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

 

What Does The Fed Mean By “Transitory Inflation” And Why Is It Important To Understand?

As the markets react to the somewhat shocking CPI and Inflation data while Q2:2021 earnings continue to roll across the news wires, we wanted to take a minute to explore the recent Fed comments related to “Transitory Inflation” and what that really means.

For those of you not familiar with the word ‘transitory’ (in conjunction with inflation) according to the Merriam-Webster Dictionary, Transitory means:

The COVID-19 Cycle Phase Setup

The COVID-19 market collapse happened at a time when the general US stock market was continuing to transition into stronger upward price trending and where consumers were engaging in the economy at fairly strong levels.  Initial Jobless Claims in November and December 2019 averaged near 221k per week. Real Consumer Spending averaged more than 2.80% throughout all of 2019.  The Consumer Price Index (a measure of price inflation) averaged only 0.18% throughout all of 2019.  One could say jobs were strong, consumers were spending moderately robustly and inflation concerns were relatively mild or non-existent.

All of that changed in 2020 as news of the COVID-19 virus started spreading across the globe. By mid-February, we were starting to see COVID cases through many areas of the world with little information about how dangerous this virus was or what types of risks we were facing.

President Trump, and other world leaders, acted to try to stop the spread of the virus first by shutting down international travel to and from some countries. Next, the States started locking down business and other aspects of society and suddenly, weekly jobless claims jumped to more than 3 million by March 26, 2020, alone.  By the following week, the jobless claims jumped to over 6.6 million. Real Consumer Spending dropped from +1.8 in January 2020 to -34.6 in June 2020.  CPI stayed relatively flat for the first 5+ months of the COVID virus event.  This suggests that inflation was not a real concern at that time.

By April 2020, the US Government and many foreign nations had a real problem on their hands.  A spreading COVID-19 virus, millions of people out of work, economies shutting down and a real lack of infrastructure to deal with this problem.

The US Federal reserve and the US Congress jumped into help US citizens (and others) with the first round of stimulus and new Executive Orders to help prevent collateral damage to the most at-risk people. But the time these support systems start reaching Americans, the country had lost more than 40 million jobs and Real Consumer spending fell to -34.6%.  From an Economist view, this spells real trouble.  From a Month-over-Month or Year-over-Year perspective, it looks pretty dang ugly.

And that leads us to the reason why the US Federal Reserve is expecting Transitory Inflation over the next few months – it’s all in the cycle phases and what’s to come.  What they are not telling you is that over the next 12+ months, we are likely to go through a series of highs and lows while the cycle phase reverts back to more normalized levels. We all need to get ready for the potential of some really big swings in the US major indexes, major sectors, asset values, and the global markets over the next 12 to 24+ months.  We are not even close to the end of this new cycle rotation at this stage.

Cycle Components: Amplitude and Wavelength

All Sine Waves function on two core components, Amplitude and Wavelength.  Amplitude is measured as the crest or trough value furthest away from a centerline.  Wavelength is measured by the amount of time it takes for two consecutive crests or troughs to complete.  Wavelength can also be considered as “time”.

Elevation is the total range measurement from trough to crest along the Amplitude scale.

A Dampening Sine Wave Structure – The Cause Of Transitory Inflation & Other Issues

The way I like to explain a Dampening Sine Wave Structure to people is to think of a very calm pond or small body of water and what happens on the surface when you toss in a fairly large rock.  First, the rock impacts the surface and displaces the water creating a trough and the initial “impulse wave”.  This disruption of the fluid dynamics of water then creates a Dampening Sine Wave process of reverting back to normal water levels/activity – such as we see in the example below.

The example, below, also aligns with the COVID market collapse and the subsequent recovery/reversion process that is likely to continue to play out over the next few months and years. Allow me to explain.

When COVID-19 disrupted the global economy, it was just like a big rock landing in a fairly small pond – it disrupted the normal economic activity by a fairly large degree.  Then the US Federal Reserve and other Global Central Banks jumped in with liquidity and other efforts to attempt to minimize the damage to the global economy.  In a way, this activity actually amplifies the Amplitude range of the subsequent cycle phases – not the initial downside cycle phase.  It does this by over-leveraging and hyper-inflating certain sectors/assets with new/easy money policies.

I believe the recovery from the March 2020 lows has been amplified by the continued efforts of the US Federal Reserve and Global Central Banks to prompt a very large recovery phase (upward crest), indicated on the chart below as “New Current Peak in Sine Wave Structure”.

After this crest peaks and rolls over, we’ll start a move that will likely attempt to bottom well below normal economic levels (possibly 10% to 20% below normalized historical levels) and may result in a deleveraging/price exploration event that many traders/investors are not prepared for.  In fact, over the next few years, we may see multiple various forms of this repeating cycle phase continue to roil the markets until we settle back into more normalized market trending.

So, by definition, I believe the Transitory Inflation suggestion by the US Federal Reserve relates to these Dampening Sine Wave cycle phases (above) and is why traders may not be prepared for what the Federal Reserve expects.

If I’m right, the US Federal Reserve and the Global Central Banks may still have quite a bit of work ahead to continue to navigate these cycle phases and the risks associated with each event cycle.  We may watch asset values peak and revalue over and over again throughout the next 7+ years as these phases continue to play out.  If another COVID variant hits the globe again, which may further amplify these cycle phases, we may start a new secondary Dampening Sine Wave cycle that will further complicate the recovery process going forward.

No matter how it plays out, these cycle phases suggest the markets are going to be full of big trends, various appreciation and depreciation phases, and the US Fed and Global Central Banks will be trying to navigate some very difficult times ahead.  Traders and Investors should look forward to some incredible setups and trends over the next 2 to 5+ years and get ready for the current crest to peak before the end of 2021.  Just like that first big climb of a roller-coaster – when you reach the peak, the real fun is just getting started.

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

From all my decades of experience, I can tell you that unless you have a solid foundation related to knowing when and where opportunities exist in market trends, you are likely churning your money in and out of failed trades. I will be presenting the second of my two favorite strategies at the July Wealth365 Summit on July 16th at 12 pm. The Summit is free to attend and offers unparalleled opportunities for learning…plus a potential prize or two!

Have a great day!

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

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

 

Five Little Known Facts About Stock Options

If you are becoming interested in trading Options, you need to learn the basics about Options and how to trade them before jumping in with both feet. Options are very different from stocks and there are more factors that go into the pricing.

Many view trading Options as a get-rich-quick scheme while others think of it as gambling. I am here to say it is neither. What I will say, is that you have to know the rules before you begin trading if you want to be successful.  Keep reading as I cover some little-known basic facts that, if you are new, will surely spark your interest.

There are Options on More Than Just Stock

Most people hear of options and think they only apply to stock.  In reality, you can trade options on futures, Forex, Bonds, and even the index themselves.  Most assets have options available.

Options Symbols

The OCC option symbol can consist of up to 4 parts:

  • Root symbol of the underlying stock or ETF, padded with spaces to 6 characters
  • Strike price, as the price x 1000, front padded with 0s to 8 digits
  • Expiration date, 6 digits in the format YY/MM/DD
  • Option type, either P or C, for put or call

Examples:

  • AAPL:  AAPL210723C145 – This symbol represents a call on Apple, expiring on 23 Jul 2021, with a strike price of $145.
  • AMZN:  AMZN210917P3700- This symbol represents a put on Amazon, expiring on 17 Sept 2021, with a strike price of $3,700.

Buying an Option

If you own an option, you are not obligated to buy the underlying instrument; when you buy a Call Option, you have the right to BUY stocks at your option’s strike price.  You can also sell the option itself before expiration.

Similarly, when you buy a Put Option, you have the right to SELL stocks at your Option’s strike price through exercising it but like Call Options you can sell the put contract as well before expiry.

Selling an Option

First, you can sell an option you don’t own stock in!  However, if you sell a Call Option, you are obligated to deliver the underlying asset at the strike price at which the Call Option was sold if the buyer exercises his or her right to take delivery. If they do not exercise then you keep the premium you sold the option for.  Put Options are the reverse, if you sell a Put Option, you are obligated to buy the underlying asset if exercised.

Selling Means Credit And Buying Means Debit

Options when BOUGHT are purchased at a DEBIT to the buyer and should be considered assets. So when you buy an option the money is debited from your brokerage account. It’s exactly like buying a stock.

As mentioned above you can also sell an Option, without owning the shares. Options when SOLD are sold at a CREDIT to the seller. When you sell an option it should be considered a liability and money is added to the brokerage account at the time of sale. Not many things are guaranteed in the market but this is.  However, you can’t withdraw this money until the trade has been closed, usually, this money is used to offset the margin required for selling the options.

Every day on  Options Trading Signals our resident specialist, Neil Szczepanski, does defined risk trades that protect us from black swan events 24/7.  Many may think that is what stop losses are for.  Well, remember the markets are only open about 1/3 of the hours in a day.  Therefore, a stop loss only protects you for 1/3 of each day.  Stocks can gap up or down.  With options, you are always protected because we do defined risk in a spread.  We cover with multiple legs which are always on once you own.

My team and I have been building and developing fully systematic algorithmic trading strategies for many years and can tell you that unless you have a solid foundation related to knowing when and where opportunities exist in market trends, you are likely churning your money in and out of failed trades. Though I have already completed the first live presentation, I will be hosting one more at the July Wealth365 Summit on July 16th at 12 pm. The Summit is free to attend and offers unparalleled opportunities for learning…plus a potential prize or two!

Have a great day!

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

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

 

Top Five Reasons To Be An Options Trader

Number 5 – Ability to Trade Both Sides of The Market 

You can trade the market up and trade the market down.  Most traders who buy stock don’t know how to trade the market to the downside.  With Options it is easy.  You just buy a put option and with the power of leverage, you can get into large positions with little capital.

Number 4 – The Power Of Leverage 

Options are highly leveraged instruments and as such, you can trade big size with little capital.  For retail traders who are starting out a few thousand dollars to control hundreds of shares of Facebook is pretty amazing.  It allows small traders to act big and trade with the leverage.

Number 3 – Ability To Be Flexible With Your Trades 

If the market goes down and against your position in stock all you can really do is take the loss or buy more stock.  But why would anyone want to increase their position size on a bad trade?  With options, you can change your position to be favorable even if the underlying stock continues to go down.  You can adjust and move with the markets.

Number 2 – Defined Risk Trades         

With stock, you purely enter in a directional position and you are at the mercy of the markets.  If the market goes up you make money.  If it goes down you lose money.  If the market goes sideways you make nothing.  You have no ability to adjust and with stop losses you can lose when markets close.  With defined risk positions you lock in your max loss on any given trade and you are protected 24/7, unlike stock.  When markets close you have competing positions that lock you in.

And the Number 1 Reason is…..

Freedom!!  Freedom to do what you want to do when you want to do it.  Freedom to be your own captain of your own ship.  You control your own destiny.  No dependency on other people or organizations.  Trading you can take anywhere in the world as long as there is an internet connection.  You can trade on a remote tropical island, or you can trade in a coffee shop.  Kind of like green eggs and ham you can trade anywhere, anytime in any place.

By trading only stock you can miss out on some of these benefits. But trading options can be simple and you do get these benefits.

Every day on  Options Trading Signals we do defined risk trades that protect us from black swan events 24/7.  Many may think that is what stop losses are for.  Well, remember the markets are only open about 1/3 of the hours in a day.  Therefore, a stop loss only protects you for 1/3 of each day.  Stocks can gap up or down.  With options, you are always protected because we do defined risk in a spread.  We cover with multiple legs which are always on once you own.

My team and I have been building and developing fully systematic algorithmic trading strategies for many years and can tell you that unless you have a solid foundation related to knowing when and where opportunities exist in market trends, you are likely churning your money in and out of failed trades. I will be presenting my two favorite strategies at the July Wealth365 Summit on July 13th at 4 pm and July 16th at 12 pm. The Summit is free to attend and offers unparalleled opportunities for learning…plus a potential prize or two!

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

Enjoy your weekend!

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

 

Home Buying Trends Showing Signs Of An Extreme Bubble Setup – Is It About To Burst? Part II

As we continue to explore the recent data and setup related to the current Housing market bubble, this, Part II of our research, will continue to highlight the similarities we are seeing in the current market climate to the 2005~2008 Housing/Credit market event that crashed the markets over 15 years ago.  Additionally, we’ll also highlight some of the efforts the US Federal Reserve and global central banks have taken to support the recovering global economy over the past 15+ years.  Are they pushing the markets to extremes and will they be prepared for a reversion event if one takes place?

In the first part of this research article, we highlighted the Supply/Demand equilibrium function and the four laws of the Supply/Demand equation. It is important to understand that all price exploration/valuation functions operate within the boundaries of these Supply/Demand functions.  Buyers and Sellers are always operating within these boundaries – even if they don’t know it.

The process of moving beyond the Supply/Demand equilibrium is usually driven by extreme market events – such as extreme demand for a product (a “fad”) or a very low supply component (where manufacturers can’t keep up with demand from buyers).  This represents an extreme buying frenzy – where buyers chase prices higher attempting to get in before the peak (FOMO).

In the opposite case, where supply is excessive or where buyers suddenly decide they are not interested in a product, this is when the Supply/Demand equilibrium level tends to fall below normal price equilibrium levels.  This represents an extreme depressed market value – where deep price discounts are usually common.

My team’s research suggests the US Housing Market is shifting from an extreme Demand Event (FOMO) into a more moderate price reversion event that may align with a broad global market correction/reversion event.

Recently, we published a couple of articles that have begun to play out accurately.

My team and I believe the recent FOMC statements in support of continued asset buying and continued mortgage-backed security buying efforts may have actually set off a “confidence crisis” among investors and traders. This could be considered similar to the mid-2018 deep market decline set off by the US Federal Reserve pushing interest rate above 2.5% in a moderate rate increase process.

These types of “confidence crisis” events can be initiated by any number of factors in reality.  A few examples could be: consumers/traders suddenly realizing price levels are well past extremes; a sudden shift in consumer spending habits; a belief that the future economy will be shaken up by unknown factors; or simply a supply/demand equilibrium extreme suddenly becoming very evident.

The one thing that seems to happen in any case like this is that traders, investors, and consumers sometimes act like a flock of birds when these types of events unfold.  At first, just a few notice the change in direction, then almost the entire flock of birds see the change and as one (except for a few stragglers) change course to follow the leaders.

We may be at this point now. If true and this begins to unfold over the next few weeks and months, then we may start to see a wave of reversion events taking place across many various asset classes (stocks, currencies, cryptos, homes, and others).

Now that we’ve set the process/function event up for you to understand, let’s continue exploring the US housing market data to attempt to confirm our expectations.

US Pending Home Sales Fall Dramatically From Post-COVID Highs

US Pending Home Sales have recently moved decidedly lower, after reaching highs above 130 on the chart below. The recent uptick from 106 to 114 may represent a temporary rebound after the nearly -30% decline in sales activity.  Some people attribute this decline in sales activity to the lack of inventory available in certain areas.  Whereas I attribute this decline to more of a consumer sentiment reaction.  The process of a Supply/Demand peak price level event often coincides with a buyer’s understanding that a peak price event is taking place. They may then decide to hold off on making any immediate purchases because they believe price levels are excessively high.

History has shown this type of event to be very common; fads come and go.  One minute the Pet Rock was hot and then it was not.  Beanie Babies were hot for years – now they sell for pennies.  Tulips were, many centuries ago for a brief few months, more expensive than homes and horses, then the Tulip market collapsed.

All of these are examples of buying extremes in a supply/demand function that determines operational boundaries of function – almost like Physics creates constructs that all of space/time adheres to.

The downward price trend of US Pending Home Sales suggests the post-COVID extreme buying phase ended in early 2021 and has continued to decline substantially.  My research team believes a deeper decline is necessary to cleanse out the continued excess in the markets – which would potentially represent a 75~85 print in US Pending Home Sales for a period of at least 3~5 months.

Although lows on this chart are fairly short-term on average, we believe the excess buying phase prompted by the post-COVID-19 relocation event will eventually prompt a strong downside reversion event that will prompt many months of “price exploration” in an attempt to settle a market bottom.

Case-Shiller Index Shows Pricing Lags Demand Changes

This Case-Shiller 20 City Index clearly shows the current Real Estate market trend has reached extreme levels.  Remember, this Case-Shiller Index is populated using 20 of the biggest metropolitan areas in the USA – it is not reflective of more rural areas.  We’ve highlighted past extreme levels on this chart with RED drawn arcs in 2004~05, 2010~11, 2014~15, and 2020~21.  Taking a look at the biggest declines in recent history, we watched the Case-Shiller Index move from +17 to -19 from 2005 to 2009. We also watched this Index fall from +13 to +2 from 2014 to 2019.

At the current extremes, we believe the Case-Shiller Index will likely fall into negative levels as the extreme market dynamics for Real Estate unwind across the globe.  The US Federal Reserve and global central banks have pushed the envelope well beyond extreme levels with easy money policies, super-low interest rates, and low or no down payment options for buying a home. These policies have resulted in the resurgence of extreme buyer frenzy in the markets.  The unwinding event will likely take many months to unfold, if our research is correct, and the process will require a breakdown of consumer sentiment related to opportunities in housing.

The fact that the Case-Shiller Index is still printing high levels while the other mortgage and buyer activity has dramatically weakened is nothing new.  Price is always the last thing to breakdown when trends change direction.  Take a look at the charts in this article to see how price levels breakdown after consumers change their buying habits and expectations.  The current downtrend in mortgages and buying activity suggests a big price decline is about to hit the markets – possibly resulting in negative price growth for many months/years.

REIT & Real Estate Sectors Could Get Slaughtered

If you are seeing what we are seeing in these charts, the next thing we would want to see is confirmation of our research.  We would want to see the US and global market indexes begin to break downward as traders shift expectations away from extreme appreciation trends and towards more protective expectations related to future economic reversion events. We would expect the US and global market indexes to begin to revert to lower levels (possibly moving downward by 12% to 15% or more) while the housing market trends continue to settle into a reversion event process.  If this happens, then we would expect the Real Estate sector to start to move lower over the next 60+ days and then really begin to collapse towards COVID-19 lows.

We couldn’t begin to attempt to identify any real downside/bottom levels depending on how this event plays out.  The extreme high price levels in big cities and rural areas suggest this rally in the housing market is a bit different than the one from 2004 to 2008.  This time, everything is extremely overvalued. Therefore, the downside reversion event may be bigger and longer-term than what we experienced in 2008~2010.

The interesting thing about all of this, in our opinion, is that we’ve been closing out a lot of our research articles with “2020 and 2021 are certain to be full of some of the biggest trends we’ve seen, are you ready for these big trends?”.  After the 2020 COVID rotation as well as the extreme rally in the markets after the March 2020 market bottom, here we are at the precipice of what may become one of the biggest market reversion events in history.  Still, are you ready for these big trends?

Traders want to stay ahead of these trends and opportunities related to what may become the next big disruptive technology gains.  As we move further into the 21st Century, it is very likely that space will become the DOT COM/Internet disruptive technology over the next 20 to 40+ years (or longer).  That means traders need to start considering how this exciting new sector fits into their investment portfolio and where new industry leaders will settle.

My team and I have been building and developing fully systematic algorithmic trading strategies for many years and can tell you that unless you have a solid foundation related to knowing when and where opportunities exist in market trends, you are likely churning your money in and out of failed trades. I will be presenting my two favorite strategies at the Case-Shiller Index on July 13th at 4 pm and July 16th at 12 pm. The Summit is free to attend and offers unparalleled opportunities for learning…plus a potential prize or two!

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

Have a great day!

Chris Vermeulen
Chief Market Strategist

 

Escaping To The Country May Be Leading To An Extreme Bubble Setup – Part 1

One interesting facet of this phenomenon recently hit NBC news over the past few days related to the super-hot Boise Idaho and Coeur D’Alene Idaho market.  Home prices in the Boise area have skyrocketed higher by over 30% in just 12 months. In Coeur D’Alene, home prices have risen over 85% in the past 12 months.

Is a Supply/Demand Measure Distorted By Recent Buying Activity – And What’s Next?

My concern is that the post-COVID buying/relocating trends have pushed the Supply/Demand pricing factors well past the equilibrium.  Simply put, the moratoriums and policies related to home renters and homeowners throughout the COVID-19 crisis have created a supply crisis at a time when many people had the capabilities to sell and relocate into different areas of the US at the same time.  Diminishing supply with hyper-active demand pushes price levels upward and to the left, as illustrated on the Supply/Demand chart below.

The data and activity are supporting a hypothesis that speculators, flippers, and homebuyers have chased the rising price levels well past a key equilibrium level suggesting that a reversion process is very likely in the near future.  This reversion event may be similar to the 2008-09 housing crisis as banks suddenly realize they’ve issued loans to borrowers at extremely high price levels with very little collateral to support these transactions. Or borrowers suddenly realize they are trapped in an overpriced home while the economy reverts to lower output levels.  Either way, this seems like a receipt for some type of crisis in the making.

The four basic laws of Supply & Demand are simple to understand.  Basically, the market is always seeking to maintain an equilibrium between buyers and sellers based on supply/demand factors. When extreme events take place to disrupt the equilibrium, these events unfold to push prices higher or lower depending on the event type.  Eventually, as prices reach an extreme level, buyers and sellers begin to understand the extreme nature of the price disruption and a process of “reverting” will take place.

Price is always seeking to establish a proper equilibrium between demand and supply as buyers and sellers negotiate fair price levels for transactions.  Once buyers or sellers believe the price levels are extreme, they typically become much more hesitant to engage in transactions because the risks become far too excessive as well. This is known as the Law of Supply and Demand, as seen below from Investopedia.

The biggest factor driving this substantial Boom Cycle is the relocation of people from cities to more rural areas.  As COVID-19 hit, a big wave of people suddenly decided to give up their city life and move into more rural areas to avoid close proximity issues.  The super low interest rates and the fact that the COVID-19 income disruptions were mostly related to entertainment, retail and restaurant workers prompted those with the capital means to take advantage of somewhat stagnant rural pricing (at the time).  Now, about 14+ months later, home prices in these rural areas are rivaling, or beating, price values in some of the most prominent metropolises in the US.

This type of pricing activity throughout mostly rural areas seems very reminiscent of the 2005 to 2008 setup of the markets related to the market meltdown (Housing/Credit crisis) of 2008-09.  We are starting to see similarities in the data that may suggest the current Housing Boom Cycle is running on fumes right now (likely driven by speculators, flippers, and super low interest rates). Let’s see what the data is showing us and you can draw your own conclusions.

MBA Purchase Index Data Shows Decidedly Lower Trends

The US MBA Purchase Index includes all mortgage applications related to the purchase of single-family homes – covering both conventional and government loan types, and all products offered.  This Index is an excellent indicator of demand and activity related to the total US buying trends.

Since mid-February 2021, the MBA Purchase Index has broken downward after reaching what appears to be an Excess Peak in late 2020 and early 2021.  My team and I believe this “rollover” in mortgage purchase activity is similar to the 2006~2007 decline in mortgage activity that happened just before the broad market collapse that took place in 2008-09 (see the left side of the US MBA Purchase Index chart below).

Even though mortgage activity shown on this chart suggests that activity levels are peaking near 350 and have historically bottomed near 150, an extreme downturn in the current housing market trends could prompt a pullback closer to the 100 level as buyers pull away from a potentially dangerous real estate market price decline (reversion) event. Buyers of big ticket items, such as a house, tend to wait out big downturns – waiting for the best deals.

This downward trend in mortgage purchases aligns with the Supply/Demand theory that buyers are becoming hesitant to chase new purchases at these current extreme levels.  Are there other data that point to a broader market slowdown in home sales?  Do current price levels properly reflect a sufficient supply/demand equilibrium that allows for continued rising price levels?

In Part II of this article we’ll continue exploring the data related to the current housing market and begin to explore the potential global price event that may unfold over the next few years.  One thing is certain from the data we’ve presented so far – it appears the Housing Bubble is starting to stall.  What will it take to burst this bubble event and is the US Federal Reserve ready for it?

Traders want to stay ahead of these trends and opportunities related to what may become the next big disruptive technology gains.  As we move further into the 21st Century, it is very likely that space will become the DOT COM/Internet disruptive technology over the next 20 to 40+ years (or longer).  That means traders need to start considering how this exciting new sector fits into their investment portfolio and where new industry leaders will settle.

My team and I have been building and developing fully systematic algorithmic trading strategies for many years and can tell you that unless you have a solid foundation related to knowing when and where opportunities exist in market trends, you are likely churning your money in and out of failed trades. I will be presenting my two favorite strategies at the July Wealth365 Summit on July 13th at 4 pm and July 16th at 12 pm. The Summit is free to attend and offers unparalleled opportunities for learning…plus a potential prize or two!

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

Have a great day!

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

 

The Peak Of The S&P 500 Stock Market Rally – Are We Nearing The Top?

My research team and I believe $4400 on the S&P 500 may be a key psychological level that many traders are unaware of in the immediate term.  Some very interesting Fibonacci and Gann dynamics are at play as we watch the excess rally phase continue to drive markets higher.

Will the Q2:2021 earning season prompt a blow-off top setup or will the markets continue to rally higher?  Continue reading to learn why we are cautious of the $4400 level on the S&P 500 and why you may want to prepare for a moderately big volatility event if our research is correct.

There are a number of key technical components to our research related to the $4400 target peak level for the S&P 500.  First, the Fibonacci correlation to the rally phases that have taken place throughout the bullish price waves (1-3-5) since the 2009 bottom.  We’ll get to that in a minute.  Second, we believe our Gann cycle phase research and Fibonacci Price Amplitude Arc research suggests the current market rally is very over-extended to the upside.  In other words, we believe this excessive upside price trending is likely to revert, quite strongly, at some point in the near future.

The $4400 number becomes our key focus for two reasons. Based on our research, that level appears to hold significant resistance and the fact that the S&P 500 will likely reach this $4400 level within the next few days/weeks prompts an urgency for us to share this information with our readers.

As we continue to present charts and research, ask yourself this one simple question: if one were to take place over the next few weeks, are you prepared for a moderately large price reversion event with regards to protecting your trades and understanding the risks?  Would you be shocked if the S&P 500 collapsed to levels near $330 (or lower) after reaching $440 (representing a -25% price reversion)?  Let’s explore this concept to help you prepare – just in case.

Custom US Stock Market Index Suggests $440 Is Likely Strong Resistance

In this first Custom US Stock Market Index Monthly chart, we are watching the $440 level as key resistance (which you can see from the GREEN Fibonacci Price Amplitude Arc near the current price highs).  This $440 level represents a similar price level to the $4400 level on the S&P 500 chart (below).

You can also see the Gann Arcs that we’ve drawn on this chart with the most recent levels being near $380 (in LIGHT BLUE) on this chart.  This broad Gann Price arc suggests that a key price inflection point took place between March and May 2021.  It is our belief that the exuberant rally phase that continues to drive the market price higher has overrun this price inflection point and extended beyond moderate resistance.  This sets up a possibility that a reversion price event may prompt a bigger correction in price, possibly reverting back to the Gann inflection point targets – near $325 on this chart.

VIX Settling Near 15 May Prompt A Volatility Event If The Market Roll Over

The VIX moving in a consolidated lower price trend suggests traders have become very complacent recently.  Even though volatility in the markets is still 2x to 3x normal ranges, the VIX is reflecting lower levels similar to the 1x type of volatility we saw before 2018.  This happens because the VIX is calculated using a smoothing function related to the “near-term” and “next-term” options data (source: VIX Calculation Explained).

We believe it is quite likely that a surprise Q2:2021 volatility event will take place over the next few weeks, possibly aligned with the $4400/$440 price targets we are suggesting, that may prompt a larger price reversion event to the downside and prompt the VIX to move above 40~45 again.

If our research is correct, this type of correction in the market may surprise traders simply because many traders have become very complacent with the seemingly un-ending upward price trending.  If you take a quick look at the Custom US Stock Market Index chart, above, you’ll see how strong and aggressive the current upside price trending has become.  At this stage, we could safely call this upward price trend “near vertical” and hyper-parabolic.

The Bigger Elliot Wave Setup Suggests We Are Rallying To A Wave 5 Peak – Get Ready For The Next Big Wave Lower

Traders need to continually adopt a varying perspective related to the broader markets and trends.  The shorter-term trends may be showing us what to expect over a few days or weeks, but the longer-term trend can help us identify trends that may last months or years.

The technical charts, above, are all based on Weekly and Monthly charts because we wanted to highlight the varying technical (Price, Fiboancci and Gann) setups that we believe may conjoin at some point over the next few weeks to prompt a reversion event.  Although we can’t time this event to the day/week, we are actively watching our technical systems/strategies for signs that the markets have exhausted this upward trend and we believe the potential reversion could be sudden and violent (if it happens).

This last chart is a Monthly S&P 500 Index chart showing our analysis of the current Elliot Wave structure.  We believe the current rally is a Wave 5 rally to a peak – which may be very close to reaching the apex levels – or reaching a critical top.  Our analysis of the 2x Wave 5 rally, shown on the chart, is rooted in the premise that the 2015 to 2020 rally represented the end of wave 3 and the COVID collapse represented a very quick Wave 4 correction.  Currently, our Wave 5 peak expectation for price is near $4400 on the S&P 500.

The S&P 500 is currently trading just above $4325 and is closing in on the $4400 level fairly quickly. The importance of this $4400 level is critical to understand in the sense that it represents a key psychological level and also aligns with the PURPLE arcing Fibonacci Price Amplitude Arc on the chart below.  This Fibonacci Price Amplitude Arc originates from the 2009 market bottom and represents a 3.618 total price expansion.

What makes us believe our analysis is accurate is that the move from the 2009 bottom to the Wave 1 peak totaled approximately 1459 points.  The move from the bottom of Wave 2 to the Peak at Wave 3 totaled approximately 1594 points (larger than Wave 1: 1.0925%).  The current Wave 5 rally, if it ends near $4400, would represent a rally of 2200 points (the largest Wave: representing a 1.507% expansion of Wave 1 and a 1.380% expansion of Wave 3).  The alignment of key Fibonacci ratios suggesting the $4400 level will become a critical peak for the S&P 500 Index tells us our analysis is likely to be correct.  It also suggests the markets are very close to a critical peak level and all traders need to be aware of this setup.

Our belief that a reversion event and/or a critical market top is pending should not surprise you at this point – we are simply riding out this “rally to a peak” trend while we wait for confirmation of a major trend reversal.  If the $4400 level on the S&P500 does not confirm as a major peak, then we will simply wait for the next higher peak level to setup.

Please note that we are not trying to pick a top or suggest traders jump into short positions because of our research.  We are suggesting that traders pay very close attention to how the markets react after the S&P500 reaches near the $4400 level as we believe price levels may stall and begin to roll downward – possibly starting a bigger reversion event from this peak level.

Traders want to stay ahead of these trends and opportunities related to what may become the next big disruptive technology gains.  As we move further into the 21st Century, it is very likely that space will become the DOT COM/Internet disruptive technology over the next 20 to 40+ years (or longer).  That means traders need to start considering how this exciting new sector fits into their investment portfolio and where new industry leaders will settle.

My team and I have been building and developing fully systematic algorithmic trading strategies for many years and can tell you that unless you have a solid foundation related to knowing when and where opportunities exist in market trends, you are likely churning your money in and out of failed trades. I will be presenting my two favorite strategies at the July Wealth365 Summit on July 13th at 4 pm and July 16th at 12 pm. The Summit is free to attend and offers unparalleled opportunities for learning…plus a potential prize or two!

Have a great day!

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

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

 

Q2 To Q3 – Where Will The US Stock Markets Take Us Next?

As we watched the NASDAQ and S&P 500 rally to the end of Q2:2021, many traders asked themselves “Will this rally continue throughout the early part of Q3:2021 and beyond?”.  Although we don’t have a crystal ball to tell you exactly what is going to happen, our price modeling systems, predictive modeling tools and trend analysis systems suggest we will likely see continued upside price trending through at least July 15th to 21st. After the middle of July, we may see another pullback in trends as the markets shift away from the reflation trade expectations and start to react to 2021 holiday/COVID expectations.

The reflation trade rally has been very impressive over the past 12+ months.  One simply can’t argue with the price range, trend and volatility that we’ve seen throughout all of 2020 and into the first half of 2021.  My team and I expect that volatility to continue, but at a slowly decreasing range into the end of 2021.  We also expect a price rotation/reversion may still happen in 2021 that may prompt an 8% to 12% downside price correction (possibly bigger).

Near the end of December, 2020, we published a research article (What To Expect In 2020 Part II – Gold, Silver, and SPY) showing what our predictive modeling system suggested was likely to happen throughout 2021 and into 2022 – predicting price action more than 12+ months in advance for many symbols.  The ES and the NQ both suggested a moderately strong potential for an early 2020 downside price rotation – which never happened.  The INDU and SPY suggested a late Summer/Fall deeper downside price rotation – which we are watching out for right now.

Overall, our price predictions for 2021 suggested a moderately strong upside price bias/trend for almost all of 2021 and into early 2022. Yet there were also signs that a correction/reversion event may be likely sometime between April/May 2021 and September/October 2021 for the US Major Indexes.

As we move into Q3:2021, we believe the upward trending will continue as earnings and results continue to support the reflation trade expectations.  Historically, there has never been a period where global central banks have poured so much capital into the global markets/economy.  We are living through a grand experiment related to supporting the global economy at a time when a global crisis has persisted over the past 10+ years.  The upward price trend will likely continue, until it breaks downward.  That is the big fear driving traders into hedging and price protection trades.

INDU targeting $36,000 in early Q3:2021

This first Weekly INDU chart highlights the extended upward price trend that is likely to continue throughout the early weeks of Q3.  In particular, we believe traders will pile into the Blue Chips, Technology, Semiconductors, Healthcare and various other sectors as earning data suggests continued revenue growth.

The Dow Jones will likely attempt to breach the $36,000 level before traders start to look for resistance.  As the new COVID-19 Delta strain is starting to become an issue, we may see various forms of economic shutdowns happening again in the near future.  So be prepared for states and nations to act in a manner that may be counter to your expectations (again).

NASDAQ Moving Quickly To $15k – May Rally To $16k In July 2021

This Weekly NASDAQ chart highlights the extended upward trending we’ve seen in various sectors over the post-COVID recovery trade.  Technology, Chip makers, Healthcare, Consumer products and many other sectors continue to rally quite nicely as buyers have shifted their focus over the past 15+ months.  The NASDAQ will likely target the $15,000 level very early in Q3:2021 and may push even higher – to levels near $16,000 on strong earnings.

It is very likely that traders will pile into the NASDAQ trend as data is released and the markets trend on expectations.  Quite literally, unless something disrupts the expectations/results, there is very little to stand in the way of this upside price momentum.  Obviously, as long as traders believe these valuations are suitable and believe there is no reason to be fearful of any downside price risks, they will continue to drive the NASDAQ higher and higher.

The accumulation of volume, shown by the increasing On Balance Volume indicator near the bottom of these charts, suggests that traders are already showing their hands in regards to forward Q2:2021 expectations.  We believe traders are already positioned for a rally throughout early July 2021 as earnings and data start to hit.  This is why we believe the markets will continue to rally higher through at least July 15th to 21st as the “tail wags the dog”.

After the bulk of earnings have been processed by the markets and traders, my team and I believe a period of profit-taking will start to unfold where broader price volatility may prompt some bigger trends.  Remember, the trend is your friend – until it isn’t.  So, stay prepared for the unexpected and watch for signs of weakness in major market sectors (like the Transportation Index and other leading sectors).

My team and I have been building and developing fully systematic algorithmic trading strategies for many years and can tell you that unless you have a solid foundation related to knowing when and where opportunities exist in market trends, you are likely churning your money in and out of failed trades. I will be presenting my two favorite strategies at the July Wealth365 Summit on July 13th at 4 pm and July 16th at 12 pm. The Summit is free to attend and offers unparalleled opportunities for learning…plus a potential prize or two!

Have a great day!

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

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

 

Will The Markets Lead Us To Temptation Or Back To Work?

Headed into the July 4th holiday weekend, we have 5 more trading days in Q2:2021. We are starting to see a continual grinding higher in the US major indexes and various market sectors.  The one thing my team and I believe is happening in the markets right now is “moderate complacency”.

After the FOMC statements just a few weeks ago and the continued support of the US Fed, the markets entered a period of moderate volatility.  Currently, the markets appear to be settling in for moderately strong earnings expectations as Q2:2021 comes to a close.  That means the markets will start to react to earnings and profit data as well as forward expectations presented by corporate statements along with the continued economic recovery attempt.

NASDAQ Grinds Higher – Breaks Upper Flag Channel Level

This NASDAQ Daily chart shows how the NQ has rallied above a Flag channel high and has begun to grind higher. Traders continue to expect upward price trending in expectation of stronger technology and other earnings data.  This broad Flag pattern, shown on this chart by the CYAN lines, should highlight the level of volatility currently active in the NQ right now. The range between the upper and lower boundaries is more than 6%.  Therefore, any surprise volatility may prompt a price rotation within this volatility range.

Retail Breaking Resistance And Attempting A Rally Above $100 – Get Ready

Retail will likely surge as earnings data is delivered showing a moderate increase in consumer spending.  Additionally, as we are well into the start of Summer, there are likely a large number of consumers that are making big-ticket purchases (boats, cars, RVs/Trailers, toys) in support of Summer vacation plans.  This surge of consumer spending after many months of lockdown and saving may prompt a wave of spending throughout the end of 2021 and into 2022.  The stimulus checks also continue to help drive additional savings and spending.

Retail may surge to levels above $105 if profits and earnings data comes in strong over the next few weeks for Q2:2021.

MIDCAPS Show Us Where Resistance Is Likely To Contain The Upward Grind

This Monthly chart of the SPDR S&P 400 Midcap Futures shows the resistance level that we believe will continue to act as a ceiling for the markets.  The trends that started in 2016 and continued through early 2018 created a Standard Deviation channel range that trends almost perfectly to the current price highs.  My researchers believe this upper Standard Deviation channel will continue to act as strong resistance as earnings data pushes the markets into a continued grind higher.

So, as we start to see the markets trend after the July 4th holiday weekend, stay keenly aware of where the current resistance/price ceiling is in the charts.  It is likely that prices may attempt to reach above this level briefly, then stall sideways, or correct lower, as this upward trending channel represents extreme bullish trending.

The strongest market sectors are likely to continue to try to grind higher and attempt a 4% to 7% rally (or possibly more) as the markets prepare for Q2:2021 earnings and continued US economic recovery data.  Traders are expecting solid earnings and further economic growth, and are thus putting their capital behind these expectations – grinding the markets higher right now.  There is a very strong potential the strongest sectors will rally 5% to 8%, or more, over the next 25+ days.  Are you ready?

Or, are you trying to make sense of where the opportunities are in these market trends?  Are you still trapped in the thinking that guessing when and where to enter the markets will help you identify good trades?

My team and I have been building and developing fully systematic algorithmic trading strategies for many years and can tell you that unless you have a solid foundation related to knowing when and where opportunities exist in market trends, you are likely churning your money in and out of failed trades. I will be presenting my two favorite strategies at the July Wealth365 Summit on July 13th at 4 pm and July 16th at 12 pm. The Summit is free to attend and offers unparalleled opportunities for learning…plus a potential prize or two!

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

Have a great day!

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

 

Are The US Major Indexes Rolling Over In An Excess Phase Peak Setup?

Recently, I published a research article on Bitcoin suggesting there may be a bigger downside price move setting up – breaking support near $30k and extending the Excess Phase Peak pattern that we warned about back in November 2020.  Today, my team and I wanted to alert you that the recent price rotation in the Dow Jones Industrial Average and the Transportation Index COULD setup in an early stage (Phase #2) peaking formation similar to what started the recent down trend in Bitcoin.

The setup of the Excess Phase peak pattern consists of an exuberant rally to a peak (Phase #1), followed by a moderate price correction that sets up into a sideways flagging pattern (Phase #2).  If the INDU and TRAN continue to move in a sideways flagging formation after recently move moderately lower, we may start to see a new Excess Phase Peak setup in these two major indexes. This could be a warning of a much bigger breakdown in trend in the near future.

Please take a minute to review our earlier research posts related to the Excess Phase Peak setup (below) and how it related to the current market trend:

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

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

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

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

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

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

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

TRAN MIRRORING EXCESS PHASE PEAK FLAGGING SETUP – WHAT NEXT?

This Weekly Transportation Index chart should appear very similar to the INDU chart (above).  The unique similarities of these two charts, one addressing the Blue Chip US economy and the other addressing future US transportation expectations related to economic activity, suggests traders may be shifting away from a reflation recovery after the FOMC statements last week.  We are starting to see traders/investors reevaluate the capability of the US economy to continue the rally trends as they have since November 2020.  Could this shift in investor sentiment prompt a broader market price setup?  Is it warning of an Excess Phase Peak setup in the making?

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

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

As we move into the end of June, the end of Q2:2021, it is important to understand that market price volatility should begin to increase as earnings and forward expectations continue to flood the news wires.  We are only 8+ days away from the end of June and we believe the markets are likely to trend sideways through to the end of the month – leading up to the Q2:2021 earnings calendar.

It makes sense to us that the broader markets, and investors, are searching for more clarity and reason to be bullish after such an extended price rally.  Time will tell how this plays out, but one thing is certain: Q2:2021 earnings and forward expectations will likely drive trader/investor sentiment over the next 3+ weeks.  Expect an increase in volatility and some potential surprises.

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

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

Enjoy your day!

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

 

Bitcoin Broke The $30K Crucial Support Level, What Now?

Bitcoin has followed our Excess Phase Peak breakdown pattern almost perfectly.  Each phase of any Excess Phase Peak is important to understand as it relates to other asset classes.  For example, as an asset, like Bitcoin, begins a Excess Phase breakdown in trend, other assets will likely follow along. The psychological impact of a major decline can often result in traders also expecting breakdown events in various other asset classes.

Before we begin to go into deeper detail regarding this Excess Phase Peak setup in Bitcoin, I suggest taking a minute or two to review our earlier research posts related to this pattern: How To Spot The End Of An Excess Phase – Part I November 25, 2020;  As this breakdown continues to unfold, we want to warn you that other asset classes (as mentioned above) may follow this trend as trader/investor psychology often impacts future expectations/trends across the globe.

If traders suddenly develop an expectation that the recent price rally in the global markets is at risk of failing, or that the downtrend in Bitcoin may have broader implications across other assets, we may see a bigger rotation in the global markets throughout the rest or 2021 (and beyond).

Phase #4 of the Excess Phase Peak Setup Is Pending

Now, as we begin to enter Phase #4 of the Excess Phase peak pattern, the final breakdown of intermediate support, our research suggests Bitcoin may fall to levels below $10k.

Traders need to be prepared for the next phase of this move. This may last many months as Bitcoin attempts to identify a key support level that will act as a new momentum base for any potential future upside price trending. Bitcoin has breached the $30,240 level earlier today.  A stronger downside price trend is likely to wipe out another 60% to 75% of the current price valuation – resulting in a bottom forming below $10k.

This potential bottom level may not be the ultimate low for Bitcoin.  Traders are advised to wait for a strong bottom/base to set up before attempting to jump into any new upward price trending expectations. As mentioned above, the process of setting up this ultimate bottom/base may take many months to complete.

Let’s go over the Excess Phase Peak Pattern Setup, illustrated in the chart below.

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

After the completed five phases, a new momentum bottom will set up which will likely prompt early-stage accumulation again – eventually prompting another rally attempt.

Could Bitcoin Target A Bottom Below $7500?

My team and I believe the lower support level in September 2020, near $9850, is a likely target for the ultimate bottom.  Although, we want to warn you this level may act as a temporary support level if the unwinding of this Phase #5 downward trend persists beyond our expectations.

This Weekly Bitcoin chart highlights the current three completed phases and the pending #4 and #5 phases of the Excess Phase Peak pattern. We find it interesting that we highlighted this pattern setup more than 7 months ago and warned that an Excess Phase Rally was taking place back in November 2020.  Even though Bitcoin rallied far beyond our expectations for a peak (near $32k), we strongly believe the ultimate bottom setup from this extended Excess Phase collapse will prompt another incredible opportunity once the final phase of this pattern is complete.

To help answer your question, “where is the ultimate bottom in price?”, the simple answer is “we don’t know exactly where Bitcoin will find an ultimate bottom price level.”.  We believe the $9850 level is a likely target for a bottom.  But we also believe the unwinding of this broad market excess phase peak may prompt a bigger downtrend that may last many months as global assets break away from the recent rally phase.  This means we may see a broader unwinding of the global markets throughout the end of 2021 and into 2022.

Many major commodities have recently broken their rally phase trends and have started to move dramatically lower in recent weeks.  The US major indexes, particularly the Dow Jones and the Transportation Index, have begun to break upward sloping price channels. Gold and Silver have reacted, recently, to the FOMC statements by breaking strongly to the downside.  All of these setups are indicative of a change in trader/investor psychology – a breakdown of expectations.

I advise traders and investors to be cautious with regards to trying to pick a bottom as we watch the markets attempt to identify new support levels.

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

Have a great day!

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

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

What Is The New Norm In The Stock Market When It Seems Normal No Longer Exists?

Yet when we look at the stock market charts they continue to go up.  We have bad jobs data – the markets respond and go up.  We have poor CPI – the markets go up.  The housing data misses – the markets go up.  It is like bouncing off Teflon.  What used to cause rifts in the markets now cause the opposite.  In this upside-down world, this has become the norm.

Since March 18, 2020 until now we have had the following gains:

  • S&P – 71% increase
  • NASDAQ – 97% increase
  • Russell – 90% increase
  • Dow – 64% increase
  • Silver – 120% increase
  • Gold – 50% increase
  • BitCoin – 385% (was as high as 767%)

So, we ask how in the heck is this happening?  How can it be that the markets respond in a positive way to the bad economic news?  The continued slow economic recovery.  The largest debt this world has ever seen.  What on this earth is fueling all this?  It took me a while to figure it out, but it is simple.

In short, these markets like the bad news because it forces quantitative easing and keeps interest rates down.  This is akin to the FED hitting the gas on the economy while driving on a sheet of ice.  Most would expect the Fed to proceed with caution but instead, they are going for broke.

So, every time we see bad numbers the markets respond positively, and bad news is good news.  We have seen this since the breakdown of the markets in March of 2020 and it has continued.  The problem is that we are creating another bubble and when that finally bursts, we are going to have to move fast and furious.  Nobody knows when that will be – next week, next month, or a year from now.  All we can do as traders is to be cautious and execute trades that have defined risk.

Take a look at the most recent recession in 2020 – where we saw the VIX climb as high as 85. At that price, the market is expecting extreme risk. Ultimately, the VIX is the industry standard to help traders and investors have a standardized view of market risk through implied volatility.

The VIX is useful because it can give us a hint at what the market is expecting since it is an example of implied volatility. Typically, IV is derived using an options pricing model, such as the Black–Scholes. Using these models, the theoretical value of an option can help guide us to the measurement of implied volatility at a particular point in time.

Traders and investors can use IV to find attractive options trades to hedge, enter or exit a position, or to speculate on a future outcome in the market.

HISTORICAL VOLATILITY

While the VIX is a measure of implied volatility, there are many historical measures of volatility that can be useful. One common example is the beta coefficient. This is a historical calculation measured by taking the returns associated with a security and comparing that the price action of the market over the same time period. A security with a beta less than 1 implies that the security is theoretically less volatile than the market as a whole. A security with a beta greater than 1 would be more volatile than the market.

For those that want to have a full picture of the risk of a security, the beta coefficient can help separate market risk with individual security risk. These types of measures can help you diversify properly with respect to your individual risk tolerance.

A historical volatility calculation like beta gives you a basic understanding of what the price of a security has done in the past. While past performance is not indicative of future results, historical volatility calculations can be used to help measure risk and ultimately help determine if a security is right for you.

THE VOLATILITY OF THE VOLATILITY – VVIX

To further confuse new traders there is such a thing called the volatility of the volatility or AKA the VIX of the VIX (VVIX).  No this is not an exercise on doublespeak if you are a subscriber you would have seen me talk about this before.  The VVIX is simply a measure of the change of volatility in the VIX volatility index.

The VVIX is the VIX of the VIX like the VIX is the VIX of stocks.  Ok if you are not thoroughly confused by now then congrats because this stuff can get pretty confusing.  Another way to put it is, the VVIX measures how rapidly S&P 500 volatility changes, and is thus a measure of the volatility of the index.  Investors can use the VVIX and its derivatives to hedge against volatility swings on changes in the VIX options market. You can hedge the hedge!

WHY YOU SHOULDN’T BE AFRAID OF VOLATILITY

All told, volatility is just a measurement that can give you insight into the potential risk of a security. It’s important to remember that actual volatility is almost always less than implied volatility. No measure of risk is going to be totally accurate, anything can happen in the financial markets. Even so, volatility measurements can offer a clear view of the risk the market expects.

If you want to learn more about how to trade options, about how to take all factors of options pricing into consideration, and about how to account for volatility in your options trading, please look into our Options Trading Signals.  We send trade alerts out weekly and do daily updates on our positions as to why we got in and out along with the factors to our strategies.  We trade proprietary strategies you will not find anywhere else.  Our goal is to make the market work for us and not try to work the market like everyone else.

We are also offering a live course tomorrow, Saturday, June 19th at 10:00 am with Neil Szczepanski, our Options Trading Specialist! Learning the basics of options trading is the foundation required for more advanced consistent income trading strategies.

You owe it to yourself to have the best tools and subject matter experts on had to ensure you are set up for ultimate success.  Don’t trade with one hand behind your back. Rather, expedite your learning curve with the Options Trading newsletter service.

Have a wonderful weekend!

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

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

 

Wall Street Smart Money Is Accumulating Physical Silver Ahead Of New Basel III Regulations And Price Explosion To $44 An Ounce

Recently, Gold and Silver have somewhat stalled after a fairly solid upside price trend in April and May 2021.  Looking at the longer-term Weekly Silver chart, we believe Silver is ready to pounce with a big move higher.

The second half of 2021 will welcome BASEL III (likely) and a renewed focus by the US Federal Reserve (and Global Central banks) working to contain inflationary aspects of the recovering global economy while also attempting to support continued growth objectives.  I believe precious metals, in particular – Silver, have shown a very unique “Accumulation Phase” over the past 12+ months that may lead to a big upside breakout rally when it breaches the $28.50 level.

SILVER WAITING FOR THE OPPORTUNE MOMENT TO POUNCE – ARE YOU READY?

This Weekly Silver Futures chart highlights the On Balance Volume Accumulation Phase as well as our price cycle analysis suggesting Silver is stalling just below resistance near $28.50.  My team and I believe the new upward cycle phase, in addition to the massive Accumulation taking place, suggests that Silver is currently lying in wait – ready to pounce on a big upward price trend once the $28.50 level is breached.

ADL MODEL SUGGESTS $40 TO $44 UPSIDE TARGET IS REAL

Our proprietary Adaptive Dynamic Learning (ADL) Price Modeling system suggests a continued bullish price trend is likely on the Monthly Silver chart, shown below, and that a peak is likely near $40 to $44 near December 2021.  This bullish price dynamic is based on the ADL’s ability to map out unique price and technical setups in the past, then align those unique price DNA markers with current price setups.

What may happen over the course of the next few weeks is that Silver may continue to attempt to consolidate below $28.50 as the markets react to the FOMC announcements and other market facets.  Once the markets digest the real factors related to inflationary concerns, what the US Fed and Global Central Banks need to do is to address these concerns, and the future expectations related to forward monetary policies and expectations. Personally, I believe Silver will move above $28.50 sometime in July (or shortly afterward) and begin to move dramatically higher – targeting $40 or higher.

My team and I believe the end of 2021 and nearly all of the next 2 to 3+ years will be full of incredibly big price trends for traders to take advantage of.  This setup in Silver suggests we are only starting a multi-year bullish price rally phase in precious metals (very similar to the 2003 to 2007 rally in Gold/Silver).  If you have followed precious metals long enough, you understand the biggest moves in Gold and Silver happened after the 2006~07 stock market peak.

That means that we are just starting to see an incredible opportunity in the US stock market and precious metals related to volatility, trends and price rotations. Now is the time you should start preparing for what is to come and learn how to take advantage of these incredible opportunities.

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

Have a great Friday!

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

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

 

Dow Jones And Transportation Index Breaching Critical Price Support Ahead Of FOMC Meeting

Over the past few weeks, we have watched the markets continue their attempt to melt higher. Recently the Down Jones and the Transportation Index have breached a lower upward sloping support channel that suggests traders are preparing for a surprise Fed statement or a breakdown in the current bullish price trend.  My team and I believe this warning sign may be suggesting the reflation trade is over. Traders believe the US Fed will soon begin to act to contain inflation by raising rates.

As we move closer to the FOMC statements and decisions related to the economy, inflation, and future expectations, the US major indexes usually move into an apprehensive sideways trend.  This happens because US federal reserve decisions can have a very big impact on how consumers and corporations perceive monetary policies and future opportunities.  The US markets will likely react to the US Fed statements this week with increased volatility and trend strength.  If you have not already protected your trades in preparation for the FOMC comments this week, get ready for a potentially wild ride.

FASTEN YOUR SEATBELTS AND MAKE SURE YOU HAVE YOUR “E-TICKETS” READY

The Dow Jones Industrial Weekly chart below shows how price has been moving higher (melting upward) throughout the early part of 2021 and has just recently broken below the YELLOW upward sloping price channel line.  It is our opinion that this move, below a key support level, may be an early indication that traders and the markets expect a policy change from the US Federal Reserve.  Quite possibly, the inflationary aspect of the recovering global economy is sparking greater concern for the US Fed and they may decide to act in steps that will help curb run-away inflation earlier than expected.

We’ll know soon enough as the FOMC statement is due on Wednesday, June 16, 2021.  We are expecting an increase in volatility with the potential of the FOMC comments driving a new upward or downward trend.  If the Fed issues a statement where they are taking no action and don’t believe inflation is a core issue, then the markets will likely continue to move higher.  If the Fed issues a statement that inflation and other concerns are big enough to warrant a surprise rate/policy change, then the markets may react to the downside.

This next Weekly Transportation Index chart highlights a similar type of price pattern.  The Transports have broken below a more recent upward sloping price channel, from the February 2021 lows, and has yet to break below the major upward sloping price channel line, from the COVID-19 lows.  Still, this “rollover” in the Transportation Index suggests traders are changing perspective related to future economic activities 90 to 120+ days into the future.  This sideways rollover suggests traders believe the commodity rally and inflationary pricing pressure will “abate” as we move into the end of 2021.

Logically, we would expect the Transportation Index to continue to move lower if these expectations become rooted in the broad market perspective.  If the Fed takes any action to help curb inflationary expectations, this downward trend in the Transports could move in a much more aggressive manner.

Are the Dow Jones Industrial Average and Transportation Index setups warning that the Fed may be backed into a corner?  Are we starting to see a change in trader/investor sentiment related to the current commodity rally and/or economic activity throughout the rest of 2021?  Only time will tell at this point.

What we do know is that later today, being Wednesday, June 16, 2021, The FOMC decisions and statement will likely set a tone in the markets that will drive increased volatility and trending.  This could prompt some very big trends in major market sectors such as precious metals, oil, and others.  Now is the time to get ready for some bigger trends that will likely last throughout the rest of 2021 and into 2022.

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

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

Have a great day!

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com