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VIX Cycles set to explode in March/April 2017 – Part 2

Previously, I authored a “Part 1” of this article regarding my analysis of the VIX cycles.  I sincerely hope my readers enjoyed the analysis and I hope it opened up a few questions regarding the potential moves in the US and global markets.  Today, we will delve deeper into the concept of the VIX cycle patterns that I’ve identified and use common technical analysis concepts to attempt to identify price target levels as well as support and resistance that may become important in the immediate future.

 

For those of you that missed “VIX Cycles set to explode in March/April 2017 – Part 1”, please click on this link to review my earlier analysis.  When you are ready, the rest of this article continues my analysis.

 

As we had been discussing in “Part 1”, my hypothesis that a 5 month VIX cycle pattern exists and has been driving market volatility since 2015 appears to be substantiated by historical chart evidence.  The other interesting facet of this 5 month pattern is that it appears to be quickening in relation to recent activity.  I stated earlier that I believe this pattern to be a 18~22 week cycle event, but more recent VIX chart activity shows the current range may be more like 16~20 weeks.  My understanding of cycles and patterns is that within extreme, potentially violently, volatile periods, price cycles may become more frequent and velocity may become more volatile.  An example of this can be found in my long-term US major market cycle analysis below.

 

This image maps a major market cycle rotation process that has been in place for over 60 years.  This image starts in the late 1970s and maps TOP and BOTTOM cycling events and well as potential early and late stage cycle ranges.  When the GREEN and YELLOW levels, near the top, move above the 80% range, this starts the “Topping cycle event”.  When both of these levels fall below the 80% range, this ends the “Topping cycle event”.  The opposite is true for the BLUE and RED levels.  When both of them fall below the 20% level, this starts a “Bottoming cycle event”.  When they both leave the 20% level, this ends the “Bottoming cycle event”.  Actual price tops and bottoms can, and often do, occur within these event ranges.

 

US Cycle Chart

TopBottom2

Price and event cycles have been in place for centuries and correlate with other traditional forms of technical analysis easily.  For example, Elliot Wave, Fibonacci, Price Channeling and Price Patterns all relate to cycles very well.  Within this article, I’m using Price Patterns as well as Fibonacci to attempt to project and identify key target, support and resistance levels based on my understanding of the proposed VIX cycles.

 

Recent price expansion from the lows at $868.47, January 2016, prompted a rally to $1194.60, on April 25, 2016.  This range, $326.13, represents an expansion cycle and a Fibonacci range that we can use to determine Fibonacci cycle frequency – which may help us determine future price objectives.  After this peak, price dropped 25% of this range (a common Fibonacci level that is correlated to a real Fib value of 0.272) equaling $81.53.  Because of this narrow retracement, we should expect a potential future price move equaling 1.272%, 1.618% or 1.768% of the existing range.  XOI rallied to $1259.56 on December 12, 2016 – equating the expected 1.272% price expansion we projected and setting up for a 0.768% total range retracement.

 

Let’s take a look at one example – OIL (XOI)

XOI_Weekly

 

Last week followers, subscribers and I got long 3x long energy fund – ERX.

call

 

In 24 hours we locked in a 7.7% partial profit, and are now sitting with 10+% gain on the balance. This special setup I call the Momentum Reversal Method (MRM) continues to be in play and we could experience another 20-35% gain from here.

 

What does all this technical stuff mean? After this bounce we should expect XOI to fall back to near $976.00 before attempting any further price moves.  All of this type of Fibonacci work is conducted by understanding how Fibonacci price relationships correlate to time/price/cycle frequency functions.  Many of the best analysts of the past had detailed understandings of how these correlations work and how price would react based on larger and longer term time/price/cycle events.

 

Stay Tuned For Gold & Silver Forecast Next – Part 3

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New Highs For 2017? Yes, But When Do I Enter?

When the SPX breaks out above its’ current resistance level, it will be the next leg up in this bull market. We are currently in a consolidation period. The SPX seems to be resting for now!  The “Bollinger Bands Squeeze” is now taking hold and will result in a powerful move in either direction once broken.  I do have a new BULLISH trigger for members to enter into during this amazing “melt up” that will only be shared with my ‘elite members’.   I can assure you that you will want to be invested in this next BULLISH leg of the SPX!

 

The Next Move UP!

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‘Bollinger Bands’ are one of my most preferred tools of technical indicators:

The “Squeeze”,(http://www.investopedia.com/articles/technical/04/030304.asp?lgl=bt1tn-baseline-below-textnote)  occurs during low levels of volatility as the ‘Bollinger Bands’ narrow. These periods of low volatility are followed by periods of high volatility. Therefore, a volatility contraction of the bands can foreshadow a significant advance or decline.  This is one of my best kept secrets of technical analysis, until now!

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Financial markets are now awaiting what the new Trump Administration has in store. These markets do not like “uncertainty”. So far, President-elect Trump has announced a direction of deregulation and lowering the tax bracket for corporations and repatriation of all corporate money (http://www.investopedia.com/terms/r/repatriation.asp) that is held overseas in foreign bank accounts.

The ‘ISI Research Study’ revealed that the “U.S. S&P 500 companies now have $1.9 trillion parked outside the country”.  Most likely, said funds will be applied so as to continue the stock buyback program thereby pushing the SPX to new levels that are ridiculously overpriced. Hot money ‘continues to be supporting the rise in equity markets. I share some of these hot money sectors and stock on my StockCharts.com public list!

 

Trump’s Victory Speech on November 9th, 2016:

“We are going to fix our inner cities and rebuild our highways, bridges, tunnels, airports, schools, hospitals. We’re going to rebuild our infrastructure, which will become, by the way, second to none. And we will put millions of our people to work as we rebuild it. We will also finally take care of our great veterans”.

 

Chart of the SPX “melt-up’:

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Are there too many happy investors?

The U.S. stock markets have been on a run since the U.S. Presidential election last November 9th, 2016.

U.S. stocks continue to see signs of “optimistic extremes”. The risk of buying on emotional decisions is still currently high.

There is no interest in shorting. The number of shares sold short, in hopes of buying them back at a lower price, has collapsed. The SPY fund (https://us.spdrs.com/en/product/fund.seam?ticker=SPY), short interest is the lowest since the summer of 2007.  Individual stocks are also showing a lack of short sales which, in turn, removes a pool of potential buying interest. A “de-trended” version of the short interest ratio has dropped to a level that has led to negative returns for stocks which will happen, but likely not for many month yet. The market is likely to grinding higher before a big correction takes place.

A new high presented itself on a day that the jobs report missed expectations. On January 6th, 2017, the jobs report came in less than what economists’ expectations were.  However, the SPX powered to a new high of 2276.06.  This may seem like good news, but during prior times that this occurred, stocks usually pulled back over the following weeks.

Stocks have drifted higher even after optimism reached an extreme. ‘Dumb Money Confidence’ exceeded 80% but the SPX has added on more gains without any kind of pullback. This type of buying pressure, after an extreme optimism sentiment, has previously occurred only a handful of times. It has usually led to losses as the late buyers became “exhausted”.

 

Investor confidence is so High they see no need to hedge their positions:

The Equity Hedging Index has declined to its’ lowest level in nearly two years, showing a lack of interest in the various ways that investors use to protect themselves from possible market declines.

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This chart is a contrary indicator. The higher the Equity Hedging Index, the more likely it is that stocks will rally going forward.  The lower the Equity Hedging Index, the less likely that stocks will rally.

 

 

                                                                                                              Conclusion:

Hopefully, Trump’s business experience will translate well into his new position. It is certainly my hope that he is as successful as possible. Even during the campaign Trump spoke about how stocks were in a giant ‘bubble’.  This euphoria that we have felt, since his election victory, has made that ‘bubble’ even larger. Throughout U.S. history, every ‘giant financial bubble’ has always ended very badly, and this time around will not be an exception. Trump may get the blame for it when it bursts, but the truth is that the conditions for the coming crisis have been building for a very, very long time.

I expect the stock market to stall out mid way this year in June/July at which point things could turn south. If you want to follow me live at StockTwits.com

Join my free trading newsletter at www.TheGoldAndOilGuy.com

Chris Vermeulen

U.S. Bonds Bounce?

The Commercial Hedgers are considered the smart money. The Speculators are considered the dumb money.

The rise in yields corresponds with the decline in Treasury prices.  A bounce is ahead of us in 2017.

Commercial traders have built up their most bullish position since February of 2013.

Commercial traders are now long 50% more long than they are short. This is the most bullish COT Ratio reading since July of 2011.

The speculative side of this trade have built up their most concentrated short position since February of 2013 and their largest net short position since March of 2012. The speculators are usually wrong. They set their recent COT Ratio high two weeks before the market topped out. The concentration of their short position should give pause to new short sellers.

The technical picture suggests a bounce is due.

 

BOND RISK LEVELS

Latest Value(s):

  • Last Reading: 2.0 December 27th, 2016

Extreme Values:

  • Excessive Optimism: 8.0
  • Excessive Pessimism: 2.0

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BOND OPTIX WEEKLY

Latest Value(s):

  • Last Reading: 33.0 December 23rd,, 2016

Extreme Values:

  • Excessive Optimism: 70.0
  • Excessive Pessimism: 40.0

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The Treasury prices are oversold on the March 30-year Treasury Bond futures.

The evidence is displayed with the buyers of US Treasury Bonds. I side with the commercial traders. The dramatic imbalance in positions between the commercial and speculative traders suggests a bounce higher is imminent.

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My Elliot Wave Of Bonds – TLT:

Elliott Wave 2 Theory

Elliott Wave (2) is the first correction against the new trend

Elliott Wave (2) corrects wave (1), but can never extend beyond the starting point of wave one. Typically, the news is still bad. As prices retest the prior low, bearish sentiment quickly builds, and “the crowd” haughtily reminds all that the bear market is still deeply ensconced. Still, some positive signs appear for those who are looking: volume should be lower during wave two

Elliott Wave 3 Theory

Elliott Wave (3) is usually the strongest and longest wave

Elliott Wave (3) is usually the largest and most powerful wave in a trend. The news is now positive and fundamental analysts start to raise earnings estimates. Prices rise quickly, corrections are short-lived and shallow. Anyone looking to “get in on a pullback” will likely miss the boat. Trading the Wave (3) is usually the most profitable.  This will be a muti-year rally!

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In Conclusion:

The new year of 2017 will not be a good one for global economies.  There will be a big slowdown throughout the global economies. The equity markets, as well, will be extremely negative in 2017.  The next yearly closing should be at a low level. The low of 2016,1800 in SPX, may be breached. The analysis is trying to say yes!  Be prepared to exit your long stock positions at the midpoint of 2017 and enter “safe havens”. See my gold forecast – Click Here

Bonds should start to rise and hold up through 2017. But will only rally in a big way once there is a major global event/crisis or the later stages of a bear market in US equities. Either way, likely not going to happen till late 2017 or beyond.

Get my swing trades and long-term asset positions at www.TheGoldAndOilGuy.com

Chris Vermeulen

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AAPL Looks Ready Bounce & the Next Best Trade Ideas

AAPL shares have been in free fall mode all October spooking investors with a $120 drop from the all-time high in September. As well all know, though it’s hard to follow without a proven trading strategy to keep us focused but the key is that you must buy when others are selling and then sell when everyone is buying.

Apple shares really have helped in holding the overall stock market up in the past but recently it has been a big drag on the broad market. Taking a look at the chart below you can see my analysis and thoughts of this giant.

The red horizontal line shows the key level where high volume traded in the past. For the market to reset (flush out investors/traders) it must shake as many longs out before it can start rising again. By the price breaking below that level which also happens to be a Century Number $600, most of the stops were placed down around this level. The volume spike of 40,000,000 shares clearly shows it triggered stops once that $600 level was broken. We want stops run because it give more power to the next rally/bounce.

AAPL Shares Bottoming

 

NASDAQ Index:

The NASDAQ has formed a similar chart pattern and is heavily weighted with AAPL shares. Trading NQ futures, QQQ, QLD or the XLK exchange traded fund as a much more affordable way to play a bounce/rally in the coming weeks.

NDX - QQQ Shares Bottoming

 

Russell 2000 Index:

I really like the Russell 2000 index because small cap stocks can rally hard and fast outperforming the large caps like AAPL, SP500, NASDAQ and DOW. This index is looking ripe for a bounce in the coming days which could trigger the next major rally to new highs. You can plan this index through TF futures contract, IWM, TNA, UWM exchange traded funds.

IWM - TNA Funds Bottoming

 

Trading Conclusion:

While this setup looks very promising because the election is almost over and the Santa Clause rally is just around the corner. Know that some of the biggest drops in the market happens during times when the market is running the stops. It is a natural tendency to take big positions which things look great, but that is not how you do it… Take calculated position sizes knowing indexes could fall another 2-3% before putting in a real washout bottom.

Get My Trade Alerts at: www.TheGoldAndOilGuy.com

Chris Vermeulen