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US Drives Global Growth

The US is back in the driver seat again as a sustained and growing economic powerhouse – the Trump Economy.  Since the November 2016 elections, the US economic data and outlook have been driving investment in US equities as well as select foreign investment opportunities.  The reduction in regulations and business friendly Trump administration seems to have unleashed the hoard of cash and opportunity of the past 7+ years.  US and foreign business are, again, “wheeling and dealing” with the intent of generating greater profits and more opportunities.

 

This is the reason I believe the US, as well as certain foreign partners, will see nearly immediate and direct advancement of economic objectives.  The amount of capital that could be unleashed over the next 2 years could be well in excess of $2 Trillion as related to business investment, consumer-driven sales and expanded manufacturing capacity will likely drive the US economy into a new leadership role focused on renewed opportunity and activity.

 

US Manufacturing has recently been in a state of decline since late 2011.  I attribute this to uncertainty related to US policies and leadership.  The graph, below, does not show the opportunity I see in the future expansion, but it does show that throughout historical periods of economic expansion, relative growth ratios tend to hover near +2.6% to +5.7%.  This level of expansion, historically, would relate to the US economy feeling optimistic about future capabilities as well as increasing earning potential.

 

US Manufacturing Output Chart

Manufacturing will likely grow to near greater than +1% for Q1 2017

Manufacturing_RealOutput

Keep the two functions in mind, as opportunities increase and the US economic activity increases, typically hiring and earnings increase as well.  This is a sign of a healthy growth phase that may, as it seems it always does, spill over into other foreign markets.  Much like the last 1990s and 2003~2006 US economic expansion phases, the historical rates of expansion averaged +4~5%.  The contraction periods (recessions : 2001 & 2008) were deep and dangerous, yet the growth phases were lengthy and substantial.  Household income growth was a key factor for extended periods of economic expansion.

 

FRED_MedHHIncome Chart

US Household Income Rising Sharply

FRED_MedHHIncome

As business activity increases, Inventory To Sales Ratios decrease.  The rational behind this factor is that sales volumes increase and inventories decrease in relation to new sales activities.  Thus, products start flying out of the warehouses and off the shelves.  Every US economic expansion phase has been paired with decreasing Inventory To Sales Ratios historically.

 

TtlBusInventory2SalesRatio Chart

Sharp increase in sales (Decreasing Inventory) after November 2016 elections

TtlBusInventory2SalesRatio

In short, this looks like “lift-off” for the US economy – at least for the immediate term perspective.  The concerns for investors are still very evident in some of the following graphs.  My opinion that the US is still, and has been for decades, the sole driving force behind much of the global economic expansion phases is based on the concept that the US, along with key partners, are the strongest and most mature economies on the planet.  I consider most of the immediate partners to the US economy as Japan, Canada, Germany and Great Britain.  I’m certain that many of you could add in 2 or 3 others, but I continue to focus on the core elements of the global economic process.  Because none of the other global economies are, in my opinion, capable of functioning well without the economic impetus of the four mature growth economies, I continue to believe these four are, and have been, the drivers of global economic growth.

 

The following chart shows why I believe a dramatic change in US economic activity will drive some level of increased economic activity throughout the world.  The combined European and Asian GDP Output graph shows severe contraction in 2013~2015.  I can only assume the continued contraction of this measurement of economic activity continued in 2016.  An increase of 10~20% of this value would result in a nominal overall increase compared to recent highs.  It would take an increase of over 70% for this measurement of economic output to be restored to 2012~2013 levels – yikes!

 

GDP_EuropAsia Chart

Europe & Asia show sharp declines in economic activities

GDP_EuropAsia

I attribute much of the GDP decreases in Europe and Asia to two factors; lack of economic expansion in the US and difficult/uncertain global economic policies in Europe and Asia.  As the earlier US Manufacturing Output chart shows, the US economic has only recently started to expand.  This is related to fears and uncertainty as related to the US election cycle (at least in part).  The recent BREXIT news as well as other issues that continue to plague Europe are also key driving factors.

 

Additionally, more and more frequent news is relating economic concerns and excessive debt levels in China.  I can attest that China’s economic reach is far and wide in most of Asia.  Any crisis originating in China will result in mini-crisis events throughout most of Asia and parts of Europe.  This is, again, why I believe continued strength in the US markets will drive US equities and economies to new highs while any “spill-over” may begin to improve foreign markets as well.  But we’ll have to wait for that “spill-over” event to actually start to happen before we see any increased valuations or activity.

 

European Economic Policy Uncertainty Index Chart

Europe in the midst of uncertainty and constricting economic leadership

EuropePolicyIndex

How does this relate to me, an active trader?  First off, it means I should be focusing on core US equity opportunities and focusing on uncertainty related commodity markets (Gold, Silver, Oil, Gas and others).  The uncertainty throughout most of the developed world will drive certain commodities to increased valuations.  What has recently happened in India with regards to currencies is already driving global events in precious metals and demand for alternate paper currencies.  What happens in France, soon, may likely drive further impetus for increasing valuations in commodities, equities and other markets.  The supply data in regards to OIL and GAS is pushing a message that oil may drop to near $30 again.  Things are changing quickly and we need to be ready to act and profit from these moves.

 

US DOW Chart

 DOW_Driver_Daily_final

 

Gold Chart

GOLD_Driver_Daily_final

The opportunities in foreign markets and in foreign equities will arise again in the future.  I can’t predict when, but I can predict that any further increased US economic activity will have a “spill-over” effect on foreign markets and will drive increase valuations – unless something acts to destroy that alignment going forward.

 

I keep my members alerted to these opportunities and provide more detailed analysis and trading triggers through ATP .  If you would like to continue to receive my research and analysis, please take a moment to visit ActiveTradingPartners.com to see how I can help you to achieve greater success.  Some of my most recent calls have been outstanding like:

 

UGAZ 10.7% Profit (Feb 21-23)

ERX 7.7% Profit (Feb 8-9th)

NUGT 112%Profit (Dec 16 – Feb 8th)

 

All the trades are based on my Momentum Reversal Method (MRM) trading system.

 

In short, the US stock market is back in full blown bull market with Trump re-energizing things. While I feel a short-term correction is due any day, it is just that, a short-term pullback followed by higher prices into June/July.

 

Follow my lead and start making money every month with www.ActiveTradingPartners.com

 

John Winston

Co-Author: Chris Vermeulen

VIX Cycles Set to Explode in March/April 2017 – Part 1

My recent analysis of the markets has shown what I believe to be an explosion in market volatility set to starting happening between February 21, 2017 and March 30, 2017.  The historical VIX cycles have been running about 18~22 week intervals for expansion and extreme volatility levels.  The period August 2015 to January 2016 represented roughly 5 months.  The period between January 2016 to June 2016 represented roughly 5 months.  The period between June 2016 to Early November 2016 represented roughly 5 months (just a little short of 5 months in reality).

 

The period between November 2016 to the next volatility expansion phase, if this cycle continues, should be March/April 2107 at a target date range.

2017-calendar-1468440983V9p

How will this relate to the US major markets?  I currently believe the recent “melt-up” will stay in place until we have some catalyst that will change the direction of the markets.  In other words, the path of least resistance in the US major markets is upward right now – at least till something changes that direction/sentiment. The VIX cycles may be related to some catalyst event or external foreign market event that could change the major market directions – nut only time will tell.

 

VIX_Weekly

 

 

Currently, on the below DIA chart, I can state that my estimates for upside resistance is 210~212 based on historical price action.  The reason I believe these levels will become upside target objectives is based on my understanding of price rotation, expansion and contraction as well as Fibonacci ratios.  The actual number that I believe will be resistance is 211.63 and I believe this level will be reached in March 2017 or early April 2017.

 

DIA_Weekly

 

Once this critical resistance level is reached in the DIA, then all bets are off in terms of the price retracement/rotation that may occur.  Given historical price rotation as examples, I would estimate that the DIA could retrace a minimum of 6~8% ($13 to $17).  A moderate price rotation would equate to a move of 10%~13.5% ($21 to $28).  Beyond these expected levels of support, all bets are off in terms of downside potential.  The closest major downside support levels are $178.25, $170.30 and $154.35 – these levels represent a greater than 15% total price retracement and would put us dangerously close to “Bear Market Territory”.

 

Of course, if the VIX cycles persist as I suspect, a massive increase in volatility will drive other markets into further trending or price rotation as well.  The tech heavy NASDAQ (QQQ) has been mirroring the DIA and my projected top level is 128.15.  Currently, the QQQ is at $126.54 – only $1.65 (or 1.33%) away from my expected peak level.  After these peaks have been reached, I expect the major market to take pause and attempt to resume trending as we move closer to the volatility cycle period I suspect is driving the VIX (March/April 2017).  It is because of this that I’m issuing this warning to my members to be cautious of extended risk or exposed positions as we near the end of February 2017.  I believe the old term, “Beware the ides of March”, may be a harsh reality this year.

 

QQQ_Weekly

 

As I continue my extended analysis of the US major markets and commodity markets in relation to these VIX cycles, I will post “Part 2” of this article within a day or so.  I wanted to get this out to all my members and associates so they were brought aware of the fact that the markets are beginning a phase of volatility expansion that should not end till near April 1st, 2017.

 

In short, what does all this mean? Well, it means now is not the time to be adding new long equity position for long-term growth. Going forward, its going to be all about active trading and focusing on my Momentum Reversal Method (MRM) and trading just the hot stocks and sectors for quick oversized gains.

 

On Feb 8th, myself and subscribers closed out our NUGT trade for a 112% profit that we entered December 16th.

atp-nugt

 

This week we got long ERX at $33, and sold half the position 24 hours later for another quick 7.7% profit and there is still a lot of room for bigger gains there.

erxprofit

So, if you are looking for a simple and highly accurate pulse on the market along with timely swing trades I urge you to join my newsletter at www.ActiveTradingPartners.com – STAY TUNED FOR PART II…

 

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

bb1

 

 

BOND OPTIX WEEKLY

Latest Value(s):

  • Last Reading: 33.0 December 23rd,, 2016

Extreme Values:

  • Excessive Optimism: 70.0
  • Excessive Pessimism: 40.0

bb2

 

 

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.

bb3

 

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!

bb4

 

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