As we near the end of October 2019, a very interesting price setup is taking place across many of the US market sectors recently. We only have a total of about seven trading days left in October 2019 and the Financial Sector ETF is rolling over with what appears to be an Engulfing Bearish price pattern near price channel highs. Additionally, the tech-heavy NASDAQ (NQ) has been mostly weaker compared to the ES and YM.
On September 30, 2019, we published this research post that highlighted why our predictive modeling systems suggested the S&P 500 and NASDAQ market sectors would become much more volatile than the Dow Jones Industrials: MODELING SUGGESTS BROAD MARKET ROTATION IN THE NQ & ES.
We believe this research is still very valid given the current price rotation near these price channel highs and given the potential that the Dow Jones stocks may become relatively stronger alternatives than the S&P 500 and NASDAQ sector stocks.
We believe a downside price rotation is setting up in the US and global stock markets and we believe the potential for large price moves exists in at-risk sectors like the Financials, Technology, Biotech, Energy, Services and other sectors that do not directly relate to what we feel are “essential consumer staples”. The Dow Jones Industrials Index is full of companies that traditionally perform better in a consumer-based economic contraction for investors – which is why we believe the YM will present a very unique opportunity going forward for skilled traders.
FAS DAILY CHART, THE DIREXION FINANCIAL BULL ETF
This first FAS Daily Chart, the Direxion Financial BULL ETF highlights the price channel in YELLOW and highlights the recent price rotation near the $80 price level which constitutes a potential “new lower high” price rotation. Our longer-term cycle analysis tools predict a downside price move initiating over the next 7 to 10 trading days. We believe this new downside price trend could push price levels below the lower price channel level if this move is associated with external news or economic data that panics the markets.
IWM, RUSSELL 2000 ETF, DAILY CHART
This IWM, Russell 2000 ETF, Daily chart highlights an “island Doji top” formation that is setting up as a very unique price formation. When Doji type candles form with a gap above the previous bars, this is often considered an “island top” type of formation. Doji candles represent indecision and uncertainty. They are often found near-critical top and bottom formation. In this current formation, we believe the island top formation is a very clear warning that a major price top is setting up in the Mid-Caps which would also be considered a “new failed price high” formation. Ultimately, the $144.50 level becomes critical support if price falls.
SSO, PROSHARES ULTRA S&P 500 ETF, DAILY CHART
This SSO, ProShares Ultra S&P 500 ETF, Daily chart highlights a similar price range setup. Notice how all of these sectors have rotated into these ranges over the past few months – very similar to what happened in 2015/16 prior to the 2016 elections. We believe the uncertainty related to global trade, global economics and the US political “circus” will continue to put pricing pressure on the US stock market and global markets. We believe the inability to achieve “new price highs” throughout many sectors is a very clear warning that a larger downside price move, a type of price reversion, maybe setting up and we have been trying to warn our followers to be very cautious in taking unnecessary risks at this time while trading.
If our cycle research and predictive modeling systems are correct, we could be setting up for a downside price move that may act as a “true price exploration/reversion event” and potentially target levels that may be below the June 2019 lows. If this move is associated with some external news event or global crisis event, we may see prices fall to levels below the December 2018 low price levels.
Overall, we urge all skilled technical traders to stay very cautious over the next few months. Target solid trades that present very clear opportunities and properly position your trades to attempt to mitigate unknown risks. This is not the time to go “all-in” on anything as the markets are far more capable of being irrational than you are likely to be able to handle the risks that are associated with a crazy market move.
As a technical analysis and trader since 1997, I have been through a few bull/bear market cycles. I believe I have a good pulse on the market and timing key turning points for both short-term swing trading and long-term investment capital. The opportunities are massive/life-changing if handled properly.
I urge you visit my ETF Wealth Building Newsletter and if you like what I offer, join me with the 1-year subscription to lock in the lowest rate possible and ride my coattails as I navigate these financial market and build wealth while others lose nearly everything they own during the next financial crisis. Join Now and Get a Free 1oz Silver Bar!
Chris Vermeulen
www.TheTechnicalTraders.com
NOTICE: Our free research does not constitute a trade recommendation or solicitation for our readers to take any action regarding this research. It is provided for educational purposes only. Our research team produces these research articles to share information with our followers/readers in an effort to try to keep you well informed. Visit our web site to learn how to take advantage of our members-only research and trading signals.
Nearing the end of October, traders are usually a bit more cautious about the markets than at other times of the year. History has proven that October can be a month full of surprises. It appears in 2019 is no different. Right now, the markets are still range bound and appear to be waiting for some news or other information to push the markets outside of the defined range.
We still have at least one more trading week to go in October, yet the US markets just don’t want to move away from this 25,000 to 27,000 range for the Dow Industrials. In fact, since early 2019, we have traded within a fairly moderate price range of about 3200 points on the YM – a rotational range of about 11% in total size. Historically, this is a rather large sideways trading range for the YM – nearly 3x the normal volatility prior to 2015.
DAILY YM CHART
This Daily YM chart highlights the trading range that has setup over the past 5+ months with the YELLOW LEVELS. Price continues to tighten into a more narrow range as we progress towards the end of 2019. Our researchers believe a moderate price breakdown will occur near the apex of this move which will act as a “price reversion event” and allow the markets to rally into 2020 and beyond. We are using our proprietary price modeling tools to attempt to identify any signs that can help us validate this research. Until we have some type of validation of the move, we can only wait as the risks associated with taking trades at this time are much higher than normal.
The SP500 cycle analysis I did last week provides some solid forward-looking direction as well.
TRAN – TRANSPORTATION INDEX
The TRAN (Transportation Index) is also confirming our analysis of a sideways price range with very little opportunity at the moment for a high-risk trade. The TRAN gapped higher on October 21 which may set up a massive top pattern formation, possibly a Three River Evening Star pattern of a massive Engulfing Bearish pattern. We’ve highlighted the resistance range in RED on this chart and the support range in GREEN. Caution is the name of the game right now. Let the markets tell us what is going to happen next.
THE WEEKLY CHART OF THE TRAN
This Weekly chart of the TRAN shows a clearer picture of the sideways price range that is setting up and how close we are to the APEX of the Flag/Pennant formation. Again, we know the markets are going to break clear of this Flag/Pennant formation, but the direction of the breakout will likely depend on future news events that we can’t predict. Any global failure or crisis may push the markets lower. Any global victory or success may push the markets higher. Right now, we believe the risk factors are very high and we are suggesting that traders need to be extremely cautious throughout the end of the year.
CONCLUDING THOUGHTS:
There are still massive opportunities in sector ETFs and commodity ETFs for traders that want to find quick/short-term trades. Gold and Silver are setting up major momentum bottoms. Natural Gas continues to set up a massive momentum bottom and Technology continues to set up a major topping type of pattern. The shift in capital away from risk will surely drive some really big trends over the next few weeks and months. A clear picture of what to expect looking forward up to 45 days I still rely on my market trend charts to know when I should be buying or selling positions. Skilled technical traders will be able to find incredible opportunities if they are patient and don’t “blow up” their accounts chasing risky rotation.
I urge you visit my ETF Wealth Building Newsletter and if you like what I offer, join me with the 1-year subscription to lock in the lowest rate possible and ride my coattails as I navigate these financial market and build wealth while others lose nearly everything they own during the next financial crisis. Join Now and Get a Free 1oz Silver Bar!
As a technical analysis and trader since 1997, I have been through a few bull/bear market cycles. I believe I have a good pulse on the market and timing key turning points for both short-term swing trading and long-term investment capital. The opportunities are massive/life-changing if handled properly.
Chris Vermeulen
www.TheTechnicalTraders.com
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Our research team has been attempting to answer the question that seems to be on everyone’s minds right now – are we setting up another Black Monday type of event in the global markets and what should traders/investors know before the event potentially takes place. Our research team has spent the past few weeks trying to better understand the global economic events that took place 8 to 20+ years before the Black Monday event happened and have been particularly interested in the 10+ years just before the Black Monday event. Additionally, we’ll focus on the recovery event that took place after the Black Monday collapse completed.
In Part I of this article, we attempted to highlight some of the similarities of today’s global economic world to the scenario in the early 1980s. Many of you may not be old enough to remember the 1960s or 1970s, but at least one individual on our research team is old enough and was actively trading in 1985. His interpretation of the economic events prior to the 1987 Black Monday collapse and how they may be similar to today highlight some very interesting facets for our readers.
The late 1970s was a period where most Americans worked hard, tried to play by the rules and struggled to attempt to get ahead in a world that seemed to be a little out of order. The 1960s was a period of awakening in America where music, culture, and people shifted away from the WWII era and post-WWII era thinking. Vietnam, Korea and a host of other issues, as well as rising US interest rates, presented very real problems for many Americans. By the time the US entered the 1980s, Americans had already experienced the assassination of John F. Kennedy, the race to the moon, multiple wars, victories and defeats, a cultural shift to near the extremes and another shift moving our culture back closer to center, Oil/energy crisis events, a moderate malaise of economic prosperity, and continually higher US interest rates. Then the US elected Ronald Reagan.
It seemed to everyone that Ronald Reagan had unlocked secrets to the American opportunity that had been somewhat lost over the previous few decades. In reality, the first 2 to 3 years of the Reagan Presidency resulted in very mixed economic results – almost identical to President Carter’s. The biggest identifying factor that our research team found was that the US Federal Reserve altered its rate policy in the early Reagan years from a “raising stance” to a “declining stance”. Throughout Carter’s term, the FFR rate change averaged +2.08. Throughout the first four years under Reagan’s term, the FFR rate change averaged -0.7825. By 1984, the US Federal Reserve had lowered rates, twice, by an average of over 7% after raising rates every year since 1977.
(source: https://einvestingforbeginners.com/us-gdp-growth-history/)
Is this similar to what is happening today? The US Federal Reserve began raising rates in December 2015 and continued to raise rates until August 2019 – nearly 3.7 years of rate increases after nearly a decade of near-zero interest rates prior to 2016.
Another interesting facet is what our research team calls the “capital shift” that has taken place since just before 2015 – where foreign capital has poured into the US stock market and asset markets for safety, security, and returns. Prior to the point where capital controls were instigated in China (in 2015), a moderate capital shift event was already taking place. Once China installed these new capital controls, attempting to prevent capital from fleeing their local economy, a broader shift took place where the US markets began to rally and where foreign capital was more actively attracted to the US stock/asset markets because of the strength of the US Dollar and the continued rally in the US stock market. This is similar to what happened in 1983 through 1987.
These comparison charts of the 1980s and the current 8+ years of the S&P 500 charts highlight some very interesting facets of both peaks.
_ Support set up nearly 24 months prior to the collapse in 1987. This support channel became the ultimate price channel level to break as Black Monday hit.
_ Price was able to rally above the upper price channel three times before the breakdown event began. This upper price channel mirrors the lower price channel slope and is anchored near the tops after the initial support bottom is setup.
_ The final rally attempt before Black Monday initiated near early January 1987 – nearly 9 months before the peak and 10 months before the price breakdown began.
Within the current S&P 500 chart, some slight variations are present.
_ Support set up nearly 44 months prior to the peak in 2019. This support channel is the ultimate price channel level that acts as ultimate support for the price trend.
_ Price has been able to rally above the upper price channel four times since the ultimate support level was set up in 2016
_ The most recent rally attempt initiated near early January 2019 and has lasted nearly 9 months before the current peak. As of today, we are nearly a full 10 months into this new price rally.
Although there are subtle differences in the price setup, rotation, and trend lengths, we can certainly see a similarity in between these two chart and we believe the recent price advance in the US stock market, along with the fact that capital has continued to pour into the US markets over the past 3+ years, sets up a similar type of event where current price levels, valuation, and risks may have been under-weighted dramatically.
Could another Black Monday type of event happen in today’s global markets? Certainly, it could. All it would take is for global traders/investors to suddenly realize there is a new degree of risk or excessive price valuation that currently exists in the markets and to begin liquidating assets in a mass event.
What would it take for something like this to happen? Quite possibly, China or Hong Kong could, again, present a very real risk for the global markets if a threat to the lower price support channel becomes threatened. A collapse in true value would relate as a potential “true price exploration” event (a reversion event) where global traders may attempt to retest substantial historical support.
Our belief is that true historical support currently resides near 1860 on the S&P 500 – which aligns with the same type of price reversion that occurred in 1987.
Time will tell if we are currently set up for another Black Monday event. In fact, we may know as early as Monday, October, 21. Until the lower support channel is seriously threatened by any new downside price move, the chances of this type of event happening are fairly low. As you are well aware.. things can change very quickly. Pay attention to near originating out of Hong Kong, China or Asia over the weekends as any type of real risk could spill over into the UK and US markets very early on Mondays.
As a technical analysis and trader since 1997, I have been through a few bull/bear market cycles. I believe I have a good pulse on the market and timing key turning points for both short-term swing trading and long-term investment capital. The opportunities are massive/life-changing if handled properly.
I urge you visit my ETF Wealth Building Newsletter and if you like what I offer, join me with the 1-year subscription to lock in the lowest rate possible and ride my coattails as I navigate these financial market and build wealth while others lose nearly everything they own during the next financial crisis. Join Today to Get a Free 1oz Silver Bar with a subscription – Offer Ends This Week!
Chris Vermeulen
www.TheTechnicalTraders.com
Back in the day, for those of you that are old enough to remember and have experienced one of the most incredible trader psychology driven stock market decline in recent history.
The difference between “Black Monday” and most of the other recent stock market declines is that October 19, 1987, was driven by a true psychological panic, what we consider true price exploration, after an incredible price rally.
It is different than the DOT COM (2001) decline and vastly different than the Credit Market Crisis (2008-09) because both of those events were related to true fundamental and technical evaluations. In both of those instances, prices have been rising for quite some time, but the underlying fundamentals of the economics of the markets collapsed and the markets collapsed with future expectations. Before we get too deep, be sure to opt-in to our free market trend signals newsletter.
Our researchers believe the setup prior to the Black Monday collapse is strangely similar to the current setup across the global markets. In 1982, Ronald Reagan was elected into his second term as the US President. Since his election in 1980, the US stock market has risen over 300% by August 1987.
Reagan, much like President Trump, was elected after a long period of US economic malaise and ushered in an economic boom-cycle that really began to accelerate near August 1983 – near the end of his first term. The expansion from the lows of 1982, near 102.20, to the highs of 1987, near 337.90, in the S&P 500 prompted an incredible rally in the US markets for all global investors.
This is very similar to what has happened since 2015/16 in the markets and particularly after the November 2016 elections when the S&P500 bottomed near 1807.5 and has recently set hew highs near 3026.20 – a 67.4% price rally in just over 3 years.
One can simply make the assumption that global investors poured capital in the US markets in 1983 to 1986 as the US markets entered a rally mode just like we suspect global investors have poured capital into the US markets after the 2016 US elections and have continued to seek value, safety, and returns in the US markets since. These incredible price rallies setup a very real potential for “true price exploration” when investors suddenly realize valuations may be out of control.
So, what actually happened on October 19th, 1987 that was different than the last few market collapse events and why is it so similar to what is happening today?
On October 19, 1987, a different set of circumstances took place. This was almost a perfect storm of sorts for the markets. The US markets had risen nearly 44% by August 1987 from the previous yearly close – a huge rally had taken place. Computer trading, which some people suspected may have been a reason for the price decline on October 19, was largely in its infancy.
Floor traders were running the show in New York and Chicago. The London markets closed early the Friday, October 16, because of a weather event that was taking place. The “setup” of these events may have played a roll in the liquidity issues that became evident on Black Monday and pushed the US markets down 22.61% by the end of trading.
The US markets had set up a top near 2,722 in early August 1987 after rising nearly 44% from the 1986 end of year closing price level of 1,895. The SPX rotated lower from this peak to set up a sideways price channel near 315 throughout the end of August and through most of September. On October 5, 1987, the SPX started a downward price move that attempted to test the lower support channel near 312. On October 12, one week later, the SPX broke below this support channel and closed at 298.10 (below the psychological 300 level). The very next weekend was October 17 & 18 – the weekend before Black Monday.
Sunday night, October 18, in the US, the Asian markets opened for trading and a price sell-off began taking place in Hong Kong. Because the London markets has closed early on the 16th due to the storm, by the time they opened the UK markets began tanking almost immediately. Early in the day on Monday, October 19, the FTSE100 had collapsed over 136 points.
Our researchers believe the declines in the US markets in early October 1987 set up a breakdown event that, once support was broken, prompted a collapse event where liquidity issues accelerated the price decline volatility – much like the “flash crash”. Global investors were unprepared for the scale and scope of the price decline event and panicked at the speed of the price collapse.
In fact, at the height of the 1987 crash, systemic problems (mostly solvency and brokerage house operations) continued to threaten a much larger financial market collapse. Within days of Black Monday, it became evident that margin accounts and solvency issues related to operating capital, large scale risks and continued fear that the markets may continue to collapse presented a very real problem for the US and for the world. Have we reentered another Black Monday type of setup across the global markets?
As new economic data continues to suggest the global markets are economically contracting and stagnating, the US Federal Reserve has started buying assets again while the foreign central banks continue to push negative interest rates while attempting to spark any signs of real economic growth. The US stock market has continued to push higher – almost attempting new all-time highs again just recently. The US stock market is up nearly 68% over the past 3.5 years since Trump was elected and as of Friday, October 18, 2019, the US stock markets fell nearly 0.75% on economic fears.
In Part II of this article, we’ll explore the potential of another Black Monday type of setup that may be playing out before our very eyes right now in the US stock market.
As a technical analysis and trader since 1997, I have been through a few bull/bear market cycles. I believe I have a good pulse on the market and timing key turning points for both short-term swing trading and long-term investment capital. The opportunities are massive/life-changing if handled properly.
I urge you visit my ETF Wealth Building Newsletter and if you like what I offer, join me with the 1-year subscription to lock in the lowest rate possible and ride my coattails as I navigate these financial market and build wealth while others lose nearly everything they own during the next financial crisis. Join Today to Get a Free 1oz Silver Bar with a subscription – Offer Ends This Week!
Chris Vermeulen
www.TheTechnicalTraders.com
Our research team believes the US Treasuries and the US Dollar will continue to strengthen over the next 2 to 6+ weeks as foreign market and emerging market credit and debt concerns outweigh any concerns originating from the US economy or political theater. Overall, the major global economies will likely continue to see strength related to their currencies and debt instruments simply because the foreign market and emerging markets are dramatically more fragile than the more mature major global economies.
We believe the US Treasuries may surprise investors by rallying from current levels, near price resistance, to levels above $151 on the TLT chart.
Our belief is that further economic concerns related to trade, foreign economic metrics and data and the forward perspective of many emerging and foreign markets will continue to weaken much more dramatically than the US or other major global economies. Thus, we believe capital will continue to pour into the US and more mature major global economic markets (Canada, Japan, Great Britain, Swiss) as a move to safety just as capital is moving into the precious metals markets.
When fear enters the global markets, capital seeks out the safest and most secure environments for investment. If the rest of the world’s economies are becoming weaker and more fragile as trade and economic factors continue to hit the news wires, the more mature major economic countries are naturally going to benefit from their more robust and secure economic power and strength. The flight to safety will result in capital moving away from risk and into the safety of these more mature economies simply because they provide a level of security and risk aversion that can’t be found elsewhere. Make sure to opt-in to our free market trend signals newsletter.
DAILY TLT CHART
This Daily TLT chart highlights the resistance level that we believe is current constricting the current price advance from breaking higher. We believe this resistance channel is causing the TLT price to pause below $147 and will continue to keep prices within this channel until some economic news event or positive US economic news item pushes the price higher. The US and global markets are waiting for some type of news event before attempting to make another move. We believe the future news will result in an upside technical breakout and a new rally towards the $152 to $155 level in TLT.
WEEKLY TLT CHART
This Weekly TLT chart highlights the extended bullish price rally that started back in late October 2018. This upside price move has already rallied more than 40%, but we don’t believe it is over yet. Our Fibonacci price modeling system is suggesting $154 to $155 is the next upside price target. To be a bit more conservative, we’ve targeted the $152 level for skilled traders to work with. Once price achieves the $152 target level, look to cover any open long trades you may have.
If you are an active trader of gold, gold stocks, bonds, or the SP500 and would like to hear a trading style that reduces the amount of trades you take while making the same or better returns listen to this conversion with Adam Johnson who is an x-Bloomberg anchor, and now active trader.
Understanding how pricing and global market dynamics work throughout the stock market and the global market can be confusing at times. How can one attempt to understand what will move in a certain direction, why it will move that way and how one can profit from these opportunities and be difficult for many people to grasp. We do our best to try to help you by highlighting trade setups, explaining our thinking and research, sharing some of the charts with our proprietary trading tools and to help you identify strong opportunities for success.
Bonds are likely to continue to trade in a sideways price range before breaking higher near the end of 2019. This aligns with our expectations that foreign markets may come under intense economic pressure while the US economy continues to provide safety for investors for the long term. The support level above 157 is critical going forward.
DAILY PRICE CYCLE PREDICTED PRICE TREND
While cycle analysis helps us paint a clear picture of what to expect looking forward up to 45 days I still rely on my market trend charts to know when I should be buying or selling positions.
THE TECHNICAL TRADERS CONCLUDING THOUGHTS:
Right now, we believe the markets are waiting for some news events to make their next move. This is the time to take very measured positions when trading. This is NOT the time to go “all-in” on some trade. Be prepared for a spike in volatility and a new price trend to establish within the next 3 to 10 trading days.
As a technical analysis and trader since 1997, I have been through a few bull/bear market cycles. I believe I have a good pulse on the market and timing key turning points for both short-term swing trading and long-term investment capital. The opportunities are massive/life-changing if handled properly.
I urge you visit my ETF Wealth Building Newsletter and if you like what I offer, join me with the 1-year subscription to lock in the lowest rate possible and ride my coattails as I navigate these financial market and build wealth while others lose nearly everything they own during the next financial crisis. Join Today to Get a Free 1oz Silver Bar with a subscription – Offer Ends This Week!
Chris Vermeulen
www.TheTechnicalTraders.com