Signs That This Bull Market Is On Its Last Leg – Part II

In this post we want to share two interesting sets of data that we find are interesting and add to the case of a stock market top is highly likely to take place in 2018. Be sure to read Part I “How to Know When A Bull Market Is About to End”.

 

First, let’s take a look at the “Hindenburg Omen” which was developed by Jim Miekka as an early warning of a stock market correction. While it’s not super effective in terms of timing market turns it can be very useful in assessing the overall strength of an uptrend.

 

The current indicator shows a number of these omens triggered on both the NYSE and the NASDAQ. While the indexes and many of their components have been reaching new highs, an equally large number of components have been making new lows, as well. This suggests that the market is indecisive and probably at a turning point ( the hallmark of a major market peak). Of course, a similar scenario can occur during a falling market when new lows are numerous but new highs begin to rise rapidly. The latter condition would suggest that such market indecision could be an early buy signal in a falling market.

 

HINDENBURG OMENS CHART

This chart shows a running total of these omens on the S&P 500 index chart. It is fairly clear that when these flames start rising to levels like they are now, it’s time to start worrying about a correction in the stock market. This indicator does tell us that a bear market is starting by any means, it simply warns us that we should see a decent pulling in price to cleanse/resent the market internals, and investors sentiment.

 

Our second data set we find interesting as it suggests the stock market may be setting up to repeat history in an odd and dangerous manner. As market technicians, part of our job is to work with numbers, find patterns and attempt to predict future price moves in US and Global markets. As you can imagine, it is not always easy to accurately predict the future.

We’ll start by looking at the price activity leading up to the 2000 DOT COM bubble burst. Our analysis focuses on the similarities in price action setting up this price move.

We will let the charts do all the talking as they show the picture clearly.

2000 DOT COM – XCI INDEX CHART

 

2017 DOT COM – XCI INDEX CHART

We have been watching for sings and patiently waiting for the next major market top for over a year. Why? Because once a market top looks to have formed, we must adjust all our long-term portfolio holdings into different asset classes with cash holdings being a huge position.

Stock prices typically fall 7 times faster than they rise so just imagine being properly positioned for a bear market with a portion of your position knowing you could make 7 years of slow painful growth in only 8-14 months when the bear market starts. I recently did a seminar talking about his and how one can use inverse ETF’s and short selling to profit from the next financial downturn, which will eventually happen, and we will be ready for it.

In fact, Bank of America said: “End of bull market coming in 2018”

Bank of America sees a scary good news-bad news scenario unfolding in 2018 with a strong rally higher in the first half of the year followed by all sorts of potential trouble after.

The S&P 500 may top around 2,850 assuming three things: the “last vestiges” of stimulus from the Fed and other central banks, the passage of tax reform in Congress, and “full investor capitulation into risk assets” on better than expected corporate earnings.

After that, things get considerably sketchy as the second-longest bull market in history starts to run into trouble.

“We believe the air in risk assets is getting thinner and thinner, but the Big Top in price is still ahead of us,”  Michael Hartnett – Bank of America

 

CONCLUSION:

In short, investors continue to pile into equities and buying into every little dip I price that takes place. Its just a matter of time now before the majority of investors have placed all their extra capital into the stock market, and once the level is reached, is when the market will put in a top and hurt the greatest number of investors possible, just like it has done with every other bull and bear market cycle in history.

There will be several great trading opportunities for both short-term traders and long-term investors, which we will share with our subscribers as the market evolves and new strategies must be implemented.

Take advantage of 53+ years of combined trading experience and follow our trades and investment portfolios today!

Chris Vermeulen
www.TheTechnicalTraders.com

Capital Repositioning Driving Volatility Higher

Recent moves in the FANG stocks shows that capital is starting to reposition within the global market.  As the end of the year approaches, expect more of this type of capital control to drive greater volatility within the markets.  At this time of year, especially after such a fantastic bullish run, it is not uncommon to see capital move out of high flying equities and into cash or other investments.

The recent move lower in the NQ has taken many by surprise, but the bullish run in the FANG stocks has been tremendous.  Facebook was higher +59% for 2017 (600% 2016 levels).  Amazon was up +61% for 2017 (550% 2016 levels).  Netflix was up +64.75% for 2017 (600% 2016 levels) and Google was higher by +37% for 2017 (1000% 2016 levels).  These are huge increases in capital valuation.

In early 2017, we authored an article about how capital works and always seeks out the best returns in any environment.  It was obvious from the moves this year that capital rushed into the US markets with the President Trump’s win and is now concerned that the end of the year may be cause to pull away from the current environment.

The current decline in the NQ, -2.25% so far, is not a huge decline in price yet.  Lower price support is found near the $6000 level.  Should this “Price Flight” continue in the NASDAQ, we could be looking at a 6~8% decline, or greater, going into the end of this year.

The price swing, this week, was very fast and aggressive.  In terms of capital, this was a massive price rotation away from Technology.  While the S&P and DOW Industrials continue higher, this presents a cause for concern with regards to the end of year expectations.

Will capital continue to rush into the US markets and specifically Technology stocks?  Or will capital rush out of these equities and into other sources of “safety” as technology melts down into the end of 2017?  Has the 40~60%+ price rally of 2017 been enough for investors to take their profits and run?

It is quite possible that capital will move to the sidelines through the end of this year and reenter the markets early next year as investors find a better footing for the markets.  The facts are, currently, that financials and transportation seem to be doing much better than the FANG stocks.  If this continues, we could be looking at a broader shift in the global markets – almost like a second technology bubble burst.

If you want to learn more about how we can assist you with your investment needs, visit www.TheTechnicalTraders.com to learn more.  Our researchers are dedicated to assisting you and in helping you learn to profit from these moves.  2018 is certain to be a dynamic trading year – so don’t miss out.

Dividends Attracting People to Energy Stocks

Investors in Wonderland – Euphoria Psychology

One of the most pressing and urgent questions in most investors minds is “how and when will this move end?”.  Many analysts and researchers have postulated the end of this move and we’ve event attempted to time it to some degree.  Picking tops and bottoms is always a risky process.  It is rarely an exact science and often leaves many variables unanswered.

 

Today’s ActivetradingPartners.com article is based on the “Wonderland” concept of debt driven US Fed and Central Bank policies as well as recent news items.  The biggest being that China shocked the world with slower growth recently and that GE’s earnings announcement opened up a “shadow accountability” issues with many.  Additionally, recent news has mentioned that the US markets are outperforming nearly all other markets by multiple metrics.

 

A few months back, we discussed Capital as being a living and breathing entity that continually sources the best environments for growth and opportunity (ROI).  We strongly believe the US market, in addition to a few others like Canada and Australia, may have been a euphoric, central bank fueled, goofy and hallucinogenic world of debt driven capital advancement over the past 8+ years.  The concerted efforts to “save the world” from capital contagion has allowed central banks and governments to inject nearly $20+ Trillion USD into the global markets and has resulted in asset growth metrics that far exceed anything we have ever seen in the most recent 60+ years.  Is this a wonderland of limitless central bank debt and an endless bull-run where consumers will continue to gobble up anything and everything at any price?

 

Evidence of this Wonderland can be found from many sources.  This, the CAPE/VIX Ratio chart, clearly shows the extended levels of asset valuations in relation to previous bubble economies. The expansion of this ration from the 2009 lows is massive.

CAPE-VIX_F

 

Additionally, this expansion correlates directly with the US Fed’s QE and easing activities.  We can see that a majority of this move has been backed by Fed policies to drive economic and asset valuation levels higher resulting in what could possibly be one of the biggest bubble economies ever created.

 

QEchart

 

The most interesting component of this last chart is the move higher after the US Elections.  This move was made without a Fed based QE effort and we believe it was the optimism of a “change” that created this economic “relief rally”.  By comparing this recent move to the previous chart, you will see the increase in the CAPE/VIX Ratio also shot higher after the US elections.

 

In other words, we don’t expect anything massive to disrupt this rally currently, but we are cautious and urge all investors to remain cautious.  When something massive, be it the consumers, corporations, global economic events or other massive events (like war) happen, all bets are off.  This market appears to be in a EUPHORIC “wonderland” moment driven by the fact that the global central banks have created a waterfall event of cheap money that is driving all of this asset valuation recovery.  And, as capital is continually searching for the best environment for ROI, it is consolidating into the best areas of the global economy for survival purposes.

 

psychology

 

What does this mean for investors and global markets?  In our opinion, it means that optimism is outpacing actual production on a global basis and when reality hits, we may be in for a bumpy ride.  Until then, we should continue to be very cautiously bullish and try to ride this out as long as it continues.  We can’t stand in front of a freight train and expect to stop it.  This move may continue for another few weeks or months, but at some point it will “pop” when realty does not match expectations – hence the “Wonderland” reference.

 

Lastly, this graph of the CPI Mean Rate shows that the entire economic recovery has, for the length of the recovery, failed to result in mean CPI levels reaching above 2%.  In previous economic advancements, the mean CPI levels have continued to rotate to levels above 2% while recessions have shown dramatic and extended drops in the CPI ratio.  Yet, the current recovery, briefly, rose above 2% after bottoming and has rotated below 2% for the last 6+ years.  Even though global Central Banks and the US Fed has injected trillions of dollars of capital in an attempt to create inflation, the markets are simply not responding.  The only things that are responding to this effort is the creation of debt (student loans, auto loans, residential and commercial RE loans and corporate financing debt).  The actual consumer economy has been on life support for nearly 8+ years.

 

fredgraph_TrimdMeanCPE_F

 

The Wonderland economy we are witnessing may be the biggest shell game since the South Sea Company collapse near 1720. I would suggest all investors do a little research into this event and the processes that were in place to all it to happen (bribery, collusion, criminal activities and governmental cooperation).  Interesting facts in history are often relived at some points in the future.

 

In short, as long as the capital continues to flow into the strongest and most dynamic economies, those economies will likely continue to see growth and rallies related to this capital activity.  Still, stay cautious because when the markets turn, it could be very quick and violent.  Additionally, as we’ve shown with these charts and graphs today, we are entering a frothy period in the markets and I would urge all investors to be critically aware of the risks involved in being blind to these facets of the current bubble.

 

ActiveTradingPartners.com is dedicated to assisting traders in understanding and profiting from market moves.  We provide detailed trading signals, timely and accurate market research, daily market updates and more.  We focus on attempting to keep our members aware of key market events and attempting to identify accurate and successful trading signals for them each week and month.  If you like this type of research, then visit www.ActiveTradingPartners.com to learn how you can benefit from our services.

 

Chris Vermeulen

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Years Ending in 7 Stocks do this in October…

It has been proven repeatedly by various market experts that stock market cycles exist. Whether you believe in them or not that is up to you, but as a technical trader myself I see price action repeat on virtually all time frames from the intraday charts, to daily, weekly, monthly, quarterly, yearly, and beyond.

In fact, cycles tend to move in series of 3’s, 7’s and 10’s, and multiples of these as well. So, 3 bars, 7 bars, 10 bars no matter the time frame, though I find the 10min, daily, weekly, and monthly charts work best.

Knowing these cycles lengths, let’s review briefly where the markets are situated in terms of a seasonality, volatility, and the 3, 7 and 10 cycle periods. What I am about to show you is very intriguing.

I will let the charts do all the talking as they show the picture clearly.

 

Example of Last 7 Year Stock Market Cycle

7 year cycle

 

Potential 10 Year Cycle Top Forming

we are here

Seasonality of Monthly Price Action for Years Ending in 7

7 seasonal

Concluding Thoughts:

In short, this is just a quick snap shot of some angles in which I look at the stock market. There are a lot different things happening (cycles, technical analysis patterns, and fundamentals) which have been painting a bearish picture for the stock market.

In fact, last year the US equities market were only a couple down days way from trigging a full-blown bear market. But Trump was elected and that triggered a massive rally which I see as being a final exhaustion move (euphoria) just before a major market top.

emotions

I have been watching and waiting for what I feel will be the next major market top for just over a year now. Why? Because once a market top looks to be in place we must adjust all our long-term portfolio holdings into different asset classes with CASH being a huge portion of it.

Stock prices typically fall 7 times faster than they rise so just imagine being properly positioned for a bear market with a portion of your position knowing you could make 7 years of slow painful growth in only 8-12 months when the bear market starts. I recently did a seminar talking about his and how one can use inverse ETF’s and short selling to profit from the next financial down turn which will eventually happen.

If you want to stay in the loop and be positioned for this massive move over the next two years Bear Market, then back into a Bull Market be sure to join my 2 Year Trading & Investing newsletter plan at http://www.thegoldandoilguy.com/etf-trading-newsletter/

Chris Vermeulen