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What happens To The Global Economy If Oil Collapses – Part 2

In the first part of this research article, we shared our ADL predictive modeling research from July 10th, 2019 where we suggested that Oil prices would begin to collapse to levels near, or below, $40 throughout November and December of 2019.  Our ADL modeling system suggests that oil prices may continue lower well into early 2020 where the price is expected to target $25 to $30 in February~April 2020.

We believe this type of global commodity price collapse, essentially collapse in oil revenues for many global nations could present a very real crisis in our future.  Most of the oil-producing nations rely on stable oil prices to supply much-needed revenues/income to support current and future operations and essential services. If oil prices collapse to levels below $40, this decrease would represent a -40%, or more, collapse in oil revenues for these nations.  If oil prices fall to levels below $30, this would represent a -55%, or more, decrease in expected revenues.

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We believe the ADL predictive modeling systems results, if accurate, represents a very real potential that the global capital markets and stock market may experience a major crisis event before the end of 2020.  This type of commodity collapse happened once before in history – nearly 10 years before the 1929 US stock market collapse and the slide in commodity prices continued in 1930 and beyond as an extended economic contraction pushed the US into an economic depression.

PRODUCER PRICE INDEX FOR ALL COMMODITIES FROM 1914 TO 1933

Take a look at these charts for comparison.  The first is a chart of the Producer Price Index for All Commodities from 1914 to 1933. Pay close attention to how commodity prices collapsed in 1921, approximately 9 to 10 years before the US stock market peak (1929) and commodities continue to slide lower.  This collapse in commodity prices relates to the consumer, agriculture, and industrial demand after WWI and setup a shift within the capital markets more focused on stock market speculation. The period between 1923 and 1929 resulted in a complete shift in the capital markets where farms, agriculture, and manufacturing levels decreased while urban areas, cities, and the stock market flourished – until it ended in 1929. (Source: https://eh.net/encyclopedia)

MONTHLY CRUDE OIL CHART

Now, take a look at this Monthly Crude Oil chart which highlights very similar types of price patterns over the span of about 10 years.  This strangely similar chart, in combination with the strangely similar set of circumstances related to farm, agriculture, and manufacturing as well as the shift of capital towards speculation in the US/Global stock market may be setting up another type of 1929 stock market peak event.

ASSETS IN MONEY MARKET ACCOUNTS

The shift in the capital markets is very clearly seen in the following chart – the Assets in Money Market Accounts chart.  One can clearly see that after the credit crisis in 2008-09, investors were not willing to participate in the Money Markets at levels prior to 2008.  In fact, for the entire period of 2009 through 2017, global investors stayed away from Money Markets and only recently began pouring capital back into the markets near late 2017 – when confidence increased.

Yet, this chart also shows a very clear “shift” in capital engagement which is very similar to what happened in the late 1920s.  At a time when manufacturing, agriculture and farm foreclosures were haunting the markets, investors poured capital in the stock market and speculative investments because these instruments were ripe with opportunity. The rally in the US stock market in the late 1920s became an opportunity that no one could resist.  Is the same thing happening right now in the US stock market?  Has a capital shift taken place that has global investors bumbling their way into the US stock market while trying to avoid/ignore obvious risks in local markets, manufacturing, and the global economy?

Source: https://www.wsj.com

We believe the evidence is very clear for any investor willing to pull off the “bubble goggles” and take a good hard look at where we really are in the economic cycle.  Unless something dramatic changes in relation to global economic growth, credit market expectations and consumer economic participation, it seems obvious that we are inching our way towards a global stock market peak just like we did in 1929.

Even if a trade deal between the US and China were to happen today and eliminate all trade tariffs, would this change anything or would this simply pour fuel onto the “capital shift” fire that is already taking place with speculation reaching frothy levels?

Skilled technical traders should pay very close attention to Oil Prices and global economic factors while this “zombie-land melt-up” continues.  We believe this is not a healthy rally in the US stock market currently and is more similar to what happened in the last 1920s than anything we’ve seen over the past 80+ years.

In Part III of this research article, we’ll highlight some of the recent economic news that helps to further identify the complexity that makes up the current global stock market  “zombie-land”.

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Chris Vermeulen
www.TheTechnicalTraders.com

What happens To The Global Economy If Oil Collapses Below $40 – Part I

Currently, commodity prices are the cheapest they’ve been in over 40 years compared to equity prices.  US Equities have continued to rise over the past 7+ years due to a number of external processes.  QE1, 2, 3, and Fed Debt Purchases Share Buy-Backs and creative credit facilities.  Only recently have investors really started to pile into the US stock market (see charts below). Global investors were very cautious throughout the rally from 2011 to 2016.  In fact, the amount of capital invested within the US money market accounts was relatively flat throughout that entire time.

It was only after the 2016 US presidential election that investors really began to have confidence in the global economy and started piling into the US stock market and money market accounts.  This was also after the time that Oil began to collapse (2014~16) as well as the deflation of Emerging Markets rallies.  With all this new money having entered the global markets and equities being extremely overbought currently, what would happen is Oil collapsed below $40 and the global economic outlook soured headed into the 2020 US presidential election?

On July 10, 2019, we authored a research article using our ADL predictive modeling for Oil.  At that time, we predicted Oil would fall in August, recover in September and October, then collapse to near $42 (or lower) in November and December.  You can read our followup to this article here.

Currently, Oil has followed our ADL predictive modeling relatively closely over the past few months.  Although the attack in Saudi Arabia sent prices skyrocketing in mid-September, Crude price has generally stayed within our expected ranges and has recently settled near $55.  If you notice the two GREEN BARS on the chart, above, September and October price expectations suggested price settling near $54 and 59 throughout those two months.  Now, with November upon us, the ADL predictive modeling system is suggesting Oil prices will collapse from levels near $58 to levels near $40 – a massive 31% price collapse.  In reality, the price could fall below on a deeper price decline event.

This Crude Oil chart highlights what we believe may happen in Oil over the next few weeks and months – where price may collapse below $40.  Yet, we started asking another question..  What happens to the global economy if Oil prices collapse below $40 before the end of 2019?  What happens to the nations that depend on exported Oil income and to central bank functions within the economy?

When we start to understand the correlation between the price of Oil and the expectations throughout the global market, we must immediately focus on the income expectations of nations that rely on oil as the main source of income.  If our ADL predictions are correct, Oil will begin to plunge to levels near $40 (possibly below $40) over the next 3~4 months.  How will foreign nations react to this loss of income and who are the most dependent nations on Oil revenues.

Oil-producing nations vary in scale across the world, yet the United States, Saudi Arabia and Russia are the largest producers.  Nations that are the most dependent on Oil revenues are some of the smaller, less mature economies of the world.  Should the supply of oil stay relatively consistent across the globe while an extended economic contraction continues, we must begin to question the sustainability of various nations in terms of oil revenues.

For many of these nations, the income from Oil exports make up more than 15% of their annual GDP – in some cases, with Brunei, Kuwait, Libya, the Republic of Congo, Saudi Arabia and Singapore, oil revenues make up more than 30% of GDP.  How would a dramatic decrease in oil prices act as an economic destabilization event for these nations? Could they survive the event?

If the price of oil were to fall to $40 from current levels (near $67), this would represent a 40%+ price decline.  Oil revenues for all nations would likely collapse by similar amounts.  Nations that are most dependent on oil revenues would be hardest hit and this decrease in national revenue would likely increase strains on future operations, debt/credit as well as potentially create massive social unrest and strife.

If our ADL predictive modeling system is accurate and oil prices collapse to near $40, the economic, social and future strains this creates for many nations become even more severe – at a time when an economic contraction is taking place.  This type of commodity price collapse could lead the world into a chaotic economic mess if it is prolonged.

In Part II of this article, we’ll explore the ramifications of this potential oil price collapse across the global stock market and other factors that may be setting up to drive a period of uncertainty and volatility within the global markets.

Opportunities are all around us.  Using the right tools to identify the true technical cycles, price cycles, and trading setup can help to eliminate risks and hone into more profitable trades.  It is almost impossible to time market tops and bottoms accurately, yet, as you can see from our work above, we have tools that can help us see into the future and help to predict when major price peaks and valleys should form.  Using a tool like this to help you determine when the real opportunity exists and when to time your trades will only improve your market insights and trading results….

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

ADL Predicts Oil Prices Will Fall Below $40

There are times when our research team interprets our advanced predictive modeling systems so well that we call a move in the markets 3 to 10+ months in advance of the move actually happening.  It has happened for our team of research so often lately that we are somewhat used to the accolades we receive from our followers and members.  Our October 2018 Gold price predictions are still playing out  accurately and continue to amaze people – even though we made these predictions over 12 months ago.

Today, we wanted to highlight our Adaptive Dynamic Learning (ADL) predictive modeling systems expectations for Crude Oil, but before we get into the details be sure to opt-in to our free market trend signals newsletter. The research post we made on July 10, 2019 (see below).  At that time, we warned that Crude Oil was about to head much lower and that our ADL modeling system was suggesting that Oil prices would rotate between $47 and $64 before breaking much lower in November 2019.  Ultimately, Oil prices will fall below $40 ppb following our timeline and could begin a broader downside move before the end of October 2019.  Read our full prediction/research report from the link below.

SOURCE: July 10, 2019: PREDICTIVE MODELING SUGGEST OIL HEADED MUCH LOWER

We believe the support level near $50.50 will act as a temporary support level over the next 3 to 10+ days before a moderate price breakdown below this level begins.  Our expectations for November 2019 are that oil prices may fall to levels below $45 ppb on a deeper downward price move, yet will recover to levels near $47 near December 2019/January 2020.

We do believe the ultimate target for Crude Oil prices are to levels below $40 ppb and that price may attempt to make a move towards these level as early as January 2020.  Our ADL predictive modeling system has shown us the path for oil prices and, so far, the real price has mirrored this expectation almost perfectly – even the high price in September aligned with our expected high price near $60.

Weakness should dominate in late October and early November – carrying all the way through most of November.  Pay attention to the ADL chart above and our July 10th predictions.  Oil will target levels below $40 by late December 2019 or early January 2020.

All it is going to take is for this $50.50 support level to be tested and breached for the next price move to begin.  Be prepared for the volatility that may hit oil prices near this critical support level and be prepared for the next move to levels near $44~47.

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.

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I can tell you that huge moves are about to start unfolding not only in metals, or stocks but globally and some of these supercycles are going to last years. This quick and simple to understand guide on trading with technical analysis will allow you to follow the markets closely and trade with it. Never be caught on the wrong side of the market again and suffer big losses. PDF guide: Technical Trading Mastery

Chris Vermeulen
www.TheTechnicalTraders.com