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Reality Check on Trading Equities & Precious Metals

As you may or may not know, the markets have a way of making it extremely difficult to trade in general almost all of the time if you do not have a trading plan.

One of the ways the market likes to pull money from traders is through morning opening gaps. For example, yesterday, the inflow of emails about gold, silver, and gold miners was insane. I keep trying to keep everyone in check with how to handle high-risk, high uncertainty, and volatile times, which, for our case right now, is a cash position for a few more days.

Unfortunately, big moves in price trigger emotions with some of you. It causes you to start trading just because you think you need to trade, which can be for many different reasons I won’t get into here. You should know my stance by now, which is cash is a position, and retaining our capital is more important than trading some times.

I know for a fact that all successful traders have a detailed trading plan, they can control their emotions, are logical, and they wait for opportunities vs. jumping at anything that moves more than normal.

Below is our portfolio equity curve, which we hit an all-time new high just days after the stock market started its crash. Maybe if you see what your portfolio growth curve would look like if you followed my trades, you will finally see the value in CASH.

I don’t trade a lot, and we are in cash when we don’t have any positions. Other times we will have 2 or 4 positions open, but it all depends on the market and volatility. You want trading to be simple, boring, and profitable, trust me on this.

PORTFOLIO GROWTH CHART

AVERAGE PORTFOLIO RESULTS THIS YEAR

Ok, enough of that rant, BACK TO MORING PRICE GAPS!
The stock market loves to do most of the day’s price range and profit potential in a way the average trader is not able to catch the move. Even more so, it is trying to get traders the worst entry or exit price.

New members over time will see and understand this when I talk about these gaps getting faded in my morning videos, which I will explain in a minute. For now, let’s take a look at the price of gold and the market sentiment from yesterday.

Yesterday gold traders were acting like a school of piranha’s. A big one day pop in price is like a drop of blood in the water, and it created a feeding frenzy. There was so much momentum going into the closing bell that the market makers will take advantage of this and walk the price up in pre-market trading the next day and try to reach the next resistance level before the opening bell.

This is what happened to gold, and miners this morning.  Market makers know there are still a ton of gold and miner stock buyers out there who are going to BUY as soon as the market opens, so what happens?

The general public pays the high price, way up at resistance, and the market makers get to sell any access shares they have for a huge profit. After that, the price generally fades (falls) back down, and the majority of buyers that day just bought at the high because of pure emotions and a lack of understanding. This happens for gaps to the downside as well in a similar manner.

Now, keep in mind, this is a very short term price action. The gap may fade down over the rest of the session or a few days, but it does not mean the uptrend is the price is finished longer term.

My point is, the market has a way to get you a bad fill MOST of the time if you do not understand how and why the price moves the way it does. Even if you know all this, sometimes we have no choice to pay the price depending on the trade setup if we want to get into a position. I just wanted to share this small tidbit on how the market moves with price gaps because almost all price gaps fill, fade back down to the previous days high for the stock indexes. Commodities gaps don’t always fill, because they are a very different asset class than equities.

MY CURRENT OUTLOOK AND THINKING FOR GOLD, SILVER, AND MINERS?

In short, gold is the only one in a bull market, and it’s been the definite leader time and time again for the past year almost. It remains in a bull market, and all the money printing/QE, and zero interest rate things are very bullish on metals long term. I like gold a lot, have for a while. I think it’s going higher still as I pointed out in yesterday’s afternoon video, $2600 is my primary target long term. If you didn’t watch yesterdays afternoon video be sure to do so here:

Members video: https://www.thetechnicaltraders.com/memberships/wbn/monday-afternoon-video-update/

As for gold miners and silver, well today is the same story as yesterday, everyone wants to own them and thinks they are missing the train. How you should see these charts and how to best trade them I tell you in yesterday’s afternoon video.

Trading now, in my opinion, is pure speculation and emotionally driven. Sure, you could be right, and this could be the bottom, but as technical traders using rules, logic, and a proven strategy, we are not cowboys trying to pick a bottom to be early. A broken clock is right two times a day. You may get lucky, but because bottom picking without any technical confirmation is a sucker’s (gamblers) game in the long run.

As our portfolio graph above speaks for its self, in that we do not need to catch every move, in fact, we just need to catch a couple of low-risk trades and slowly build our capital.  I was told by one of my mentor traders years ago, once trading becomes slow and boring to you, that’s when you finally understand the market and have a proven trading strategy.

I hope you find this helpful, and if you want this type of info every day, plus my videos, and winning trading strategy, become a member right now!

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTrader.com

Part II – We Are Concerned About The Real Estate Market

In this second part of our research into the potential collateral damage, the Covid-19 global virus event may cause in the housing and commercial real estate markets, we want to start by sharing some information that severe cracks are already starting to appear in the entire system.

Hedge funds and banking institutions may already be feeling the pressure to attempt to contain the losses that are piling up (source: https://www-bloomberg-com).

An extended decline in the global markets will continue to place pressure on institutional financial markets, banks, hedge funds, and other traditional lending and investment firms.  Investors will start to pull investment capital away from risk (out of the markets and funds) and may expose some of these larger institutions’ excessive leverage and risk exposure in the process.

This is almost exactly what happened with Bernie Madoff when his firm, Bernard L. Madoff Investment Securities, collapsed in December 2008.  As long as there was no pressure on his firm from clients pulling out capital or asking too many questions, he was allowed to continue running his Ponzi scheme.  Once investors started pulling capital out of the firm and questioning the transactions/reports, it became evident that it was all a house of cards and would come crashing down quickly.

If larger investment firms and hedge funds are attempting to “buy the dip” at this point in time, we believe they are making a grave mistake.  We believe the downside risks associated with the Covid-19 virus event are just starting to unfold and the collateral damage that may come from this massive global shutdown that is currently taking place will be unprecedented.  We don’t believe there has been anything like this happening in any recent history – even WWII pales in comparison to this event.

News is starting to hit the wires about large investment firms and Real Estate investment companies sounding the alarm  The one news item out this weekend that caught our attention was this one from https://www-bloomberg-com. The fear is evident in the short content of this news article.

“Loan repayment demands are likely to escalate on a systemic level, triggering a domino effect of borrower defaults that will swiftly and severely impact the broad range of stakeholders in the entire real estate market, including property and homeowners, landlords, developers, hotel operators, and their respective tenants and employees,” he wrote.

Just take look at the foreclosures in the major cities starting to spike in the maps below. This was before the virus closed down most businesses, and everyone losing their jobs. Give the fact that 70% or more of the world lives pay-check to pay-check, foreclosures and real estate values are likely to plummet lower to an extreme similar to how overpriced they are now.

I have talked about his in some presentations, and in videos in the past how real estate is grossly overvalued and when the music stops, prices will tumble. Huge opportunities for those who can preserve their capital until the recession matures enough will be able to buy real estate, businesses, and equipment for pennies on the dollar, but this will take another 1-2 years from now I imagine, but it will be great for those with money on hand when things get ugly.

Be sure to opt-in to our free market trend signals before closing this page, so you don’t miss our next special report!

CURRENT LOS ANGELES FORECLOSURE MAP
(SOURCE: ZILLOW.COM)

CURRENT SAN FRANCISCO FORECLOSURE MAP
(SOURCE: ZILLOW.COM)

CURRENT NEW YORK FORECLOSURE MAP (SOURCE: ZILLOW.COM)

Many of you may remember my Crunching Numbers article from just a week ago where I attempted to model what I believe would be the likely outcome of US GDP over the next 5+ years?  Well, it now appears others are following up with their own predictions for US GDP.   Based on some of the expectations within this Bloomberg article, my predictions pale in comparison to these comments.  Source: https://www.bloomberg.com

Now, let’s try to be realistic about how this entire process is likely to take place.  We know the economy will find a base (at some point) and attempt to recover from this virus event.  The question is what does that base look like and where is the bottom?

We won’t really know where the bottom is in the global markets until most of the unknowns have been processed, most of the collateral damage has been identified and processed, and consumers realize the bottom is in sight.  At that point, there is a real chance that the global markets will begin a recovery process that may eventually push to new all-time highs.

What we’re concerned about right now is the Q1 and Q2 economic activity and how that relates to consumer markets, credit markets, existing business enterprises and the potential collateral damage to hard assets like homes, commercial real estate and other foundations of wealth.  We believe the first few dominos of this event will be the collapse of jobs, earnings, and consumer spending.  The longer the global stays in a mostly shutdown economic environment, the greater the risks these critical numbers will implode – possibly taking with it the rest of the economy.

We believe the suspension of Foreclosures for a potential 12 month period may not reduce the total number of foreclosures across the US, we believe it may compound the problem.  The suspension effort is designed to help people stay in their homes if their incomes become threatened or lost.  But the reality is that a Foreclosure suspension will simply start to build larger and larger numbers of properties in foreclosure (waiting for the suspension to be lifted) while home prices potentially collapse.

We’ll dig into more data in Part III of this article and attempt to illustrate the data we believe will point to a clearer picture of how all of this may unfold in the near future.

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 short-term swing traders.

Visit my ETF Wealth Building Newsletter and if you like what I offer, and ride my coattails as I navigate these financial markets and build wealth while others lose nearly everything they own during the next financial crisis.

Chris Vermeulen
www.TheTechnicalTraders.com

Concerned About The Real Estate Market? Us Too!

The current global Covid-19 virus event has upended everyone’s forward expectations related to the US and global economy.  Recently, President Trump has announced a 12-month reprieve for homeowners who find themselves without income, or a job, because of the US National Emergency related to the Covid-19 pandemic (source: https://www.npr.org).  All of the recent repositionings of the global markets and forward expectations got us thinking about “what happens after 8 to 12+ months?  How will the US and global markets attempt a recovery process – if at all?”.  Today, we are going to try to start digging into the data that we believe is relevant to the future in terms of hard asset prices (home and other property) and more liquid asset prices (global financial markets).

First, we want to preface this article by stating that humans are somewhat predictable in terms of how they will react in emergency or panic situations like this current Covid-19 pandemic.  Initially, they will react to protect what is vital to them (family, assets, safety).  This same thing happened in the 2008-09 credit market crisis market collapse.  Then, after a bit more time, people change their thinking and start to adapt to the situation as it unfolds.  We believe that 30 to 60 days from now, as more information becomes available and consumers globally are more capable of addressing the true longer-term risks of this virus event, a social process will begin to take place where valuations and expectations will adjust to the new perceived outcome (whatever that may be).

The global stock market has collapsed nearly -35% based on our Custom Indexes.  The SPY has collapsed -32.25% since February 23, 2020.  During the 2008-09 Credit Crisis, the SPY collapsed -57.50% before finding a bottom near $67.10.  We believe this initial price decline in the global markets is just the first downside price collapse of what may become many.  Ultimately, we believe the 2015/2016 lows will become the ultimate support for this downside move in the US markets.

Be sure to opt-in to our free market trend signals before closing this page, so you don’t miss our next special report!

SPY WEEKLY CHART

CUSTOM REAL ESTATE INDEX WEEKLY CHART

CUSTOM EUROPEAN INDEX WEEKLY CHART

The data that is currently being reported and posted is data from January and February 2020.  Current expectations for March data look grim (at best).  Jobless claims, hours worked, and other economic data for the US and global markets may shock investors and the general public for many months to come.  In 2008-09, these types of large economic contraction numbers were not uncommon.  We want to prepare all of our friends and followers that we believe the next 6 to 12+ months could somewhat mirror what we saw in 2008-09 – be prepared.

If our assumptions are correct, the reprieve in Foreclosures and Mortgage repayments for US consumers may not do much to resolve the ultimate problem.  The problem will quickly revolve around the issue of how quickly the US economy can resume somewhat normal functions after the virus event subsides.  We believe the reprieve offered to US consumers will assist in making the data a bit more tolerable for a short period of time, but ultimately any extended disruption in the US and global economy will result in extended risks in hard assets like homes, commercial property, and future valuation expectations.

(Source: realtytrac.com/statsandtrends/foreclosuretrends/)

This multi-part research article will dig deeper into the data and expected data to help you prepare for what may be likely in the markets (hard and soft).  Now is the time to prepare for what could become one of the biggest disruptions in the global markets and global society we’ve ever seen.

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 short-term swing traders.

Visit my ETF Wealth Building Newsletter and if you like what I offer, and ride my coattails as I navigate these financial markets and build wealth while others lose nearly everything they own during the next financial crisis.

Chris Vermeulen
www.TheTechnicalTraders.com

Cash Is King, Not Gold, Not Bonds

Exactly one month ago, on February 20th, the SP500 made an all-time high and reversed its trend to the downside. What a wild ride the last month has been across virtually all asset classes.

Out of all the major indexes, commodities, and currencies, only one asset and trade moved higher. It’s no surprise given the title that cash or the US Dollar is the asset of choice having rallied over 9% while everything else fell with bonds down 22.75%, stocks 30%-40%, gold miners 58%, and crude down 62%.

My team and I have talked about this rotation to safety into USA/US Dollar) since the lows back in 2018. During the recent stock and commodity price crash, we have seen where investors are dumping their money. It’s not gold, it’s not bonds, but the US Currency. Stocks and commodities are being sold around the globe, and that money is buying up the US dollar.

US DOLLAR RISES ABOVE THE REST
PROOF THE GREENBACK IS STILL THE #1 CURRENCY WORLD WIDE

DAILY S&P 500 INDEX – SUPPORT, BOTTOMING SIGNAL, AND RESISTANCE

The 30+% correction in the ST&P 500 index has been an extraordinary event. Those who have proven trading strategies and abide strictly to position, and risk management rules have been able to not only avoid the market crash but profit and reach new account highs. While those who trade for the thrill, expect oversized gains regularly, and who don’t have a clear trading plan or position management are suffering from the recent selloff.

Last night I watched a great video talking about performance and the winning mindset that both traders and top athletes share. The different ways someone can trade profitably in the markets is fascinating. If you want to be inspired to be a better person and trader, take a look at this video by Real Vision with Dr. Gio Valiante.

Ok, so let us jump into the charts. As a technical analysis and trader since 1997, I have been through a couple of bull/bear market cycles. I have a good pulse on the market and timing key turning points for short-term swing traders and long-term investors.

As you will see from the chart below, I keep things easy for you to see visually and get the idea of what to expect moving forward. The green line is a very significant long term support level on the S&P 500 index. Knowing that price has fallen straight down to this level gives us a much higher chance of a bounce at a minimum.

Trade Tip: The faster the price moves to a critical support or resistance level, the higher the chance you will have a bounce back from that level for a candlestick or three.

The pink arrow on the chart points towards a candlestick pattern, which I call Tweezers. These should be seen as a possible reversal signal.

Lastly, is the red resistance zone. I know it’s a huge range, but at this point, it’s the area we will zero in on once/if price starts to near that level.

30 MINUTE S&P 500 TRADING CHART

This chart is the 30-minute chart of the index and only shows regular trading hours between 9:30 am ET and 4 pm ET. While this is only 1/3rd of the trading day for futures, it is when the majority of contracts/shares are traded, so that is my main focus for analysis.

Since 2001 I have been building and refining my trading strategies to make them somewhat automated. This chart below shows my trend colored chart, which is the basis of my trading for almost all asset classes. What the S&P 500 does directly relates to how I trade or avoid other asset classes.

Recently, we created a market gauge showing you visually where the market is within its 30-50 day price cycle.

When the trend changed, and the bars turned orange on Feb 25th subscribers, and I closed our equities position because they were now out of favor. This allowed us to avoid the market crash through trend analysis, and from our trailing stop order.

FIRST WAVE OF SAFETY WAS IN BONDS

The two charts below of bonds show the same trend and trades but share some different trading tips.

The first 30-minute chart shows a pink line, which was our trend trade. The strategy is to look for large patterns, wait for a trend change, and then take advantage of the new trend. This trade we entered mid-January.

The key points from this chart are to know when the price goes parabolic in any direction and with huge price gaps, know its time to start scaling out of a trade, or close it.

BONDS DAILY CHART – SPOT LARGE PATTERN, TRADE THE BREAKOUT

The second point is that you must have a trading plan and actively manage your trade by moving up protective stop orders, so when price corrects, you are taken out of the trade automatically.

This daily chart of bonds shows the large bullish chart pattern (bull flag). I waited for price to breakout, the trend to turn green, and then entered the trade using Fibonacci extensions for price targets, which I have found are the absolute best way to spot our price targets. If bonds were to rally to the 100% measured move, we would close the trade, and that is what happened exactly.

A few things took place at that price level, which has the charts screaming at me to sell. First, the 100% target was reached. The second was that price was going parabolic with a 10% gap higher above my target, and volume was extremely high, meaning everyone, including their grandmother, were buying bonds. If everyone is buying the same thing, its time to move on to a new chart.

GOLD AND GOLD MINERS AS A SAFE HAVEN

While subscribers of my ETF trading signals and I profited on GDXJ as an early safe-haven trade exiting our position at the high tick of the day before it reversed and fell 58%, most traders I know still hold their gold miner’s positions.

For most of us, it is tough to sell a winning trade, and it is even harder to sell a losing trade. And knowing most trades will turn into a losing trade if you hold them long enough, the odds are clearly stacked against you as a trader.

This pullback in metals and miners, which turned into something much larger than I ever expected, is a huge shock to most people. The reality is history shows during extreme volatility/fear both gold and bonds collapse, and it is nothing new or unexpected.

In fact, I posted a warning that both will fall two days before they topped and collapsed in this special report.

CONCLUDING THOUGHTS:

In short, we are experiencing some unprecedented price swings in the financial system, but other than extra-large market selloffs, and rallies the charts are still moving and telling us the same things for trading and investing.

There are times when the markets are untradable as a swing trader, which is has been the last 15 days because of how them market has been moving. It is a fantastic time for day traders, but with some sectors moving 10-25% a day back to back like the gold miners or crude oil, it is high-risk trading (gambling) right now.

With all that said, my inter-market analysis is pointing to some tradable price action potentially starting next week. The potential is larger than normal because price volatility remains elevated, meaning 10-20% moves over a week or two are expected.

Visit my ETF Wealth Building Newsletter and if you like what I offer, and ride my coattails as I navigate these financial markets and build wealth while others lose nearly everything they own during the next financial crisis.

Chris Vermeulen
www.TheTechnicalTraders.com

Where’s the Bottom? – Cycles Paint A Clear Picture

Has the selloff ended?  When will it end?  What will the bottom look like and am I at risk of taking further losses?  What should I do?

Do you want to take a guess at how many of our friends and family members are calling us over the past week or so asking these questions?  Personally, I get bombarded with dozens of emails every day from friends and other family members asking “where’s the bottom?  What should I do?”.

This post is going to help you understand the structure of the markets and what is really happening.  Price always attempts to seek out new price highs or new price lows.  In this case, we are seeking out new price lows with a downside price rotation.  Price structure, which is normally discussed in Elliot Wave structures is the process of setting up new higher high or lower low waves as price rotates in a defined wave structure.  Keep in mind the broader wave structure that is currently unfolding.

Over the past 16+ months, we’ve suggested that the price rotation in 2018 was a Wave 4 downside price rotation of a Wave C upside price structure.  If our analysis is correct, the last rally we just experienced (ending near February 1, 2020) was the end of a Wave 5 upside price move that completed the Wave C upside price structure.  This would indicate a very real possibility that the current downside price trend is a Wave 4 downside price move.

Be sure to opt-in to our free market trend signals newsletter before closing this page so you don’t miss our next special report!

For readers that are not familiar with the Elliot Wave process/structure, each major wave (1 through 5 or A through C) can consist of various types of minor wave structures (as you can see from the middle chart in the example above.  The major wave 1 could consist of a 5 wave minor wave structure (as shown).  The major wave 2 could consist of a 3 wave minor wave structure (as shown) or even a downside 5 wave structure.

Going even further, each of these minor wave structure could consist of even smaller price wave structures.  These types of price rotations often populate in 1, 3, 5, 7, 9, 13 and 21 wave structures.  Unlocking the major wave count and minor wave count can help us unlock swing trading and day trading opportunities.

So, to put into context what we are attempting to convey to you is that we believe the peak in early February 2020 was the end of a major wave 3 and the start of a major wave 4 (to the downside).  Because the upside price wave 3 originated after the 2009-10 price bottom, we believe true support in the markets is likely the midpoint of the 2018 price rotation range or near the low price levels of 2018.  These price levels represent a very clear support level and low price target level that continues to follow the price structure rules of Fibonacci and Elliot Wave.  If the 2018 lows are breached and the markets continue to push lower, then we fall back to the 2016 price lows and midpoint level.

WEEKLY YM CHART – DOW JONES

This Weekly YM chart highlights the two lower MAGENTA lines that we believe represent clear price support for the Dow Jones (24,000 & 21,450).  At this point, the YM has already moved below the 24,000 level and closed trading on Monday, March 9, near 23,900.  Although this price level has breached the 24,000 level, we do not consider “support” a hard level (like concrete).  It is like water in many cases and it matters what price does when it reaches this level.  If price finds support near this level, it will begin to bottom out and potentially trade sideways before attempting to move higher.  If not, the price may stall near this 24,000 level before breaking down to the 21,450 level (or lower).

We do believe the INDU/YM will put in a bottom before the ES and NQ do.  Thus, we believe support will be found in the INDU/YM well before support is found in the other major US stock market indexes.

SPY WEEKLY CHART – S&P 500

This SPY Weekly chart highlights the same setup with the two MAGENTA lines we’ve drawn.  The first level of support for SPY is $261~$262.  We believe this midpoint of 2018 high to the low trading range will offer a fairly strong support level for the SPY to attempt to set up a price bottom.  Below that, the $234 level (the lower range of the 2018 trading year) would provide very clear support for the SPY.

The same type of price theory and expectations are at play on this chart as with the YM chart above.  The YM has already reached our first level of support, yet the SPY is still $12 away from this first support level.  This would suggest the YM may begin to set up some type of price support while the SPY may continue to trail a bit lower over time.

If this first level of support does not hold, then we would be looking for the 2018 price low levels (near $234) to become the next target for support.  Ultimately, the price must either continue to attempt to break previous low price points as it attempts to establish “new price lows” or, at some point, it will fail to break past lows and that is where it will find support.  The midpoint, often called the “belt line” (a Japanese Candlestick term) is used by technicians for two reasons: first, it represents 50% of a defined price range and, second, Japanese Candlestick theory teaches us the BeltLine is “the center of control” or price.  Once price breaks this level, then further trending may continue.

NQ WEEKLY CHART – NASDAQ

Lastly, this NQ Weekly chart with the three MAGENTA lines drawn on it.  The top line is the 2018 price peak level.  The middle line is the midpoint of the 2018 trading range.  The lower line is the bottom of the 2018 trading range.

The NQ has been the high-flying sector in the US stock market for many months.  You can see the massive rally that took place near the end of 2019 pushing the NQ up to nearly 10,000 before the recent correction.  Compared to the YM and SPY charts, it is easy to see the NQ rallied much stronger than the others.  This is why we believe the downside price move in the NQ could also be far greater in scope than the YM or SPY.

If the NQ falls to our midpoint level (near 6795), the NQ must call another -1100 points to reach this level.  Whereas the YM has already reached this critical price level and the SPY is only about $12 away from that same level.  Therefore, the NQ, in our opinion, could continue to trend broadly lower throughout Q1 and possibly into Q2 before finding any real support.

The low price range of 2018 puts final support for the NQ near 5,832.  From current levels, if price falls to this support level, it would total an additional -2066 point decline (-26.11%).  It would also represent a massive -40% selloff from the peak set in February 2020 (near 9763).

Where’s the bottom?  What’s next?  Our advice would be NOT to chase this selloff and NOT to attempt to bottom pick this move.  We believe the Covid-19 virus event will last well past April/May 2020 and we believe both Q1 and Q2 results will be far below expectations.  Therefore, we don’t believe any real bottom will setup before May, June or July of 2020 – after Q2 earnings are announced and contingent on the virus event subsiding and earnings starting to recover.  Otherwise, we could be “searching for a bottom” for quite a while yet.

Still, massive price rotations are taking place in the major markets and various sectors.  If you are a skilled trader and are able to manage risk properly, you should be able to identify multiple opportunities over the next 90+ days for incredible trades.  We know we certainly are finding them.

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 short-term swing traders.

Visit my ETF Wealth Building Newsletter and if you like what I offer, and ride my coattails as I navigate these financial markets and build wealth while others lose nearly everything they own during the next financial crisis.

Chris Vermeulen
www.TheTechnicalTraders.com

Emergency Technical Traders Market Crash Update & Video Analysis

The US stock market opened Sunday, March 8, 2020, dramatically lower.  Oil collapsed 25% to near $30.  Gold shot higher to levels just above $1700.  All of the major US indexes were lower than 5%.  As of this morning, the US major indexes are lower by 6.40%, and oil down 23%. Bonds are set to open 7-8% higher at this time.

As mentioned in yesterday’s update, we could see metals and miners get hit with margin calls, and silver took a beating last night down over 5%, and miners are down 5% in pre-market, so things could get uglier yet.

The war on oil has officially started. To me, it’s a typical bully/bad guy move. When everyone is bleeding, and in trouble like the financial markets, everyone’s mental state, and our health, the true bullies and bad guys (sharks) come out of the woodwork. Russia is being difficult and will keep production high for oil; the Saudis are giving out hug discounts on oil and jacking up their production to flood the market with their oil and take as much of the market share possibly. When blood is in the water, the sharks attack.

This oil war is going to devastate the USA and Canadian oil sectors and businesses if the price of oil trades between $20-35 per barrel, which I think is what will happen and could last a few years.

The US futures for stock hit a circuit breaker and halted futures trading of the Indexes once a 5% drop took place, but ETF and regular stocks will continue to trade. The next round of circuit breakers are only during regular trading hours and was implemented after the May 10, 2010, flash crash.

This new set of circuit breakers have never been hit before which are:
A drop of 7% stock halt for 15 minutes.
A drop of 13% stocks halt for 15 minutes.
A drop of 20% stocks halt for the rest of the session.

This is a huge breakdown in the US markets and indicates much greater weakness within the global markets and further concern that the COVID-19 virus may continue to disrupt the US and European markets (as well as others).

The potential that multiple billion-dollar disruptions in the US and other foreign markets, including travel, leisure, autos, hospitality, and many others, may see a continued decline in sales and incomes over the next 6+ months.  We don’t believe we will truly understand the total scope of this COVID-19 virus event until possibly well after July 2020.

The crazy part is I’m in a little secluded town in Canada, and people are starting to panic and buy food and toilet paper for their bunker stash. Almost everyone I talked to this weekend while out snowboarding has been affected by manufacturing, trade show cancellations, travel restrictions, etc..  We are in a full out global crisis that seems to affect everyone in some way no matter their location, occupation, or business.

There will be some great opportunities to find and execute incredible trading opportunities – yet the risks are very high right now for volatility and price rotation.  Think of the markets like a body of water in a severe storm.  The waters are very choppy, unstable, and chaotic – just like the markets.

Unless you have the right information, skills, and vehicle to navigate these waters, there is a very high probability that a dangerous outcome could happen. I closed out our last position on Friday with our TLT bond trade for a 20.07% profit and we are 100% cash watching this market VS trying to survive it.

Right now, Cash is king.
Waiting for proper setups and understanding risks is critical.  Timing your entries and targets is critical.  Learning to stay away from excessive risk is essential.

We’ll scan the markets for you and find the best opportunities that set up over the next week.

We appreciate your loyalty and want to continue to deliver superior analysis and research.  Please be well aware that the current market environment is very dangerous for traders.  The VIX recently touched above 50.  We believe it could reach levels above 75~90 still.  These are incredible levels for the VIX.

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Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

Stock Market & Flu Breakdown Metrics – Where’s The Bottom?

The end of February was brutal for traders that were not prepared for the breakdown in the US stock markets.  The breakdown in price actually started on February 20th and 21st.  Most traders didn’t pay attention to these minor downside price rotations in the Technology sector (NQ) and the Financial sector.  The early downside price rotations in key sectors gave traders a bit of a warning that the markets were starting to shift away from the earnings-driven rally that had set up the recent peaks.

The other item that concerned the markets was the spread of the Corona Virus into Italy, Iran and other areas without known contact to areas of the virus origin.  Obviously, there had to be some process of contact for the virus to spread – but there are concerns now that the virus could be active within various societies throughout the incubation period and spreading to people in densely populated cities in these areas.  The idea of a “super spreader” event becomes very real if societies are not able to identify and contain the sources of these transmissions.

The fear that gripped the markets last week had been telegraphed for many weeks with the news and speculation that China and Asia were going to be hit with much weaker economic data in Q1 of 2020.  Almost anyone with a bit of common sense should understand the economic complications associated with quarantining millions of people for well over 30+ days would destroy economic activity in China. Even environmental data (NASA) suggests the Chinese economic activity has collapsed in 2020.

(Source: https://earthobservatory.nasa.gov)

It is time for skilled traders and investors to come to the realization that a Deflationary Recession is very likely given the scale and scope of the Corona Virus spread.  Although the numbers pale in comparison to the common Flu/Cold, the economic implications are far more severe.  As the virus spreads into the Middle East, Europe and Africa (think Belt Road Initiative) and early signs that it has already spread into parts of South America, one has to begin to wonder if this event could be something similar to Plague or Pandemic events of the past?

(Source: https://gisanddata.maps.arcgis.com)

As skilled traders, we need to try to stay ahead of these events, attempt to predict where risks and opportunities will arise and work to protect our assets while attempting to trade within these market events.  What happens if this event turns into an extended downside price rotation?  What happens if, collectively, the global central banks can’t support the markets as consumers globally move away from traditional spending and shopping activities?  What are the longer-term implications of this event as it unfolds?  Could this Virus event turn into a Global Deflationary Depression?

There are a few positives we need to report originating out of the US and Israel.  News of a potential vaccine produced by a Texas firm and an Israeli firm has been announced over the past 10+ days.  Both firms believe they will be able to engage in human trials of these vaccines within a few weeks.  Our advanced technology and computerized modeling systems allow us to respond to these types of virus events much faster than ever before.  If these vaccines are successful and can be distributed in mass throughout the globe, we may see this virus event come to a sudden positive conclusion.

The other good news is that the Corona Virus appears to be far less deadly than even the common Flu or Cold.  Currently, the reported numbers are (roughly) 87,000 infected and 3,000 deaths.  That results in a 3.4% mortality rate.  The 2019 mortality rate for pneumonia and influenza was 6.9% (Source: https://www.cdc.gov/).  The reality of the situation on the ground is that we will know more about these data points as we progress further in time.  Numbers change as the total scope of the issue is determined.

As skilled traders, our objective is to protect capital and identify opportunities for profits.  As horrible as it may seem to look at this global event and try to find ways to profit from it – that is really our main objective.  We’ve been getting calls from friends and clients asking us “should I buy airlines and other sectors right now?  This seeming like an incredible opportunity to buy into this weakness?”.  Our answer is a bit more complicated as we are attempting to predict the future event and we don’t believe the bottom has setup/formed yet.  The simple answer is “NO, you should not be buying into this weakness until we know a bottom has setup and risks to the global economy are more settled”.

Still, there are different opinions from institutional and private investors regarding the total scope of this event.  UBS recently issued a BUY for “rich clients” to take advantage of this drop in prices in Chinese and Emerging Markets (Source: https://finance.yahoo.com).  We don’t agree with this analysis quite yet – unless you have a very deep threshold for risk and potential losses.  Our research suggests the bottom will likely complete in May or June of 2020.

This ES chart highlights the downside rotation in price last week and the fact that our Dynamic Rotation modeling system is still suggesting the Weekly trend has not changed to Bearish from Bullish.  The fact is this downside price rotation is still above the YELLOW dashed line which represents trend support.  The Daily chart of the ES, below the Weekly chart, shows the Dynamic Rotation modeling system has already changed from a Bullish trend to moderate Bearish trend.  Because of this, skilled traders need to immediately protect open long positions and consider adjusting their portfolio allocations in preparation of extended downside price moves.

Our researchers believe the ultimate support level on the ES chart is near the $2590 level.  Price may pause near the $2975 level as this level coincides with previous tops in the market and identifies as moderate support.  Yet, we believe the ultimate support level is really near the $2590 level and that is the price this downside move will initially target.

This NQ chart also highlights the immediate downside price rotation in the NASDAQ and how the Weekly chart has yet to confirm any new Bearish price trend.  The Weekly chart still shows confirmed bullish price trends and suggests the recent downside price rotation was within volatility ranges.  The Daily chart has already changed from a Bullish to moderate Bearish trend.  Again, this suggests skilled traders should immediately attempt to lock in profits and prepare for any further downside price trends.

True support on the NQ chart is currently $6575.  This suggests the NQ has another 2000 points to fall (-23.5%) before any real price support will be found.  Be prepared for this move.

This SPY chart more clearly shows the scope of the downside price rotation.  The Weekly chart has already changed from GREEN to YELLOW – indicating a change in rotation price trend from Bullish to NEUTRAL on the Weekly chart.  The Daily chart shows a trend change from Bullish to Moderate Bearish (Pink) to BEARISH (Red).  This suggests the SPY price reaction has more clearly illustrated the risks of this downside price move and suggests extended downside trending may continue.

Our ultimate support level for the SPY is near $262 – another $35 lower (-11.75%).  If these ultimate support levels are reached, the total downside price rotation for all of these charts would total more than -20%.  Certainly more than a simple 8~10% correction.

This is why we believe skilled traders need to pay attention to our recent research and understand the total scope and scale of this move.  We’ve already been warning our friends and followers of the potential risks setting up in the markets.

February 24, 2020: HAS THE EQUITIES WATERFALL EVENT STARTED OR A BUYING OPPORTUNITY?

February 19, 2020: IS THE TECHNOLOGY SECTOR SETTING UP FOR A CRASH? PART III

We can’t make this warning clear enough for all of you right now – prepare for deeper downside price rotation and prepare for the potential of a Deflationary Recession event over the next 6+ months.

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